Russia sees Iraqi oil deal revival in debt write-off

MOSCOW – Russia agreed on Monday to write off most of Iraq’s $12.9 billion debt in a deal that opens up Iraq for $4 billion in investment from Russian firms, including oil major LUKOIL.

Finance Minister Alexei Kudrin told reporters Russian companies would be allowed to invest up to $4 billion in Iraq under a new inter-governmental memorandum signed with visiting Iraqi Foreign Minister Hoshiyar Zebari.

“We have an agreement from the Iraqi side to pay special attention to the previously signed deals,” Kudrin told reporters. He named LUKOIL, whose stock rose 3.5 percent by 7 a.m. EST, outperforming the market.

“There is a government pledge to treat us with maximum care. As to the legal subtleties, they will depend on (Iraqi) legislative changes,” Kudrin said after talks with Zebari.

Moscow had already forgiven Iraq the bulk of its debt. The remaining $12.9 billion dated back to Soviet-era supplies of military equipment.

Monday’s deal was expected to go through unconditionally after the latest round of debt talks in mid-2007 produced no result because Iraqi officials said they considered Moscow’s demand for preferential access to Iraqi oil unacceptable.

Moscow has insisted on the revival of the Saddam Hussein-era deal by LUKOIL to develop Iraq’s huge West Qurna field. Iraqi officials have said Russia also wants to participate in the development of another major field, Rumaila, in return for a debt write-off.

Analysts had long been skeptical about LUKOIL’s chances of returning to West Qurna, one of Iraq’s biggest oil deposits, given the heavy U.S. influence over the country’s government.

The deal’s revival is complicated by the fact that the government of Saddam Hussein scrapped it just before being toppled in 2003, saying LUKOIL had done nothing to launch the field, which could produce 600,000 barrels per day.

The world’s top oil companies have been maneuvering to win a stake in oilfields in Iraq despite huge damage to the country’s infrastructure from decades of wars and sanctions.

Kudrin said his ministry agreed to write off $11.1 billion of Iraqi debt immediately, another $900 million in the next few years and restructure another $900 million for 17 years.