U.S. investors who own shares in Russian oil companies could suffer if threatened American attacks on Iraq disrupt billions of dollars in oil exports, analysts said Wednesday.
Russian companies control the lion's share of the crude shipped from Iraq under the United Nations' oil-for-food program. As of November, Zarubezhneft, Rosneft, Lukoil, Alfa-Eko, Nafta-Moskva, MES, Mashinoimport, SIDANKO, Tatneft and ONAKO had purchased a total of 38.75 million barrels of oil from SOMO, the Iraqi oil trading company, under the U.N. agreement that allows Baghdad to export $2 billion in oil every six months.
Several of those companies, Lukoil in particular, have become the darlings of Western investors seeking big returns in Russia's high-flying stock market. Lukoil is one of the top five most widely held stock traded on Moscow's RTS blue-chip exchange.
"There are strong profits to be had in the Russian energy sector. It's one that I'm encouraging investors to get into," said Richard Hisey, the managing director in the New York office of the Lexington Troika Dialog Russian investment fund.
Russian oil companies have turned to Iraq for imports after losing their dominance in the Caspian Sea region to Western companies like Chevron, Texaco and Mobil, who have bid billions for Caspian contracts.
"We missed our chances in the Caspian, a lot of chances," former Russian Minister of Fuel and Energy Pyotr Rodionov said last year. "Maybe after all of Iraq's oil reserves are explored and proven, it will become more of a world leader" in oil exports, he said.
Energy analysts doubt that outcome, but say investment can only help the long-term outlook for the Russian companies, provided Iraq's oil-producing capacity isn't damaged.
"Iraq doesn't have the capacity to export more than the 700,000 barrels per day" that it averaged last year under the U.N. program, Julia Nanay, the director of the Washington-based Petroleum Finance Corp., said. "It needs a lot of capital improvement to get its oil out. Right now, Russia and France are the companies that look willing to help with that."
Separately, the cash-strapped Russian government is anxious to continue the trade to help recoup some of the $8 billion in Soviet-era debt owed by Baghdad. The most direct way for Moscow to recover what is owed it by Iraq is through hard-currency exports like oil. The U.N. sanctions limited Baghdad's oil production and sales, sharply curtailing Russian prospects to collect the debt.
The Kremlin has been waging a intensive diplomatic campaign to end the standoff with Iraq. "It is obvious that a strike against Iraq will put off indefinitely the question of lifting economic sanctions, something that is extremely against the interests of Russian oil companies," Russian political analyst Yelena Suponina said.
In March 1997, Russia and Iraq signed a 23-year deal to develop the estimated 7 to 8 billon barrels of oil reserves in southern Iraq's Qurana oil field. The exploration and pumping are expected to begin once U.N. sanctions are lifted. Iraqi officials have said the deal would give Baghdad $70 billion in revenue.
Lukoil, Russia's second-largest oil company, has a majority 52.5 percent stake in the Qurana field, Iraq has a 25 percent interest, and two other Russian oil companies, Zarubezhneft and Mashinoimport, split the rest. Qurana envisaged first stage capital expenditure of $4 billion and output of 660,000 barrels per day.
The visible presence of Russian oil companies in Iraq is a risky, but potentially profitable venture, analysts said. "By building relationships now, the Russians are looking to secure a foothold in the country," said Nanay. "This makes good business sense."
Added Hisey: "As long as cruise missiles don't target oil (facilities) than the long-term outlook is good."
By Misha Mayorov & Margaret Coker
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