VOL. XLVI
No 14
7 April 2003
Russia And Iraq: The Question Of The Russian Oil Contracts
By Florence C Fee
The following article by Florence C Fee was written exclusively for MEES. Ms Fee, a former executive with Chevron and Mobil, is president of FC Fee International Inc, an energy risk management consultancy based in London (www.fcfee.com). For four years she headed Mobil’s Russia upstream business based in Moscow.
Even before peace comes to Iraq, Russia has begun a determined campaign to preserve the sanctity of the contracts signed by its oil, gas and affiliated construction companies for oil investment projects in Iraq. Russia wants to ensure that the current conflict will not be used as a reason to abrogate what it sees as legitimate agreements even if they were signed by the Saddam Husain regime.
Russian Foreign Minister Igor Ivanov made clear in late March 2003 that the contracts between Russian oil companies and the Government of Iraq were legally binding agreements and should remain in full force despite any change of administration in the country. Russia has much at stake in seeing that the previous upstream agreements are respected. The West, especially the United States, should therefore not underestimate Russian determination to protect their existing economic interests.
One important issue that will confront the United States in these circumstances, should it not recognize these Russian agreements, will be: How can it argue for the sanctity of contracts in Russia for foreign (including US) investors if it is not willing to uphold the sanctity of valid Russian agreements in Iraq, albeit signed during the Saddam Husain regime? Foreign investors everywhere will be watching its decision with great interest.
The Soviet oil and gas exploration and production industry, together with its related construction industries, had extensive experience in doing business in Iraq. This dated back to the decades of close economic ties between the USSR and Iraq that followed the nationalization of the Iraqi oil industry in 1972.
Nevertheless, the Russian state-owned and private oil companies of today have not been present in Iraq as private energy investors in the same way that Western oil investors have operated overseas. First, because Iraq is for Russia a “strategic” country on its southern frontier, Russian oil companies were encouraged and directed by their government, as a matter of state policy, to invest in Iraq. Second, Russian firms have had to contend with UN sanctions which circumscribed their operational work throughout the last decade of the sanctions regime. As long as the UN sanctions were in place, there was no realistic chance for the major Russian upstream projects in Iraq to be launched.
Iraq was regarded by the Russian Government as a “special case” – just as Vietnam, Cuba, Syria, India – all states which had strong historic ties (and debts) with the former Soviet Union. Thus, when the Russian Federal Government began to seek overseas investment after the breakup of the FSU in 1991, it not surprisingly adopted a policy of deliberately returning to old “allies” to negotiate new trade and investment deals. These countries were all eager for foreign investment so that Russia could leverage its former close relations, presence, and knowledge of the country’s political, economic, and commercial life to its advantage.
http://www.mees.com/postedarticles/oped/a46n14d01.htm
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