IRAQI OIL MINISTER SAYS RUSSIA NEEDS TO BID ON OIL

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 003930 SIPDIS SIPDIS DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND GARVERICK, AND FOR S/I DOE FOR HARBERT, HEGBORG, EKIMOFF DOC FOR 4231/IEP/EUR/JBROUGHER NSC FOR MCKIBBEN E.O. 12958: DECL: 08/10/2017 TAGS: EPET ENRG ECON PREL RS IZ SUBJECT: IRAQI OIL MINISTER SAYS RUSSIA NEEDS TO BID ON OIL FIELDS ON EQUAL TERMS REF: MOSCOW 3901 Classified By: Econ A/MC Kathleen Doherty Reasons 1.4 (b/d). -------------- SUMMARY -------------- ¶1. (SBU) Visiting Iraqi Oil Minister Shahristani told the press in Moscow that Iraq's 27 largest producing fields would be transferred to the Iraqi National Oil Company, which could then choose partners on transparent and commercial terms. The news appears to dash the hopes of Russia's Lukoil, which had a Saddam-era deal to develop West Qurna, one of the fields. Shahristani said other blocks would be available for bids by potential developers, but that no company or country would receive any preferential treatment. He added that Lukoil could have a competitive advantage given its previous experience in Iraq. The GOR seemed to expect preferential treatment in indirect exchange for debt forgiveness (reftel), which may be affected by the news. According to separate press reports, however, Shahristani said that Russia was clear that the issues are unrelated. Post has not yet received word from the Finance Ministry (reftel) whether the time is appropriate for Iraq Finance Minister Jabr to travel to Moscow to sign a debt agreement. End Summary. -------------- FREE AND TRANSPARENT OIL TENDERS -------------- ¶2. (SBU) Iraqi Oil Minister Hussain al-Shahristani met on August 9 with Russian Minister of Industry and Energy Viktor Khristenko and Lukoil president Vagit Alekperov, among others, as part of his visit to Moscow (reftel). Shahristani held a press conference during which he said "There will be no specific talks with any company over any particular field." Shahristani explained that once the new law governing the Iraqi oil sector is in place, the GOI would welcome bids by all qualified companies to develop the fields not allocated to the Iraqi National Oil Company (INOC). He said the country's 27 producing oil fields would be transferred to the INOC, who would then have the option of partnering with other oil companies on commercial terms. Press reports quote Shahristani as saying that all deals will be done through "free and transparent tenders." He expects the new law to go into effect in September. ¶3. (SBU) The news appears to be a blow to Russia's Lukoil which had a Saddam-era deal to develop West Qurna, one of the fields given to INOC. Shahristani did apparently offer some hope to Lukoil, saying that the company's experience in Iraq and its knowledge of Iraqi oil fields "increase the chances of it winning the free and transparent oil tenders." Some in press, while noting that Russia did not get what it wanted, were at least encouraged that Russian firms would not be discriminated against due to Russia's stance against the war. A perception persists that the USG will influence Iraq's decisions on oil development partners. ¶4. (SBU) The inability of Lukoil to secure an agreement for some form of preferential treatment may affect Russia's decision on Iraqi debt relief (reftel). At least two articles quoted Shahristani as saying Russia had committed to debt relief with no strings attached. ¶5. (SBU) Most investment analysts who covered the story focused on the impact on Lukoil, which they generally agreed would be minimal given that few expected Lukoil to keep the field. In addition to the advantage for Lukoil suggested by Shahristani, analysts speculated that Lukoil's partnership with ConocoPhillips (which owns 20% of Lukoil) could help it secure some piece of the Iraqi oil pie. -------------- COMMENT -------------- MOSCOW 00003930 002 OF 002 ¶6. (C) Contacts at MIE, Lukoil, and ConocoPhillips offered no insights beyond what was reported in the press. However, Lukoil is surely displeased with this outcome, perhaps consequently affecting the mood of Khristenko. Given the way business and government work more explicitly hand-in-hand in Russia, it may be difficult for the GOR to accept simple goodwill as the reward for its debt relief offer. If press reports are accurate, however, and Shahristani accurately reads his Russian counterparts, debt forgiveness could hopefully move forward. Indeed, Khristenko was quoted in one Russian press report as saying that debt forgiveness should happen. We expect an official indication on this soon. RUSSELL