Debt for Oil?

In April, it was established that the Russian oil company Lukoil will become the largest oil supplier in Iraq. They will be replacing the disgraced Halliburton and will become the dominant conveyor of "black gold" in the country. In fact, the Russian government is giving full support to Lukoil's ambition to become the first large international energy group to develop a major Iraqi oil field since the 2003 U.S. invasion.

What does this mean? As Iraq works to rebuild itself, it is still struggling with a massive amount of debt. Russia has forgiven Iraq for much of the debt, but not entirely. Since the world's top oil companies are scrambling to win a stake in Iraqi oilfields (which hold the third largest reserves in the world), Lukoil would like to exchange debt for oil. Iraq has so far refused. However, the passage of an oil law is expected within the next couple of weeks. If Iraq allows the countries that it is indebted to trade debt for resources, this would be good for businesses in Russia and other countries, and presumably it would be good for Iraq.

But would it? Refer to my earlier blogs on foreign investments in Africa, and WTO and IMF criticisms. What a fine line we walk as developers; jobs are good, facilities are good, money is good, however the risk is that the country could be dominated, or "sucked dry," by foreign interest.

A member of Iraq's Parliamentary Commission of Economy, Investment and Reconstruction told the press that Iraq needs around $300 billion to rebuild all its oil, economy, industry, agriculture, infrastructure. It is important to note that currently over seven foreign firms from Iran, China, Egypt, France, Germany, Italy, Japan, Saudi Arabia, and, of course, Russia (among others) are attending the Rebuild Iraq International Trade Fair, which is being held in Jordan right now. What are the alternatives to foreign investment in Iraq? Perhaps there are none.

Sources: Moscow News, MSNBC, Business Day (South Africa), The Middle East/North Africa Financial Network