Russian Oil Investors Gain From Influence In Iraq - OGE Exclusive

This summer Iraq’s federal and regional leaders paid subsequent visits to Russia and strengthened Russian Gazprom Neft, Lukoil, and Rosneft oil contracts, while Iraq's internal dispute over hydrocarbon revenue sharing continues to force international investors to choose either central or regional governments’ fields to exploit but not both.

Maintaining equilibrated relations with Moscow secures Baghdad’s cross-border oil transport in Iran and Syria and benefits Erbil with generous offers. Meanwhile, Russian investors anticipate the risk of a degrading Russian monopoly if the Iraqi market operates in full capacity, and seek to control this ascending concurrent.

Oil&Gas Eurasia Contributing Editor Olgu Okumus provides an analysis of Russian geopolitical and energy interests in the  Middle East in light of the ongoing conflict in Syria. She is an affiliated lecturer in energy diplomacy at Sciences Po, Paris and director of strategy development at LEO Advisors. She is also a PhD candidate at Sciences Po, Paris, where her research focuses on Turkey’s energy transit policy. She can be reached at .

This year in June, Kurdistan Regional Government (KRG) President Massoud Barzani accompanied by Falah Mustafa, head of the KRG's foreign relations, and Hersh Muharam, head of the Investment Board of the KRG met Gazprom’s chairman Alexei Miller in St. Petersbourg. In July, Iraqi Prime Minister Nuri al-Maliki and Iraqi Oil Minister Abdul Karim Luaibi held talks in Moscow with Russia's second-largest oil producer, Lukoil OAO Holdings. To enhance this impetus, Russian and Iraqi authorities have even agreed on the opening of a direct air route between Baghdad and Moscow, beginning after September 2013. According to a report by the semi-official press agency Al-Iraqiya, authorities have also agreed to facilitate the entry of businessmen to Russia. In both meetings Russian investors elaborated on progress with interactions in oil and gas field exploration, development, and operation in the north as well as in the rest of the country, while international oil companies (IOCs) are shifting progressively from southern fields controlled by the federal government to northern fields controlled by the KRG.

North vs. south

When Baghdad held its first postwar oil licensing round in June 2009, giant IOCs like ExxonMobil, Royal Dutch Shell, and BP showed eager interest, but by May 2103 (the fourth round) no IOC was present. Not all Iraq lost its appeal, however, 2012’s trend was contracting with the semi-autonomous KRG, rather than the federal government. The US’ Exxon and Chevron, France’s Total SA, and Russia’s Gazprom Neft led this move, expecting to increase production from 200,000 barrels a day to 1 million by 2015, equivalent to one-tenth of Russia’s entire production (10.4 millions barrels per day) and half of Algeria’s production (1.9 million barrels per day).

The decline of Bagdad’s attractiveness is a result of economic, political, juridical, and security challenges in its oil sector. The Iraqi parliament accepted a new constitution in 2005, but has still not been able to build a consensus on a hydrocarbon revenue sharing law. This juridical gap creates political tension between regional and federal governments and