17-01-03 Iraq moved to repair diplomatic relations with Russia, damaged by the cancellation in December of a key oilfield contract, by signing a new oil development deal and starting negotiations on more. Iraq's oil ministry said it had awarded a firm contract to Russia's Stroitransgaz, an oil and gas construction company, to develop block four in Iraq's Western Desert.
It also initialled two more and started negotiations with ZarubezhNeft, Russia's umbrella company for state holdings abroad, on the giant Bin Umar field. That news will come as a shock to French oil major TotalFinaElf which has long been earmarked for the $ 3.4 bn Bin Umar development, alongside another big prospect, Majnoon.

The initialled contracts were with Soyuzneftegaz for the 100,000-bpd Rafidain field in southern Iraq and with Tatneft for block nine in the Western Desert. The deals, signed by Russia's deputy energy minister Ivan Matlashov and Iraq's oil ministry undersecretary Hussein al-Hadithi, provide a boost to political relations as Baghdad seeks to prevent a military assault by the United States.
Moscow is Baghdad's closest ally on the United Nations Security Council and analysts said the deals were an attempt by Baghdad to mend fences. "I would interpret these deals as Iraq desperately trying not to lose what little support they may still have left after their recent hard-line attitude towards LUKoil," said Paul Collison, energy analyst at Brunswick UBS Warburg in Moscow.

The deals come after the cancellation by Iraq of the prized contract for its biggest prospect, West Qurna. Rights to the $ 3.7 bn development were held by LUKoil until mid-December when Baghdad pulled the plug, saying the Russian company had failed to meet the terms of the deal by not starting development work.
Matlashov said there was now new hope the field could be restored to LUKoil. "The door is still open for LUKoil," he told after the signing ceremony. "We don't want Iraq to give the contract to another company." Hadithi said: "Iraq has postponed giving the contract to another company whether from Russia or any other country. But Russian firms have priority in signing contracts with Iraq."

After the West Qurna cancellation there was speculation that the Iraqi authorities had taken offence at contact between LUKoil chief Vagit Alekperov and Iraqi opposition leaders. The opposition hopes to take charge in Baghdad if the United States forces Iraqi President Saddam Hussein from office with a military assault that could be just weeks away.
Since the cancellation, long-standing Iraqi Oil minister Amir al-Rasheed has been replaced by Samir al-Najm, an old hand from the presidential office. Iraqi oil reserves, second only in size to those of Saudi Arabia, are at the centre of a tug-of-war between countries keen to get their hands on Baghdad's oil wealth if Saddam is overthrown.

Apart from Russia, companies from China, France, Turkey, Britain, Vietnam, South Korea, Italy, Spain and Malaysia and Canada have held talks with Baghdad. But it isthe US oil majors that are expected to play the major role in any post-Saddam development, a prospect that has angered Russian companies.
United Nations sanctions forbid any investment in Iraq until the lifting of Gulf War sanctions. Hadithi said he was confident that Stroitransgaz would start work during the embargo. But Matlashov said implementation depended "on current conditions we are passing through," a clear reference to sanctions.