Moscow Denounces Iraq for Canceling Deal

The Russian Foreign Ministry reacted angrily Sunday to Iraq’s cancellation of a $3.7-billion deal with this country’s biggest oil company, describing the move as an unfriendly step.

News of the Iraqi decision broke Wednesday, just before three days of Russian holidays, and Sunday, the first working day here since then, brought the first official response. The comments suggested that Moscow may be hardening its attitude toward the regime of Iraqi President Saddam Hussein, which has failed to pay back any of its $7-billion Soviet-era oil debt to Russia.

Moscow has been one of Baghdad’s strongest international supporters -- both because of that debt and because of Russian oil interests in Iraq -- but the Kremlin supported the tough U.N. resolution insisting on the return of weapons inspectors to Iraq.

However, Russia has staunchly opposed U.S. military action against Iraq, arguing that the return of the U.N. inspectors provides the basis for a peaceful resolution of the current tensions and eventually an end to sanctions against Iraq.

At a news conference Sunday in Moscow, Iraq’s ambassador to Russia, Abbas Khalaf, made clear that the decision to cancel the 1997 deal to develop the West Qurnah field had come from the top. But he denied that it had any political motive.

The reason was simply the failure by Russia’s Lukoil to develop the field, Khalaf said, dismissing the company’s argument that it was impossible to sink money into the project with U.N. sanctions in place.

Khalaf said other Russian oil companies have been drilling wells under the provisions of the United Nations’ “oil-for-food” program, which allows Baghdad to trade oil for essential goods. As Iraq’s biggest trading partner and the power that helped develop its oil industry in the Soviet era, Russia has been the main beneficiary of trade under that program.

Russian oil companies sold a billion barrels of Iraqi oil, worth $15 billion, between December 1996 and May 29 of this year, Khalaf said.

But a tough statement Sunday from the Russian Foreign Ministry not only condemned the cancellation but suggested that the Kremlin is convinced it was a political move to punish Moscow for supporting the strong U.N. resolution on Iraq.

“This step is not in keeping with the friendly nature of Russian-Iraqi relations and the level of bilateral cooperation in various areas,” the statement said.

“It is strange that this move was made at a time when Russia is trying to relieve the tension surrounding Iraq and is trying to find a peaceful political solution to the Iraq decision together with other countries,” it said.

“Not a single Russian company can violate the sanctions regime. Moscow hopes that the situation involving Lukoil and the Iraqi Oil Ministry will be settled by negotiation.”

Baghdad’s move appeared calculated to manipulate Russia into continuing its support for the regime or face losing its foothold in Iraq’s oil industry.

But Russia may already be considering the possibility of an Iraq without Hussein. President Bush indicated last month that Russia’s interests in Iraq would be taken into consideration if Hussein’s regime was dislodged.

Other U.S. officials have argued that Moscow cannot hope to regain a single dollar of its debt from Hussein.

In an interview on Russian television Sunday, Lukoil President Vagit Alekperov insisted that Russia had met its contractual obligations under the canceled deal. He said the decision to void the contract was political.

“[Our] company all these years has understood the provisions of the contract and fulfilled our obligations. But we didn’t go as far as violating the sanctions applied today toward Iraq,” he said. “Of course, this irritated the Iraqi side. But such a stormy reaction, especially in the current period -- which is difficult both for Iraq and for our relations -- came as a complete surprise to us.”

Other Lukoil spokesmen said Iraq’s move had not damaged the company but described it as illegal and threatened action at the International Court of Justice in Geneva.

Spokesman Mikhail Mikhailov said in a telephone interview with The Times that the final decision on breaking the contract must be made in the Geneva court.

“We hope the whole thing can be quite positively resolved in consultations between the ministries involved,” he said.

Under the disputed contract, Lukoil holds a 68.5% stake in developing the 15-billion-barrel West Qurnah field. Two other Russian companies, Zarubezhneft and Mashinoimport, each have a 3.25% stake, while Iraq’s Oil Ministry has 25%.

Ambassador Khalaf said Sunday that the cancellation applied only to Lukoil and not to the others, which are developing oil fields elsewhere in Iraq.

“Lukoil did not make any investments. They simply signed the contract and went away,” he said.

“There are scores of Russian companies that are working within this regime,” Khalaf said. “There are hundreds of oil fields that operate in Iraq now, and Iraq within the sanctions framework exports 2 million barrels a day.”