<HTML>References cited in text, via Johson's Russian list WallStreet Journal December13, 2002 Iraq Cancels Oil Deal With Russian Firms Possible Retaliation Amid Speculation Lukoil Had Talks With Iraqi Opposition ByJEANNE WHALEN, BHUSHAN BAHREE and THADDEUS HERRICK Staff Reporters of THE WALL STREET JOURNAL In a move likely to aggravate Russia's relations with Saddam Hussein, Iraq'sOil Ministry has terminated a contract held by three Russian companies to develop a giant Iraqi oil field, according to OAO Lukoil, the leading Russian firm in the deal. Mr.Hussein, eager to win Moscow's political support in recent years, has offered Russian businesses more than 25 billion barrels of oil reserves to develop, which partly explains why Moscow has hesitated to support U.S. plans to oust him. The project led by Lukoil was the most lucrative of the deals. But Baghdad apparently has grown impatient with Russia . In a letter to Lukoil President Vagit Alekperov, Iraq's deputy oil minister declared the company'scontract to develop the 15-billion-barrel West Qurna oil field nulland void, Lukoil spokesman Alexander Vasilenko told the Interfax news agency. Russia's state-owned Zarubezhneft and Mashinoimport held minority stakes in the project. Some analysts said Mr. Hussein might have been motivated by reports this week that Russian oil companies were negotiating with the Americans and the Iraqi opposition about how to secure their oil reserves should Mr. Hussein be overthrown. Some analysts speculated that Lukoil may have been among the firms talking to opposition leaders. Lukoil has declined to comment. In Vienna for a meeting of the Organization of Petroleum Exporting Countries, Iraqi Oil Minister Amer Mohammed Rasheed said Baghdad was &quot;terminatingcontracts&quot; with companies that hadn't fulfilled the investment terms. Mr. Rasheed said the Russian contract, signed in 1997, required the Russians to start work within three years. The official seemed to leave some room for negotiation, however, saying &quot;we have not terminated, we are terminating&quot;contracts. Accordingto Lukoil, the West Qurna contract stipulates that the bulk of $4 billion(â‚¬3.97 billion) in required investments can't begin until United Nations sanctions against Iraq are lifted. &quot;Wecan't understand how a [contract] passed by the Iraqi Parliament can be torn upby a petty official in the Iraqi Oil Ministry,&quot; Mr. Vasilenko said. &quot;We... think that since we haven't broken a single clause of the contract, we willbe defending our rights in line with international law.&quot; Russia, a member of the U.N. Security Council, has enjoyed close ties with Baghdadover the years and has sought to soften Washington's hard-line stanceagainst Mr. Hussein. Together with France, Russia helped temper the language in a U.N. resolution passed last month requiring new weapons inspections in Iraq , eliminating the direct threats of military strikes that Washington wanted to include. Russian political analysts said Iraq's decision to terminate the oil contract was probably aimed at wounding Lukoil more than Russia itself. This week, the head of Zarubezhneft said some Russian oil companies had begun negotiating with the Iraqi opposition, and some Russian analysts have speculatedthat he meant Lukoil. &quot;I think this is more a signal to Lukoil than to Moscow -- Moscow has done the maximum it could for Iraq ,&quot; said AndreiPiontkovsky, an independent political analyst in Moscow. But headded that Iraq's move could serve to worsen political relations with Moscow nonetheless, as Lukoil has been one of the most powerful forces inside Russia lobbying for a moderate position on Iraq . Russia's top priority isn't protecting Mr. Hussein but safeguarding its economic interests in Iraq . In addition to the oil deals, it is owed $9.5 billion by Baghdad, mostly for arms supplied in Soviet times. Baghdad isn't currently servicing the debt. Increasingly, Western oil majors have been looking toward Iraq , which holds the world's second-biggest oil reserves, hoping to get a piece of the action if Mr. Hussein is overthrown. Iraqi opposition leaders have promised to favor U.S. and British oil companies should they come to power. While Lukoil suffers a blow by losing the West Qurna contract, its spat with Baghdad could improve its chances of staying in the game if Mr. Hussein is ousted, one political analyst said. &quot;Lukoil's chances of being in a consortium ... to develop this field, perhaps together with U.S. or U.K.companies, would certainly