Publication: Monitor Volume: 5 Issue: 127

Iraq appeared to back off this week from a threat to cancel a lucrative oil deal with Russian petroleum giant LUKoil. But the announcement that the two sides had resolved their differences, made on June 29 by the Iraqi Oil Ministry in Baghdad, may signify only a temporary suspension of the threat by Iraq. In essence, Baghdad appears to be pressuring both LUKoil and the Chinese National Petroleum Company–which faced a similar threat–to follow through on oil development contracts they signed earlier with Baghdad. Both the Russian and Chinese governments have argued forcefully for a full lifting of the UN sanctions on Iraq, but have nevertheless complied with them fully. Amid a deadlock among UN Security Council members over policy toward Iraq, however, the Baghdad government has stepped up its own demands that they be immediately and completely lifted.

Remarks to the Iraqi parliament by the country’s oil minister, Amer Mohammed Rashid, triggered this week’s incident between Baghdad and LUKoil. Rashid said on June 21 that he had given LUKoil and the Chinese National Petroleum Company a deadline of “a few weeks” to begin developing oil fields in Iraq under contracts signed in 1997. He reportedly criticized the policies of the two oil companies, and warned that they faced cancellation of their contracts if they refused to begin the development work. LUKoil has committed to invest some US$200 million in the development of up to ten billion barrels of oil reserves at the West Qurna field in southern Iraq (Nezavisimaya gazeta, June 24; AP, June 29).

The spat between Baghdad and LUKoil prompted the dispatch of an Iraqi diplomatic team to Moscow for talks aimed at resolving the dispute. On June 25 the Russian Foreign Ministry issued a statement saying that it had assured Iraqi First Deputy Foreign Minister Nouri al-Weiss that Moscow would continue to work for the lifting of the UN sanctions which have thus far stopped LUKoil from honoring its contract with Iraq. The Iraqi envoy, in turn, was reported to have “expressed high appreciation for the… Russian line to unblock the Iraq situation and relieve the position of the country’s people” (AP, Russian agencies, June 25).

The successful talks in Moscow were apparently the reason for this week’s Iraqi Oil Ministry statement that it is withdrawing the threat against LUKoil. But it appears that Baghdad will nevertheless keep up the pressure. A ministry official was quoted on June 29 as saying that it is of “paramount importance” that Moscow translate its promises of help for Baghdad into reality. The official also suggested that the current agreement was a “temporary” one, and that Moscow and Baghdad would continue their negotiations on the matter. The official did not specify, however, whether the Iraqi government still expects LUKoil to begin fulfilling the terms of its 1997 contract even without the lifting of the UN sanctions on Baghdad (AP, Russian agencies, June 29).

In Moscow, meanwhile, LUKoil has reportedly sent a letter to the Russian Foreign Ministry requesting that the UN Security Council discuss a proposal which would allow some kinds of work to proceed on the development of Iraqi oil fields. Against that background, and given that similar discussions may be taking place now in Beijing, it would not be surprising if Russia raises the issue with other Security Council members. An official from LUKoil, meanwhile, was quoted on June 29 as saying that the company would not begin work in Iraq in violation of the UN sanctions against Baghdad (Russian agencies, June 29).