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LUKoil cut out of Iraqi oil field

No. 1 oil major LUKoil's dreams of being the lead operator of a vast Iraqi oil field have been slapped back because Baghdad is fuming over Russia's support for the United Nations campaign to disarm Saddam Hussein's regime, a top LUKoil executive said Sunday.

LUKoil's vice president for production and the leading architect of the $3.7 billion Iraqi deal, Dzhevan Cheloyants, said in a telephone interview that the Baghdad government's surprise move last week to break off its accord with the company on the West Qurna field was part of a tense political game and would be righted in international courts.

"This is pure politics. The Iraqis are trying to raise a lot of noise because they are not happy with Russia's position on the UN Security Council," Cheloyants said.

"No Iraqi government, either old or new, can legally unilaterally break the contract," Cheloyants said, adding that the government in Baghdad was well aware that a provision of the contract made clear it could only be scrapped through a decision of an international court.

In an interview with Reuters on Sunday, LUKoil president Vagit Alekperov echoed the claim that politics were behind the move, saying "there were no economic grounds" for breaking off the contract. And the Foreign Ministry slammed the Iraqi government's decision as "running counter to the friendly nature of Russian-Iraqi relations."

But Iraqi's oil minister, Amir Muhammad Rasheed, hastened on Sunday to reassure Russia it was not breaking off ties with all Russian oil companies and could yet offer the West Qurna field to another Russian company. Rasheed said Russia remained "an important economic partner" and "a very important friend for Iraq."

The move came amid the strongest indications yet LUKoil had been negotiating directly with the United States for guarantees it would retain its stake in the field in a post-Hussein regime. Analysts said Sunday these negotiations could have been the final straw for Saddam, who has watched its former ally strengthen ties with Washington in the wake of Sept. 11 and then back the Bush administration in a UN Security Council vote last month that left the way open for a U.S. attack against his regime.

Russian oil majors have feared for months now they could lose their leading edge in Iraq's vast oil patch, which contains the second biggest reserves in the world, to richer U.S. giants if the Bush administration installed a U.S.-friendly regime following a successful attack.

Russia has long been Iraq's biggest trading partner, enjoying the benefits of being Hussein's biggest supporter on the Security Council. Russia has won more than 40 percent of contracts to export Iraqi oil under the oil-for-food program since it was installed in 1996. And LUKoil's 1997 contract to develop the West Qurna field, which is expected to produce 600,000 barrels per day, had been the biggest deal signed by any international oil major in Iraq so far with an estimated worth for LUKoil of $20 billion.

In the first confirmation LUKoil has been talking directly to the United States to gain guarantees, Cheloyants said Sunday that leading LUKoil executives met with U.S. senators just over a week ago to discuss the issue.

"They [the senators] said Russia's interests would be protected in Iraq," he said. "Since LUKoil is a Russian company that means LUKoil's interests."

Alekperov also met with U.S. Deputy Energy Secretary Kyle McSlarrow on Nov. 22, but LUKoil would not confirm Sunday whether guarantees for the contract were discussed at that meeting.

"It turns out that the Russian oil magnates have been negotiating with the United States, who is Saddam's potential murderer, for a piece of the man's property when he is dead," said Sergei Markov, a Kremlin-connected political analyst.

The Iraqi government's move came just days after Nikolai Tokarev, the head of Zarubezhneft, a state-owned oil company with substantial interests in Iraq, alleged in an interview with Vremya Novostei that several Russian companies had taken up U.S. proposals to finance the Iraqi opposition in return for guarantees. He said Zarubezhneft had declined such proposals as "dishonorable." He did not, however, name the companies undertaking such deals.

He was unavailable for further comment Sunday. Zeb Sethna, an adviser to a leading Iraqi opposition movement, the Iraqi National Congress, which has support in Congress and the Pentagon, denied in a telephone interview last week that the organization had received any financial support from Russian oil companies and said no contacts had been made.

Following a press conference Sunday, the Iraqi ambassador to Russia, Abas Khalaf, told reporters Baghdad had no concrete information such talks had been taking place. He did say, however, that if these negotiations had been conducted "Iraq would not welcome this ... if these companies are working against our country."

In another sign LUKoil had been singled out, however, he said the other Russian companies, Zarubezhneft and Mashinoimport, were not affected by Iraq's decision. Only LUKoil was to be pushed out of the deal, he said. LUKoil controlled 68.5 percent of the field, with the rest divided between the other two companies.

He said Iraq had canceled the contract purely for business reasons. He said the move came following years of warnings to LUKoil it was not meeting the conditions of its contract, but he did not specify which. LUKoil has said it could not develop the West Qurna field because a UN embargo against Iraq means such activity is against international law.

"We value our reputation," Cheloyants said Sunday. " We made clear that we would not and shall not violate the UN embargo." He rejected Khalaf's claims that LUKoil had not met the conditions of the contract by not developing the field. "Everything that is written in the contract [on extraction and investment] is only valid when the embargo is lifted," he said.

Khalaf said the Iraqi government would be ready to support its move against LUKoil should the company carry out its intention to defend its contract in an international arbitration court in Geneva.

(The Moscow Times 16.xii.02)

 
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