Friday, May 23, 2003

Let's hope this is true.

Iraqi oil supply contracts signed by oil trading firms before the overthrow of Saddam Hussein's government will not be honored under a new United Nations resolution to lift sanctions on the war torn country, diplomats said Thursday.

"The contract agreements were signed by a previous government, and the topic was not raised in the resolution," said one Western diplomat. "They will not be honored."

The envoys said that longer-term contracts, such as development of Iraq's oil fields, are held in abeyance and will have to be negotiated with a permanent, internationally recognized Iraqi government.

There will be howls and whines and threats but, if Iraq is to start out on the right foot, with any chance of a good future, these sweetheart deals that Saddam gave away need to be done away with.

Although this story indicates that Russia may have firmed up oil claims based on the UN Resolution.

Russia, which opposed a U.S.-led campaign to topple Iraqi leader Saddam Hussein, may be better placed to hold on to its stake in Iraqi oil after the U.N. Security Council finally voted to lift sanctions on Baghdad.

"I think Russia has got a reasonable basis on which to defend its interests," said Christopher Granville, a strategist in London with Moscow-based investment house United Financial Group.

The biggest Russian prize is a $3.7 billion contract secured by one of the country's biggest oil companies, LUKOIL, to develop the prized West Qurna oilfield. The former Iraqi regime cancelled that contract in 2002 on the grounds of non-performance by LUKOIL, although the company says it will sue any new contender.

United Nations envoys said that long-term oil contracts -- of which the West Qurna field is a key example -- are held in abeyance and could not be negotiated until a permanenent and internally recognised Iraqi government has been installed.

"To the extent it (the resolution) reestablishes United Nations authority it could be said to be good. With the United Nations back in the game Russia's position is improved," said Jonathan Stern, an energy analyst at the Royal Institute of International Affairs in London.

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