be no less as a result of today's news, and would probably be greater,&quot; said Christopher Granville, a political analyst with United Financial Group in Moscow. ******** #5 From:Ben Aris <benaris@online.ru> Date:Fri, 13 Dec 2002 Subject:[RusBizList] RBL464 -- Dec 13 RussiaBusiness List #464 Friday,December 13, 2002 2.Ben¹s weekly comment BenAris 13/12/02 Iraqcancelled LUKoil¹s contracts to develop Iraq oil on Thursday. No one seemsto be very sure what is happening here (including me) but my take is thefollowing. Russiais just as interested in Iraqi oil as the US. A combination of factorshave forced Putin to be prickly with the US efforts to bully Iraq: Russianoil companies are interested in getting their hands on Iraq¹s 200bn ofreserves, second only to Saudi Arabia¹s and largely undeveloped now; Russiais a traditional friend of Iraq; since he took over Putin has been rebuildingSoviet-era ties with Middle East that Yeltsin let laps; and that Putinis interested in rebuilding Russia¹s image as a ³great country² and so can¹tbuckle quickly to US pressure. However,being practical (and the first president to openly admit that Russiais anything but great these days) we also assumed that when push came toshove Russia would back down and let the US have its way in some form. Andthis is pretty much how it played out. Russia was a pain the Aris in the run upto the UN resolution vote on inspectors, won some face saving concessions,accumulated political capital maybe for the first time in 10 yearsthe US was forced to take notice of Russia position but then folded oncethe vote was taken. Underlyingthis story has been the Russian assumption that they can play bothsides: US expected Russia to be sticky, but will reward her as a partnerfor ultimately giving the US its head in the row with Iraq. The Arabswill see Russia as a friend for fighting their corner in the Security Council,but will not condemn Russia for folding as they are facing down the USA,which everyone knows is the pre-eminent super-duper power these days. Whenthe war is over Russia can expect to walk into Iraq and collect its rewardin the form of phat Iraq oil development contracts. Rumours of quid pro quowith the US in the run up to UN vote abound and Russia is strategicallyplaced to deal with both Saddam (should be survive) or a new regime(if he doesn¹t) cashing in Putin¹s renewed efforts to be mates with theArab world. Putin¹s investment of the last three years pays out. But ithas gone wrong. I takethis cancellation as a message to the Kremlin say: ³OK you¹ve done well,but we want more.² Sincethe UN vote, Russia has been sitting on the bench and there has barely been apeep out of the Kremlin, apart form a few mandatory groans about the USgrabbing the weapons report and the like. Saddamis saying that the second half of Russia¹s assumptions that they won¹tbe condemned for failing to stop the Americans is not true and that theyhave to do something to save their Arab chums in their time of need. Cancellingthe contracts is a very painful poke in the eye for Russia and hitsthem at their weakest spot within this whole row. In practical terms doesn¹tactually mean much as it is not as if LUKoil et al had actually investedmoney or actually done any work in Iraq it is a hint that work to comewill be not be forthcoming that makes this so painful. For the Kremlin¹s part there it is not clear what they can do other than Cold War era sabre-rattling; in the old days the US and Soviet Union would start moving troops about, expelling diplomats and such like at this point. But Russia is about to tie itself even more closely to the US economy with oil exports to the US about to start for real and a $1.7bn Murmansk pipeline and port (which LUKoil is also a part of). If forced to choose sides which is what Saddam is asking then Putin will have to choose US. Apart from anything else, the Murmansk port is real and concrete business that will definitely happen, against the vague promise of developing Iraq oil (tempting as it is). Add in that if the US does go to war and Saddam is deposed then Russia is still likely to win Iraqi oil contracts. Indeed, this move by Saddam¹s is likely to drive the Russians closer into the US arms as given that there is a little they can effectively do they can go to the US threatening to do something to protect their economic interests and extract even more solid quid pro quo promises. The US will be happy to concede this as long as they are not pursuing this fight just for oil, which I don¹t think they are. ******* </HTML>