Global Policy Forum

By Torrey Clark

President Vladimir Putin has assured LUKoil, the nation's largest oil producer, that its valuable assets in Iraq will be protected whether or not Saddam Hussein is driven from power, LUKoil president Vagit Alekperov told the Financial Times in an interview published Friday.

Putin considers Russia's interest in the oil-rich nation a top priority, Alekperov said. "I have been hearing guarantees from the Russian government," he was quoted as saying, adding that even if the Iraqi regime fell, as U.S. President George W. Bush wants, "the law is the law, the state is still there."

LUKoil, which is 14 percent owned by the state, has a 68 percent stake in a consortium to develop Iraq's giant West Kurna oil field, with reserves of 20 billion barrels. Some $6 billion has been invested in the field, the newspaper reported. Iraq, which has one of the world's largest crude reserves, has been prohibited from exporting at capacity since the Gulf War more than 10 years ago.

The United States and Britain have been pressuring Russia and the other two permanent members of the United Nations Security Council -- China and France -- for a new resolution to sanction the use of force against Iraq if it does not offer weapons inspectors unfettered access. Bush warned Sunday that war may be unavoidable. Iraq has been trying to secure stronger support from Russia by promising some $40 billion in economic cooperation over the next five years. A six-member delegation from Baghdad was in Moscow last week to pitch a "buy Iraq" campaign. The group addressed more than 100 business people, State Duma deputies and Foreign Ministry officials, touting the benefits of cooperating with Iraq.

But by far the most lucrative attraction to Iraq for Russia is oil.

"We have interests in the oil sector of the Iraqi economy," Mikhail Margelov, an adviser to Putin and the chairman of the international affairs committee of the Federation Council, was quoted by news agencies as saying Saturday.

Margelov said Russia should be an equal partner in any privatization of Iraq's oil sector if Bush takes military action against Saddam.

In the Financial Times interview, Alekperov said: "Yes, of course," when asked if he had received assurances that oil was at the top of Moscow's agenda in negotiations with the United States. LUKoil's West Kurna has immense potential value, but only if UN sanctions are lifted.

LUKoil vice president Leonid Fedun has said the company could extract up to 30 million tons of oil from the field within three years if sanctions are lifted.

Experts say Moscow is using its position on the Security Council as a bargaining chip to win guarantees from Washington that its commercial interests will be protected in the event of a change of leadership. As a permanent member of the council, Russia can veto any resolution on Iraq.

"At best Russia will probably abstain at the Security Council vote," said Stephen O'Sullivan, head of research at United Financial Group. "I really don't think they'd want to vote against. I think they do want to assure that by allowing it to go ahead they're not causing themselves economic damage."

Yevgeny Gavrilenkov, chief economist at Troika Dialog, said Russia is likely to put its economic interests above any political interests. "Russia does not have clearly defined geopolitical priorities [regarding Iraq], while economic interests are much more transparent and thus likely to dominate in the foreseeable future," he said, adding that Saddam was not "a figure with whom we can have a political alliance."

The government still hopes to collect between $7 billion to $9 billion in Soviet-era debt, in part for arms sales. Russian companies have earned about $4 billion per year through the UN oil-for-food program, including top 10 oil company Tatneft, which has a license to drill for Iraqi oil. In addition, Russia and Iraq have been discussing a five-year $40 billion economic cooperation program.

However, before providing any firm guarantees to companies such as LUKoil, Russia would have to feel fairly secure in its position with the U.S. government, experts said.

"I'm sure [the Russian government] won't be giving any more solid guarantees than it's able to receive itself," O'Sullivan said. "There have been lots of fine words [from the Unites States], but not many deeds up to now," he added, referring to Congress' hesitance to revoke the outdated Jackson-Vanik amendment tying Russia's trade status to emigration policies despite Bush's urging. Gavrilenkov took a more cautious approach about Russia's ability to guarantee commercial rights in a post-Saddam Iraq.

"The Russian Federation plays an important role [regarding Iraq], but clearly not a primary role and there are a lot of other players involved," he said. A LUKoil spokesman would not elaborate on Alekperov's comments, saying: "The company president's statements were comprehensive."