A lot of very expensive projects have been swept away with the war
Countless news reports about the army operation in Iraq have pushed into the background the fact that the Russian economy faces a very serious threat on account of the war. Russian Foreign Minister Igor Ivanov released an official statement that the Russian Federation would stand for its legal economic interests in the Persian Gulf. However, the foreign minister’s statement was basically ignored on account of war news and everything that was connected with it. Ivanov’s words were basically lost. However, Viktor Khristenko, the Vice Prime Minister of the Russian government, decided to warn OPEC countries yesterday. As Khristenko said, OPEC might stop its existence after the war in Iraq is finished.
According to the official’s logic, the OPEC's wish to become a political organization as a result of the war in Iraq, will eventually destroy the oil organization. If OPEC starts playing economic games during the Iraqi conflict, the organization will have to face the end of its existence soon. Viktor Khristenko explained his position with the fact that OPEC’s quantitative losses that it might suffer during the war, will pale in comparison with the losses that it might have, if it gets implicated in political processes. As it can be seen, Viktor Khristenko is not against OPEC’s existence, although he insists that nothing is supposed to change in the international organization. The Russian vice prime minister would like to see it the way it is now.
Of course, Russia achieved very good progress in the oil export field last year. Russia even managed to leave the world leader, Saudi Arabia, behind in this respect (just within several days). It is an open secret that the oil industry of the country had to take very much effort to achieve that. Experts have no doubts that the Russian oil industry experiences a very strong need of modernization. The industry needs a lot of investments for that, although neither the USA, nor other Western countries are ready to provide that. One could borrow something from everyone, from OPEC countries in particular. However, Viktor Khristenko prefers to preach potential investors, taking into consideration the fact that Russia’s success in the oil field is currently burning in Iraq.
As a matter of fact, OPEC has always had a lot of political functions to fulfil, although it is a purely economic organization. The world order is changing in front of our own eyes now, so any international organization is supposed to change too, if it wants to live further on. It is not ruled out that the increase of OPEC's political role at a crucial moment of discrepancy between exporters and consumers of oil might be very good both for the organization and for the whole world.
Instead of bidding goodbye to OPEC, it would be very good for the Russian government to sit down and to evaluate the country’s losses on account of the war. Russia has invested a lot in the oil industry of Iraq. All that will be lost, no matter what the Russian Foreign Ministry might do. Russian companies that work in Iraq have already started counting their losses. According to the information that Russian media get, the losses are large. There are no doubts left that no Russian company will manage to preserve its contracts in Iraq after the war is over.
The administration of the company MachineImport acknowledged that it had delivered drilling rigs to Iraq in the sum of $30 million. The company has its base in the city of Rumeila. The city is reportedly on fire at the moment. This means that the Russian unpaid equipment is burning there too. It will never be paid. MachineImport signed a contract with the UN to drill 30 wells on Garaf oil deposit. The cost of the contract was evaluated in the sum of 430 million dollars. The war has virtually cancelled the contract. The Oil for Food program stipulated for other contracts in the total sum of $75 million. They do not cost anything today. MachineImport had to give away all of its property to local authorities – eight drilling rigs, offices and even apartments in Baghdad and Basra. All that property was insured, although it goes without saying that no one will manage to compensate that completely.
Other Russian oil companies had to do the same. Lukoil-Overseas and Zarubezhneft, for example, also left their offices and other real estate at the disposal of “local law-enforcement bodies.” Security guards sealed offices of another Russian company, TechnoPromImport. This company built two large heat and power plants in Iraq. It goes without saying that armed Iraqi soldiers have more important things to do than to guard someone else’s property.
Directors of all mentioned companies stated that they would defend their rights for their property at international courts. However, managers acknowledged that that they will have no shots to win, if the power in Iraq changes. Russian companies already mark their Iraqi property as losses. It deems that the Russian government will have to do the same soon.
Experts of the Russian cabinet of ministers calculated that Russian loss of profit in Iraq made up 40 billion dollars, plus eight billion dollars of the Iraqi debt. The new Iraqi government is not likely to acknowledge that. Oil prices will go down, when Baghdad surrenders. This will cause incredible damage to the Russian budget. Before the war, Russia gained two billion dollars a year within the scope of the international program Oil for Food. That money has been lost too.
The experiences that Russian companies obtained in Iraq will be wasted without any demand. That is why, it is time Russia should think over an opportunity to join OPEC. It is absolutely not good for the country to preach this organization now. However, as Russians say, good ideas always come late.
Translated by Dmitry Sudakov