It's Still About the Oil, Stupid

Iraq scraps oil deal; Russia threatens to retaliate
By ANDREW E. KRAMER, NEW YORK TIMES

BAGHDAD -- Guided by American legal advisers, the Iraqi government has canceled a controversial development contract with the Russian company Lukoil for a vast oil field in Iraq's southern desert, freeing it up for potential international investment in the future.

In response, Russian authorities have threatened to revoke a 2004 deal with creditor nations to forgive $13 billion in Iraqi debt, a senior Iraqi official said.

The field, West Qurna, has estimated reserves of 11 billion barrels, the equivalent of the worldwide proven oil reserves of Exxon Mobil, America's largest oil company. Hussain al-Shahristani, the Iraqi oil minister, said in an interview that the field would be opened to new bidders, perhaps as early as next year.

The contract, which had been signed and later canceled by the Saddam Hussein government, had been in legal limbo since the American invasion. But the Kremlin remained hopeful it could be salvaged until this September, when al-Shahristani traveled to Moscow to inform officials there that the decision to cancel it was final, he said.

The Russian government, newly emboldened in international affairs by its expanding oil wealth, is still backing Lukoil's claim and protesting what it considers selective enforcement of contracts in Iraq.

"We will defend our interests," Dmitri Peskov, the Kremlin spokesman, said in a telephone interview. "It is the government's obligation to defend the interests of our companies in foreign countries."

One Iraqi official, speaking on condition of anonymity because he was discussing a confidential diplomatic exchange, described Russia's response as, "If you do the deal, we can muster the political muscle to forgive the debt."

The field will produce 1 million barrels of oil a day after four to five years of development, according to both Iraqi oil officials and Lukoil.

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