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Analysis: Russia Writes Off Iraq Debt For Possible Oil Stake

(file photo) Interim Iraqi Prime Minister Iyad Allawi arrived in Moscow on 6 December for two days of talks with Russian officials. Issues high on the agenda included the announcement that the Kremlin will write off about 90 percent of Iraq's debt. Allawi and Oil Minister Thamir al-Ghadban also discussed potential deals with Russian oil companies, Russian media reported. The debt write-off will reduce Iraq's debt from $10.5 billion to between $700 million and $1 billion over eight years.

Moscow's "Kommersant-Daily" reported on 7 December that Russian officials viewed the two issues as inextricably linked. Russia will reverse its longstanding position that debt forgiveness was not an option in return for which the Iraqi government will reconsider agreements reached between Russian oil companies and the Hussein government on development of Iraq's vast oil reserves. Russian President Vladimir Putin addressed the issue with reporters following a 7 December meeting with Allawi, saying: "We have agreed to write off the Iraqi debts to a greater extent than any other member of the Paris Club of creditors. We have done this in the name of solidarity with the friendly Iraqi people, but we also believe that the interests of Russian companies will be taken into consideration by [the Iraqi] leadership and the future Iraqi government after the [30 January 2005] elections," reported.

Iraqi Ambassador to Russia Abd al-Karim Hashim Mustafa told Interfax news agency in a 6 December interview that Russian companies were already benefiting from the Iraqi market. "Russian companies have advantages and certain privileges as compared to companies of other countries, because their relations with Iraq are rooted in history and they are experienced in working here," he said.
"This certainly will help Russia play a leading role in rebuilding Iraq's economy and industry." - Allawi

A 1997 production-sharing agreement gave Russia's LUKoil a 68.5 percent stake in the West Qurnah oil field, with Russian companies Mashinoimport and Zarubezhneft to be given 3.25 percent stakes each in the deal. According to a report in "Kommersant" on 27 May 2003, the contract would have brought the three Russian companies $70 billion worth of oil (see "RFE/RL Iraq Report," 6 June 2003). The deal never got off the ground due to UN sanctions.

In September, ConocoPhillips acquired a 7.59 percent stake in LUKoil held by the Russian government; the deal gave ConocoPhillips a 17.5 percent share of a joint venture the companies intend to present to the Iraqi government to develop West Qurnah, reported on 30 September. RIA-Novosti cited LUKoil head Vagit Alekperov in an 8 December report as saying that LUKoil will hold 51 percent of the project's shares, and the Iraqi government will hold 25 percent, in addition to ConocoPhillips' shares and the two 3.25 percent stakes held by Russian partners. Alekperov met with Allawi on 8 December, calling the meeting fruitful.

Meanwhile, Kurdish officials met a visiting delegation of Russian companies at the Dukan summer resort on 5 December, "Kurdistani Nuwe" reported the following day. The companies were identified as Inter Energa Bermins, Selfor Prom Export, Sayoz Gas, and Tamboru Nask. The delegation reportedly presented Kurdish officials, including Patriotic Union of Kurdistan head Jalal Talabani, with a list of projects they want to implement in Kurdistan in the fields of electricity, aviation, oil and gas, and minerals, the daily reported.

Allawi has not publicly commented on the possible oil deal. He was quoted, however, as saying that Russia's debt write-off will pay off for Russian business. "[Writing off the debt] is a very noble position," quoted the prime minister as saying on 8 December. "This certainly will help Russia play a leading role in rebuilding Iraq's economy and industry." In the long term, however, Allawi's opinion may have little weight. There is no guarantee that the government elected in January will give any preference to Russian companies.

[For the latest news on Iraq, see RFE/RL's webpage on "The New Iraq".]