The US-Russian War in Iraq

Posted by Cutler on April 04, 2007
Great Power Rivalry, Iraq, Russia

Was the US invasion of Iraq was an opening salvo in a US-Russian war?

According to such a scenario, the “crisis” that led some in the Bush administration to press for an invasion of Iraq was not WMDs, a terror threat, domestic repression of Shiites and Kurds, etc.  The crisis came when Saddam began to slip out of his “sanctions” cage by shacking up in 1997 with Russian oil giant, Lukoil, for an agreement for the development of the giant West Qurna field.

So, have those most concerned to keep Iraq from Russia managed to do so?

Not yet.

Lukoil–and its American partner, ConocoPhillips, which owns a minority share in Lukoil–are still eager to try to get back in the game.

An April 2 Reuters report details a campaign by Lukoil and the Russian foreign ministry to insure that Lukoil doesn’t get shut out:

Russia’s top oil producer LUKOIL… signed a partnership deal with the foreign ministry on Monday and said it counted on its support as it prepares for talks to revive a giant oil deal in Iraq.

LUKOIL and the ministry said in a statement that the deal, the first of its kind in Russia, aims to support LUKOIL’s projects abroad, defend the firm’s interests by diplomatic means and facilitate the firm’s meetings abroad…

“Our company is entering new regions, including politically unstable regions. We will especially need support of the ministry in Iraq,” Interfax news agency quoted LUKOIL chief executive Vagit Alekperov as saying at a signing ceremony which was closed to reporters from foreign media organisations.

Nevertheless, Lukoil may have reason to worry that the proposed Iraqi oil legislation will leave the Russians out in the cold.

Much of the chatter in the US has been about the “scandal” of proposed “production sharing agreements” in the hydrocarbons law.  These are said to offer up the prospect of a massive money grab by the Oil Majors by coming very close to “privatizing” Iraqi oil.

That gets folks in the US all excited about the ways in which the US invasion of Iraq was all about the spread of neo-liberal market ideology.

When the so-called “Left” thinks about these issues, it misses the Great Power battle and sees only a struggle between the forces of statist justice and market greed.  Christian Parenti, for example, deserves props for noticing that the new Iraqi oil law is not all about privatization.  He even mentions that the Lukoil deal will be restructured.  But he appears to be comforted rather than alarmed by the implications:

Nor does the proposed oil law simply serve Iraq up on a plate to the oil giants. One London-based oil analyst who expected a more decentralized and free-market law called it “bloody confused.” On key questions of foreign investment and regional decentralization versus centralized control, the law is vague but not all bad

The draft law will leave ownership of the oil in state hands….

Indeed, the new law does not mention PSAs and it stipulates that firms will have to negotiate on a field-by-field basis.

The law will restructure the oil industry in other important ways: It will appoint a Federal Oil and Gas Council led by the prime minister to oversee all future contracts as well as review existing deals. Those agreements include the five contracts signed by the Kurdish Regional Government and six outstanding PSAs signed between Saddam Hussein and a mix of companies–most notably Lukoil of Russia, Total of France, the China National Petroleum Corporation and Italy’s Eni.

A single state-owned Iraqi National Oil Company will be reconstituted under central government control.

So close.  And, yet, so far.

The “scandal” may not be American market ideology in Iraq.  The real scandal may be the US move to nationalize some key elements of the Iraqi oil industry in an effort to thwart Russian (and French) ambitions.

Platts Oilgram News offered up this analysis of the Iraqi hydrocarbons law (Faleh al-Khayat, “New Iraqi oil law to open upstream sector; Gives powers to rejuvenated national company,” March 6, 2007):

The final draft of Iraq’s long-awaited oil and gas law opens up the country’s prized upstream sector to private, local and foreign investors for the first time since the 1970s, but appears to give more powers to a revived national oil company to manage current producing fields and giant undeveloped discoveries.

Platts has obtained the final draft of the law in Arabic, dated February 15 and approved by the Council of Ministers February 26, along with annexes classifying the oil fields and blocks to be opened up…

The law, now awaiting approval by parliament, re-establishes the Iraqi National Oil Company (INOC), which was disbanded in 1987…

INOC will operate Iraq’s producing fields, numbering 27, and, significantly, the partially developed fields of Majnoon, Halfaya, Nahr BinUma, Suba and Luhais, Tuba, and the whole of the giant West Qurna field. The ousted regime of Saddam Husssein had given France’s Total the right to negotiate exclusively a production sharing contract for the giant fields of Majnoon and Nahr Bin Umar. Saddam’s government also signed in 1997 an agreement with a Lukoil-led consortium to develop the West Qurna field, but the agreement was later terminated.

The inclusion of these fields under INOC’s direct responsibility would exclude foreign companies from any production sharing role and limit them to service or management contracts.

All of which amounts to saying that the Russians may get back into Iraq via the West Qurna field, but it will have to operate under the terms of the national oil company under the political control of the Iraqi government.  The same goes for France which would lose its “production sharing contract” agreed with Saddam Hussein’s government.

Some of the Russian press seems to agree that the terms of Iraqi hydrocarbons law are designed to hurt Russian interests.  Kommersant published a story, “Lukoil to Be Stripped Off A Field In Iraq“:

Russia’s oil blockbuster, LUKOIL, could be stripped off a field in Iraq, lentar.ru reported. The government of that country has presented to parliament a bill implying revision of crude oil agreements concluded in time of Saddam Hussein.

If passed, the bill advocated by today’s government of Iraq will hit two companies of Russia. One of them is LUKOIL that is developing the West Qurna-2 field, the second is Stroitransgaz that has a geological exploration contract for the fourth block of the West Desert, Vremia Novostei reported.

Under the bill that lobbies the U.S. interests, 51 fields and 65 exploration blocks will be split into four categories. The first one will include 27 fields that are currently developed, while the second category will specify the fields with proven reserves located near the fields of the first category. The remaining fields will form the third category and the forth category will be represented by exploration blocks.

Predictably, the fields of the first two categories, including West Qurna-2, will pass under control of the national oil company of Iraq that is being created now.

If the US invasion of Iraq was part of a Great Power battle with Russia, then the key decision on the Iraqi hydrocarbons law may have been to renationalize those Iraqi oil fields that were set to fall into the hands of Russia and France.

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