Interview with Chris Weafer
Chris Weafer, a specialist from Alfa-Bank joined Russia Today to talk about Iraq and Russia's oil relationship with that country.
Russia Today: With Iraq canceling a production sharing agreement signed under different circumstances under a different government, is Russia getting a taste of its own medicine?
Chris Weafer: No, not really, because it is always expected that these deals would all be reviewed and that the licensees that were done under the old regime would be cancelled. And we know for sure that the international companies, particularly U.S. and European-based oil companies, have been itching to get in to what should be one of the biggest oil-producing regions in the world. So they've been looking at the licensees like the West Qurna field et cetera, and it is always expected that they would come up for review.
RT: What does the cancellation of the PSA actually mean for Lukoil? What has the firm lost, and what might the implications of that be?
CW: The implications are long-term important. And in the sense of losing anything today – very little, because they have not been developing these fields. It’s not a big factor in its valuation, its balance etc. It’s more like the long-term potential. Iraq currently produces 2,5 MLN barrels of oil per day. The estimates basically suggest that it is capable of cranking that up to anything about 5 or 6 MLN over the next 15 years. So getting a slice of what should be one of the best oil-producing regions in the world is a considerable price for Lukoil. They will not want to lose out on that. But much more important is that the Kremlin will not want to lose out because, of course, we got to bear in mind, that as of relatively recently, there is now a new joint venture in place between the state-owned Gazprom and Lukoil, where they are going to pool their international resources and will jointly bid for licenses like West Qurna in Iraq. So effectively, the Kremlin was lobbing not so much on behalf of privately-owned Lukoil, but for its own interests for sure.
RT: Now that Russia won't receive “special treatment”, do we have any idea what the terms of doing business in Iraq might be?
CW: First thing you've got to bear in mind that, realistically, the Iraqi Minister says that it is the National Oil Company that would decide, but most people believe that it’ll be the State Department that will decide. So Russia clearly is lobbing Iraq for support for Lukoil – or for Lukoil and Gazprom – and of course they will be using arguments like the fact that Lukoil has already done a lot of preparatory work, has a lot of preparations there, spent some money. Russia, of course, is about to write off the Iraqi dept – will not be an inconsiderable factor. So they will be looking for their support. But ultimately, whether or not Russian companies keep this license, or get new licensees, will depend on the state of the relationships between the Kremlin and the White House.
RT: Do you think that Russia’s treatment of foreign oil companies in its own country will play its part it this?
CW: International companies like Exxon and others will be pressing the U.S. government to pursue it like their case in Russia. They will basically be saying: “Look, tell the Russians to play fair with us iside Russia and then you can have them have Iraq.” It will be a factor, even if indirectly.
RT: Why does Russia even need Iraqi oil?
C.W: Well, it’s a combination of politics and money, as we see time and time again. As I mentioned this is a huge area very lucrative on longtime potential. The Kremlin has made it very clear that it wants Russian oil companies to become more global. Right now they are big domestically, but they want to become more global. And this is one of the places where they can get access to that. So it’s part of the state's ambition to create big globally present oil companies. At the same time, I think, the Kremlin wants to follow up its political initiatives in the Middle East with doing some business. So I think there is a combination here as usual.
