Page 3 of
4 The door
to Iraq's oil opens By M K
Bhadrakumar
framework agreement is through
by the end of the year. Concerned parties like
Russia (or China) will simply be faced with the
fait accompli of what the US chooses to do with
Iraq.
Second, the US-Iraq bilateral
framework will include what is known as a "status
of forces" agreement, which is based on a
recognition that "US forces will need to operate
in Iraq beyond the end of this year for progress
in stabilizing Iraq to continue. In these
negotiations, we [US] seek to set the basic
parameters for the US presence in Iraq." Third,
the basic framework with Iraq will be negotiated
with bipartisan support, fully involving the US
Senate's treaty-ratification authority via the
appropriate committees of the Congress with
briefings for the lawmakers and
congressional input so that
2008 will go down in history as "a year of
critical transition in Iraq ... a foundation of
success in Iraq - a foundation upon which future
US administrations can build". Once the
hurly-burly of the primaries is done in the
presidential race, Bush proposes to invite the
presidential candidates to contribute to the
finessing of the US's Iraq strategy in the coming
period.
What becomes evident is that the
Bush administration neither intends to cut and run
from Iraq nor is it in search of an exit strategy.
On the contrary, it is ensuring that Iraq remains
under American control for as long as it takes for
the US to evacuate the oil and gas out of that
country. Bush sees this as his historical legacy.
Bush is confident that his troop "surge"
strategy in Iraq is working. According to US
columnist and author David Ignatius, Bush favors
keeping US force in Iraq close to the pre-"surge"
level of 130,000 troops. Ignatius wrote, "Bush in
effect is redoubling his bet on success in Iraq."
It is a risky course insofar as Iraq is a
polarizing issue in an election year. But there is
logic in betting that with such high stakes for
Big Oil in Iraq - thanks to Shahristani's deals -
no serious US politician with presidential
ambitions would undermine Bush's desire for
continuity and his plans to leave behind a stable
Iraq.
Russia stages comeback Indeed, the rest of the world has already
decided that it is time to take the Bush legacy in
Iraq seriously. The alacrity with which Moscow is
hurrying to get onto Shahristani's gravy train is
the latest tell-tale sign. Moscow is highly
unlikely to waste its time in rhetoric ridiculing
the Bush administration by pointing out that the
US needs assistance to save face and leave Iraq
with dignity or that Russia could help stabilize
the situation, and so on.
Shahristani
visited Moscow last August, but at that time
Moscow committed the folly of not taking him
seriously. (Actually, Shahristani was a university
student in Moscow in the 1960s.) A Moscow
commentator wrote after his visit, "The oil
minister may say whatever he wants about the
operations of foreign companies in Iraq, but the
Iraqi Parliament has not yet passed a law on oil
and gas. Therefore, oil companies can only make
assumptions about work in Iraq."
But
Moscow didn't need much time to revise its opinion
and to take Shahristani very seriously. In
November, Shahristani, guided by American legal
advisors, canceled Russian oil company Lukoil's
contract with Saddam's regime for the vast oil
field in Iraq's southern desert, West Qurna, with
estimated reserves of 11 billion barrels of oil.
Shahristani announced the field would be opened to
new bidders as early as 2008. "We will defend our
interests," a senior Kremlin official warned.
Moscow threatened to revoke a 2004 deal with
creditor nations to forgive $13 billion in Iraqi
debt.
But Moscow learned that
ConocoPhillips was seriously eyeing West Qurna.
Moscow concluded that Iraq's oil scene was up for
grabs, predators were around and there was no more
time to lose. Thus, the formal signing of the
agreement on Monday in Moscow writing off most of
Baghdad's Soviet-era debt has not come a day too
soon. The agreement stipulates that Russia will
initially write off 65% of Iraq's $12.9 billion
debt, accrued mostly from Saddam's arms purchases,
and of the remaining $4.5 billion, 80% will be
forgiven in two stages by 2009 if Iraq meets
economic targets set by the International Monetary
Fund, leaving Iraq to repay $900 million over a
17-year period from 2011.
The agreement
opens the way for Russian oil companies' return to
Iraq. Separately, Russia has agreed to invest $4
billion in Iraq, including the Iraqi oil industry.
Close on the heels of the debt-relief agreement,
Moscow has indicated that Lukoil and other
companies including OAO Zarubezhneft, a
state-owned oil producer, and OAO Mashinoimport, a
supplier of machinery for energy industry, are
"preparing" to return to Iraq. The Iraqi
government has promised to pay "special attention"
to previously signed contracts with Russian
companies. But things may not be easy. The return
of the Russian companies will be subject to US
acquiescence, which in turn means Moscow will
henceforth have to significantly roll back its
earlier criticism of the Bush administration's
Iraq policy.
