07-11-00 Iraq has stopped selling crude oil to Russia's leading oil company as punishment for LUKoil's failure to develop a giant southern oil field in the south, a company executive said. LUKoil leads a consortium that signed a contract with Iraq in 1997 to develop the Qurna oil field, believed to be one of the largest in the world. Under the deal, the Russians would spend up to $ 200 mm on developing the field, regardless of the UN trade sanctions that have barred investment in Iraq since its invasion of Kuwait in 1990.
Iraqi Oil Ministry officials said that LUKoil has not implemented its part of the contract. Then, Oil Minister Amer Mohammed Rashid was quoted as saying Iraq has found alternatives to LUKoil. Iraq has not sold the company any crude oil this year under its UN-approved oil-for-food program, which LUKoil had sold on the international market for a profit, Victor Demidov, LUKoil's deputy general manager told.
Previously, Demidov said, Iraq sold LUKoil 25 mm tons of crude, about 40 % of its exports. Iraqi officials also have denied LUKoil any contracts for spare parts or equipment to revamp the battered Iraqi oil industry. "They are bringing pressure on us. We understand their position. But we cannot bring here drilling rigs and seismic stations. It is impossible under current circumstances," Demidov told.

The UN program that allows Iraq to sell unlimited amounts of oil initially was designed to soften the impact of UN sanctions on people struggling without food, medicine and other necessities. Now, with oil revenues expected to reach $ 18 bn this year, Iraq uses the program to win over countries to its fight against sanctions, offering lucrative contracts to those who pressure their governments to work for removal of the restrictions.
Demidov denied Iraqi accusations that LUKoil had failed to honour its commitments. He said his company already has carried out obligations allowed under the regime of UN rules restricting international trade with the country. "They are not so happy. (But) we have fulfilled all kinds of work which are not prohibited by the United Nations," he said. He said the Iraqis have threatened to nullify the contract but so far LUKoil has received no official notification that the deal is void.

Despite Iraqi criticism, Demidov said LUKoil has carried out some work on the field. It has prepared an initial development plan including proposed output levels; a survey on where the wells should be placed and a consultancy study.
He said LUKoil is keen not to lose the field following seismic surveys determining the amount of recoverable reserves is 18 bn barrels, up from estimates of about 10 bn barrels. "These are equivalent to the proven reserves available to LUKoil to date," he said.
Demidov said reserves in place in the field may be 40 bn barrels. "It's unique. It's a big field. To develop, we need to carry out drilling, exploratory wells, things which we cannot do under current circumstances," he said.
If curbs on foreign investment are lifted, Demidov said LUKoil will be able to produce 560,000 bpd from Qurna in three to four years. LUKoil was one of about a dozen major Russian oil companies taking part in the Baghdad International Fair. Eighty Russian firms are represented at the fair.