Lukoil, the Russian oil giant, has received a letter from the Iraqi oil ministry cancelling a $3.7bn (£2.4bn) oilfield development deal.
The Russian company said it was surprised by what it called an unwarranted move and said it would defend its interests in international courts.
Russia's economic interests in Iraq appear to have been dealt a severe blow.
The huge Al-Qurnah oilfield was one of Lukoil's most prized possessions.
"We do not understand how a petty bureaucrat from the oil ministry of Iraq can cancel a law which has been passed by Iraq's parliament," a Lukoil spokesman said.
No proper investment
The multi billion dollar contract for its development was signed in 1997.
But the UN oil embargo imposed on Iraq prevented Lukoil from investing properly in the project.
Iraq had reportedly been pressuring Lukoil to breach the embargo, but failed.
It says it is entitled to sever the contract because Lukoil did not honour it.
Putin assurance
Only last week the head of Lukoil Vagit Alekperov told the BBC his company was confident its lucrative contracts with Iraq would survive a possible US attack and regime change in Baghdad.
He said he had assurances from none other than President Putin himself.
Russia's economic interests in Iraq were widely believed to be Moscow's main reason for resisting US plans, and Iraq was banking on Moscow's protection.
Now that this protection may be slipping away, Baghdad might have decided to punish Russia for being disloyal.
But there is another possible explanation for this surprise move - it coincided with a trip to Iraq of top managers of a rival Russian oil company to discuss joint projects, despite the looming war. xxxxxxxx
Nov 2002.
Russian and U.S. officials said Putin is also anxious to protect the contracts of Russian oil companies in Iraq, including a $3.5 billion deal for the state-owned Lukoil to develop a giant oil field in southern Iraq, and would like to recover up to $12 billion in old Iraqi debts. One possibility believed to be under discussion is to use a portion of Iraqi oil proceeds to pay off part of the Russian debt.
xxxxxxx Sharing the oil is key to a deal IAN BRUCE Analysis THE key to calming French and Russian fears over the White House's hard-line approach to a UN security council vote on Iraq later this week, is the post-Saddam control of the country's vast untapped reserves of oil.
Moscow, Paris and to a lesser extent Beijing all have vested interests in multi-billion-pound contracts to develop and maintain fields which contain the world's second-largest source of crude after neighbouring Saudi Arabia.
Russia's Lukoil has the largest potential stake, with a 23-year deal worth £2bn to exploit the West Qurnah field. France's TotalFinaElf is negotiating to develop the Majnoon field and its 30 billion barrels of black gold.
China's state-owned national petroleum corporation has a contract to repair and bring back on stream part of the Rumailah production area damaged in the 1991 Gulf war.
All three governments suspect that toppling Saddam and installing a US-controlled military administration would lead inevitably to a carve-up of the oil riches among American corporations to the exclusion of their own firms.
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James Woolsey, former director of the CIA, favours dangling the carrot of involvement as an incentive to follow the US line.
He said: "France and Russia have oil companies and interests in Iraq. They should be told that, if they are of assistance in moving Iraq towards decent government, then we'll do the best we can to ensure that the new administration in Baghdad and US companies work closely with them.
"If they throw in their lot with Saddam, or oppose his downfall, then it could be difficult to the point of impossibility to persuade the new, democratic Iraqi government to work with them."
Faisal Qaragholi, an oil engineer who directs the London office of the Iraqi National Congress, the umbrella opposition group backed by the US, added: "We will review all existing contracts. Our oil policies should be directed by a government elected by the Iraqi people for their benefit."
Viktor Kremenyuk, deputy-director of the USA-Canada institute in Moscow, said last night: "Resolving the Iraq problem is all about the rivalry surrounding the country's oil bonanza. How it is managed is the key."
- Nov 7th
lol..well at least we know its about oil as far as the big 3 on the security council are concerned...
Humanitarians all......
I guess what it boils down to is...
the Big 3 win, they get oil contracts................Saddam stays in control, the Iraqis get to shop in two's for one pair of shoes and one pair of gloves.
Us wins. they get oil contracts....saddam and co get their necks stretched and the Iraqis get the chance to run their own country at last.
