The Future of Iraq’s Oil Is Russian

Despite ongoing protests in Baghdad, which have seen the departure of many foreign diplomats for security concerns, Russia has doubled down. Not only has its embassy stayed open in the recent weeks of turmoil, but its foreign minister, Sergei Lavrov, also paid a visit last month, first touring Baghdad and then Erbil.

His tour did not look like a regular diplomatic mission. There were no official agreements signed; politics, Syria, and terrorism seemed like an afterthought; and diplomats were in the minority during the week’s events. In fact, the majority of the participants were businesspeople, including representatives of such Russian oil and gas companies as Gazprom Neft, Rosneft, Soyuzneftegaz, and Lukoil. Also in attendance were representatives of Technopromexport, a Russian company that builds energy facilities, and from Russia’s Federal Service of Military-Technical Cooperation. “Only bilateral trade relations were discussed on the meetings,” one source with ties to the Iraqi prime minister who requested anonymity told us this month. “Russians wanted to make sure everything is going smoothly regarding Russian energy companies’ projects in Iraq.” Another source with links to the Kurdistan Regional Government (KRG), which is headquartered in Erbil, concurred.

It should come as no surprise that, after investing more than $10 billion into Iraq’s energy sector over the past nine years, Russia’s interest in the country mostly centers on commercial concerns.

Russian companies are already well represented among oil companies in Iraq. And due to the long-term nature of oil and gas contracts, Russia’s market share will only increase over time. For example, in 2009, the Russian company Lukoil won one of the first oil contracts in postwar Iraq, for the West Qurna-2 development project in Basra. The project is slated to last 25 years with a target of achieving production of 800,000 barrels per day by the end of 2024. Today, this field is only producing at a rate of around 400,000 barrels per day, but it already represents 9 percent of total Iraqi production of crude oil and 12 percent of Iraq’s oil exports.

Other deals since 2011 include $2.5 billion in investments by Gazprom and its partners in central Iraq and the Kurdistan region alone. Gazprom has produced 3 million barrels of oil from the Sarqala fields in Garmian, for example, and it has launched several exploration projects in the Halabja and Shakal fields. Just in September, meanwhile, the Russian company Stroytransgaz won a 34-year contract for oil and gas exploration in Iraq’s Anbar province, a deal that Lavrov especially thanked Iraq for during his visit, according to a source in the Iraqi prime minister’s office.

Russia is not only interested in the oil fields themselves. Rosneft owns 60 percent of the Kurdistan Oil Pipeline, which is Iraq’s main operational export line. In spring 2018, Rosneft also announced the signing of an agreement with the KRG’s Ministry of Natural Resources to develop its oil and gas infrastructure, including a new gas pipeline that is expected to have export capacity of up to 30 billion cubic meters of gas per year. That amounts to approximately 6 percent of Europe’s total gas demand. According to one Iraqi politician, talking to us on a condition of anonymity in November, “by this deal, Russia got a lot of political power in Iraq. Oil is about 96 percent of Iraq’s export, but without a pipeline to export it, oil simply has no value to the country. So now Russia basically controls this export.”

Russia was not always so enmeshed in Iraq’s oil and gas sector. After the fall of the Saddam Hussein regime in 2003 and following the occupation of Iraq, Russian companies were largely absent from the playing field. All that changed with increased sectarian conflict in 2009. Around that time, many Western oil companies (such as ExxonMobil and Chevron) partially or totally left the region due to the security concerns. Russian companies, hungrier for risk, took their place.

Russia’s entry was welcomed in Iraq. As one KRG leader told us this month, “long time before the recent political, security, and financial crisis, in early 2012, Russians entered Iraqi Kurdistan as a strong international investor. At the time, there was no need for Russians since the Americans had a strong presence and support in the region. Later, when the Kurdish leaders got disappointed with Americans, Russians appeared stronger and friendlier. The common belief in Kurdistan was that having a trade deal with them will also bring other, political and security, benefits.”

Even sanctions don’t seem to bother the Russians or Iraqis. Some of the companies developing Iraqi oil, including Gazprom and Rosneft, are on U.S. sanctions lists for their connection with the annexation of Crimea and Russia’s involvement in conflict in eastern Ukraine. But Iraqi officials aren’t particularly worried. “For a long time now,” said one in November, “Iraq is working with Russian companies that are sanctioned by the U.S. Treasury and till now those deals have not triggered any strong reactions by the U.S. administration. So we do not see it as an issue.”

U.S. President Donald Trump might like to claim that the United States still has a hand in the region’s oil sector. In a recent tweet about Syria, for example, he wrote, “The Oil Fields discussed in my speech on Turkey/Kurds yesterday were held by ISIS until the United States took them over with the help of the Kurds. We will NEVER let a reconstituted ISIS have those fields!” And in a meeting with Turkish President Recep Tayyip Erdogan, he noted, “We’re keeping the oil. We have the oil. The oil is secure.” In regards to Iraq, the president has also lamented that the United States didn’t take control over the country’s reserves after the Iraq War. It could be true that the region’s fields will never again be controlled by the Islamic State, but it is unlikely that the United States will play the biggest role, either. Rather, it will be Russia in charge on the ground. And soon, even the dollar might not have a place in the trade: Iraq and Russia have been discussing denominating payments in either rubles or dinars rather than the dollar to avoid any interaction with the U.S. system.

Russian influence over the oil in Iraq and Syria is not only a long-term economic blow to the United States, but a political one, too. Oil is the main currency in those two countries, so whoever controls it also has a major say in the region’s geopolitics.