Russian Foreign Minister
Segei Lavrov has stressed Moscow's "utmost
interest" in launching projects in the Iraqi gas,
oil and electricity sectors, "but for the
successful implementation of plans of economic
development of Iraq it is necessary to solve two
political problems: to achieve national
reconciliation and settle the security issue". In
essence, Lavrov underscored Russia's determination
to seriously engage.
How the Russian
"re-entry" plays out will be interesting to watch.
Washington - and Shahristani - will have to work
out the implications of the return of Russian oil
companies to Iraq. A Middle East expert in Moscow
pointed out, "If Russian companies are let in,
somebody else will be kept out. It is not a matter
of market competition."
EU reaches out
to Iraq But Iraq is likely to impact
Russia's fortunes in a much more profound way on a
second front where Moscow's ability to influence
is virtually nil. Moscow will be watching with
anxiety the progress of the energy dialogue that
has commenced between the European Union and Iraq.
Alarm bells would have rung in Moscow when
Shahristani travelled to Brussels and met the EU
officials on January 31.
EU officials have
openly acknowledged that their desire to seek
closer energy ties with Iraq is a critical
component of their broader strategy to reduce
Europe's dependence on Russian energy supplies. EU
countries currently depend on Russia for roughly a
quarter of their gas supplies. EU External Affairs
Commissioner Benita Ferrero-Waldner told
Shahristani, "Iraq is a natural energy partner for
the EU, both as a producer of oil and gas and as a
transit country for hydrocarbon resources from the
Middle East and the Gulf to the EU."
She
said the EU was keen to see Iraq link into the
Arab Gas Pipeline project from Egypt to Jordan
near the Syrian border, which is under
construction and is expected to allow European
customers to tap into supplies from Egypt and
other countries along the line via Turkey. The
EU's Arab Gas Pipeline project forms part of the
3,300-kilometer pipeline to transport gas from the
Middle East and Central Asia to Europe while
bypassing Russia.
The plan is to transport
Iraqi natural gas from a gas field in southern
Iraq to the EU through the Arab Gas Pipeline,
which, when completed, will connect Syria, Jordan,
Lebanon, Egypt and Turkey. Iraqi gas could then
reach Europe through the planned Nabucco pipeline,
which is to run from Turkey to Austria. Iraq has
been invited to an upcoming ministerial meeting on
the Arab Gas Pipeline project.
An
interesting sideline is that access to Iraqi
energy suddenly makes the Nabucco pipeline viable.
Russia, through robust efforts in the recent past
had gained the high ground as the key energy
supplier for the southern European countries. The
Russian efforts had dampened Nabucco's prospects
despite Washington's vigorous backing for the
project. Now, when it appeared that Moscow had all
but finished off Nabucco, thanks to Iraqi energy,
Nabucco is rising again as a major challenge to
Russia's interests as the major energy supplier
for Europe. The implications for Europe's
relations with Russia and even for the
trans-Atlantic relations are far-reaching.
Shahristani told his EU interlocutors in
Brussels that Iraq planned to develop its gas
fields this year and should be in a position to
supply Europe with gas "in two or three years".
Iraq is estimated to have 111 trillion cubic feet
of natural gas reserves. Royal Dutch Shell,
France's Total and Italy's Edison are seeking
Shahristani's approval for a deal to develop one
of Iraq's largest gas fields, Akkas, located near
the Syrian border, which could be connected to the
Arab Gas Pipeline.
On the oil front,
Shahristani said in Brussels that Iraq is studying
the possibility of new pipelines through Turkey.
Oil from the Kirkuk fields in northern Iraq is
currently exported through a pipeline that links
up the Turkish Mediterranean port of Ceyhan.
India-Israel energy ties EU-Iraq
energy ties will be a worrisome development for
not only Russia but also for Iran. Tehran has been
nurturing the hope that the EU's strategy to
diversify its energy imports would eventually give
impetus to the European countries to normalize
their relations with Iran and that in turn would
prompt them to withstand the US pressure to
isolate Iran. But Tehran is watching with dismay
that Iraq is fast becoming a golden goose for the
EU and the expansion of EU-Iraq energy ties may
dampen any sense of urgency in the European
capitals for building up an energy dialogue with
Iran in the near term.
The virtual "loss"
of the EU market - in the near term, at least -
compels Iran to turn more toward the Asian region.
But here too, US pressure is working on India, one
of Asia's most significant energy markets, from
linking up with Iran. Washington is instead
encouraging Indian companies to become active in
Iraq. Ideally, Washington would like to promote a
Turkey-Israel-India energy grid that could tap
into the Iraqi reserves. This approach also fits
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
