#11 - JRL 7067
Baltimore Sun
February 18, 2003
Russia's interest in Iraq's oil fields prolongs crisis
By Robert O. Freedman

Robert O. Freedman is Peggy Meyerhoff Pearlstone Professor of Political Science at Baltimore Hebrew University and a visiting professor of political science at Johns Hopkins University. His most recent book is The Middle East Enters the 21st Century (University Press of Florida, 2002).

RUSSIA'S CALL for the continuation of the U.N. inspection system in Iraq illustrates the central principles of Russian policymaking during the Iraqi crisis - prolong it as long as possible so as to keep oil prices high while at the same time doing the minimum damage to Russian-American relations.

As long as oil prices remain over $25 per barrel (the price is now about $35 a barrel) the government of President Vladimir Putin will, as a major oil exporter, have sufficient revenue to keep the Russian economy moving ahead rapidly. This, in turn, should help Mr. Putin not only in the parliamentary elections in December but also in the presidential election scheduled for the spring of 2004.

In pursuing this policy of trying to prolong the crisis without seriously damaging relations with the United States, Mr. Putin has a major advantage. France and Germany have taken a far more hostile position toward President Bush's Iraqi policy than has Russia, thereby providing Mr. Putin with diplomatic cover.

At the same time, Russia is trying to maintain contact with both Saddam Hussein and with the Iraqi opposition to ensure that Russia will retain access to Iraqi oil, regardless of who emerges in control of Iraq. Currently, Russian oil companies have multibillion-dollar contracts with the Iraqi government to develop Iraqi oil fields.

But these contracts are on hold, however, until sanctions against Iraq are lifted.

Assuming this happens rather quickly once the U.S. invasion of Iraq and regime change in Baghdad have taken place, Russian oil firms will have the opportunity to secure large amounts of money by developing new Iraqi oil fields and rehabilitating old ones.

It is for this reason that Moscow has maintained discreet contact with the Iraqi opposition, as well as continuing to discuss Iraqi oil with the United States, while at the same time trying to diplomatically protect Mr. Hussein from a U.S. attack.

Mr. Hussein has not been happy with Moscow's policy, however. In a signal to Mr. Putin, he suspended the contract of one of Russia's largest oil firms, Lukoil, to develop Iraq's West Kurna oil field. He has permitted other Russian firms to keep their contracts.

Some analysts argue that it's not in Russia's interest to bring more Iraqi oil "on stream" because Iraq then would compete with Russia as an oil exporter and because more Iraqi oil on the market would drive down oil prices, hurting the Russian economy. But that line of reasoning is not correct.

First, the positive impact of high oil prices on the Russian economy, caused both by the crisis in Iraq and the civil war in Venezuela, is unlikely to dissipate until well after the forthcoming Russian elections.

Essentially, Russia has been able, with the help of Germany and France, to delay a U.S. attack long enough to get Mr. Putin through the elections. The time it will take to rehabilitate the worn-down Iraqi oil fields - whether Mr. Hussein is able to destroy some of them - will extend far beyond both the parliamentary and presidential elections in Russia.

Second, the world demand for oil, led by China's rapidly growing need for it, is likely to continue to rise. That would sop up any additional oil Iraq may be able to produce in the next two to five years, once its old oil fields are rehabilitated and new ones come on line. For this reason, for the near-term at least, Iraq is not likely to be an oil competitor for Moscow and Russian oil firms are likely to make a great deal of money in Iraq.

In sum, while the United States has been accused of waging war for oil, in reality it is Russia for whom Iraqi oil is the dominant issue in the current crisis.