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Oil trader Gennady Timchenko attends a session of the St. Petersburg International Economic Forum
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US may set Timchenko precedent

Washington’s desire to limit Iranian influence in Iraq may leave its Volga Group sanctions looking hollow

Russia’s Stroytransgaz, subject to US sanctions since 2014 due to the close ties its parent Volga Group and its owner Gennady Timchenko, a key Putin ally, have to the Kremlin, signed in September a contract for “exploration, development and production” in a 12,000km² (4,600 square mile) area in Iraq’s Anbar Province. 

But Washington is expected to largely turn a blind eye to Timchenko’s involvement, with Iraq’s move towards developing indigenous gas resources—as an alternative to imports from Iran—being a higher priority. And this grudgingly acceptance of Volga and Timchenko’s Iraq role will make it more difficult for the US to justify taking a hard line against other Timchenko-linked companied globally, including Russian gas and LNG producer Novatek. 

Anbar Province is a vast and unsettled region in the north-west, much of which was occupied by Islamic State (IS) militants between 2014 and their expulsion in late 2017. The acreage, newly-designated as Block 17, contains estimated reserves of 2-4bn bl oe—60-70pc of which is thought to comprise gas—according to an oil ministry announcement. The deal—signed in the presence of oil minister Thamir Ghadhban as a signal of its strategic importance—is a revised version of a 2003 provisional one with the same firm for an area then referred to as Block 4, shortly before the US invasion and the fall of former president Saddam Hussein. 

The contract model has been amended from production-sharing to the technical services contracts (TSCs) adopted by the current government, which preclude foreign ownership of reserves. The exploration phase of the 34-year contract is scheduled to last up to nine years. 

The terms are understood to be similar to those used in the fourth of the five licensing rounds thus far staged. That 2012 auction, which likewise targeted gas in the Western Desert—and during which the then Block 4 attracted no offers—was largely unsuccessful, with only four of the 12 blocks on offer awarded. 

Deterrents to operating in the remote and unstable region have only increased in the intervening years. The roster of foreign firms willing to take the risk is likely to have been limited, increasing Washington’s tolerance threshold for Stroytransgaz. 

Extensive exploration is planned over the next four years—focused on finding non-associated gas in the Western Desert, a huge lightly-explored area in the north and west abutting the Jordanian, Saudi Arabian and Syrian borders— Ghadhban said in April. During a visit to Riyadh earlier that month he also said that Saudi Aramco would assist in the efforts. Aramco has discovered and developed unconventional gas in the Turaif area near the northern border with Iraq.

 Block 4 and contiguous Blocks 3 and 5 were marketed in the 2012 Iraqi bid round with reference to their proximity to the estimated 5.6tn ft³ Akkas gas field. Plans for 400mn ft³/d (33.2mn m³/d) development there by Korea Gas Company under a 2011 TSC were abandoned in the wake of IS’ three-year occupation. 

Russian consolidation 

Two of the four blocks awarded during the fourth round went to Russian firms, even before Stroytransgaz further bolstered Russian companies’ position in Iraq’s oil and gas landscape. Lukoil took Block 10, straddling the borders of the southern Thi Qar and Basra provinces, while Bashneft, now part of Rosneft, eventually won the more westerly Block 12 after turning down initial terms. Both have since yielded oil discoveries, in 2017 and 2018 respectively.

Lukoil also operates the estimated 14bn bl West Qurna 2 field in Basraagain reprising a contract awarded under the previous regime in the form of a 2010 TSCand has maintained notably smooth relations with the oil ministry during a period since the 2014 oil price crash when many of the country’s international operators have clashed with the authorities over contract terms and investment plans. 

The Russian firm agreed a second revision to the field development plan in May last year, cutting the target plateau from 1.2mn bl/d to 800,000bl/d by 2025, with an interim goal of lifting output from around 400,000bl/d to 480,000bl/d by 2020. Drilling on the second phase began in April. 

State-controlled gas firm Gazprom operates the Badra field in the eastern Wasit province, where output stands at around 85,000bl/d. Rosneftsidestepping sporadic hostility from Baghdad towards oil companies dealing with Kurdistan Regional Governmenthas carved out a strong strategic position within the independent oil industry in the autonomous north.

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