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. Last Updated: 07/27/2016

Russian Firm Gets UN Approval to Drill in Iraq

UNITED NATIONS — Oil major Tatneft affiliate Zarubezhneft has been given approval to drill 45 oil wells in northern Iraq, UN officials and diplomats confirmed Monday.

Zarubezhneft was given the green light on the $8 million project in mid-December by the United Nations Iraqi sanctions committee, UN officials and diplomats said.

On Friday, some diplomats on the UN Iraqi sanctions committee denied that any approval had been granted, saying that the contract would breach sanctions imposed on Iraq in 1990 after the invasion of Kuwait.

But by Monday the diplomats admitted that the contract had been approved as part of an effort to allow Iraq to increase oil production. The diplomats said they were surprised that the contract had been cleared.

Zarubezhneft is aligned with Tatneft in the venture, UN officials said.

The two firms will send Russian workers, three rotary oil rigs, mobile camps and other equipment to Iraq to drill the wells in the existing Bai Hassan and Saddam oil fields. Iraqi workers will also be hired to drill the 45 wells in the next year.

Diplomats from Western nations downplayed the contract's approval on Monday, saying that increasing Iraq's oil production will increase funds to supply humanitarian goods to Iraq's people in the oil-for-food program.

Britain had been holding up approval of the contract, but allowed it to pass the mid-December, the diplomats said.

The committee has held up approval for at least two other oil-field development contracts, including one for Tatneft to drill 33 wells in the Bai Hassan, Saddam and Kirkuk oil fields in northern Iraq and one for China Petroleum to drill 45 wells.

UN officials said they understood that this is the first time the committee has allowed oil-well drilling in Iraq by a foreign company since sanctions were imposed in 1990.

UN diplomats countered this, saying that the committee had previously approved similar contracts.

About 72 percent of the oil sold by Iraq in the program is used to fund humanitarian efforts in Iraq, including the purchase of oil spare parts and equipment.

Iraq is allowed to spend $1.2 billion of its oil revenue on oil spare parts, but most of the funds to this point have been used to buy equipment, not allow foreign companies inside Iraq to do the work.

Over the weekend, Iraq warned top Russian oil producer LUKoil that it risks losing contracts to develop huge oil reserves by failing to implement them.

Deputy Oil Minister Faiz Shaheen said LUKoil, which is partly state-owned, had signed contracts to exploit the giant West Qurna deposit and other fields in southern Iraq in 1997.

"There are binding oil-field development contracts between Iraq and companies from Russia and China and others. Any contract that is violated by non-implementation on the ground will no longer be valid," Shaheen said.

Russia and China have pushed for an easing of the UN trade sanctions maintained on Iraq since its invasion of Kuwait in 1990, but they respect the embargo. UN resolutions say it can be lifted only when Iraq proves to the world body that it has eliminated its weapons of mass destruction.