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. Last Updated: 07/27/2016

$12Bln in Iraqi Debts Written Off

Russia agreed on Monday to write off $12 billion of Iraq's debt and restructure another $900 million in a landmark deal that could clear the way for Russian oil companies to invest in the war-torn country.

Finance Minister Alexei Kudrin and visiting Iraqi Foreign Minister Hoshiyar Zebari signed the deal in Moscow, and afterward talked up the prospects for Russian investment in the country.

Kudrin said Russian companies could invest as much as $4 billion in Iraq and that LUKoil, Russia's largest independent oil producer, was preparing to return to the country.

LUKoil has been trying to revive a $4 billion deal from 1997, signed with Iraqi dictator Saddam Hussein, to develop the West Qurna oil fields in southern Iraq.

The deal was scrapped in late 2002, after the Iraqi government said LUKoil had done nothing to develop the fields, which have the potential to produce 600,000 barrels per day.

Since the U.S.-led invasion of Iraq in 2003, the West Qurna deal has remained under a cloud because of U.S. sanctions against Hussein's regime.

Zebari said Monday that his government would not discriminate against Russian companies.

LUKoil confirmed Monday that it was ready to invest "billions of dollars" to explore the West Qurna oil fields, "a lot more than we planned [to invest] in 1997."

"We are literally sitting on our suitcases," LUKoil spokesman Dmitry Dolgov said by telephone. "If the Iraqis give us the nod today, we would be ready for exploration and production within a year."

But Monday's agreement may not help LUKoil get back into the country as long as U.S. sanctions apply to deals struck under Hussein, analysts said.

"There is a clause in the U.S. sanctions that prevents Russian oil companies from investing more than $20 million in the Iraqi oil sector," said Alexander Nazarov, of the Metropol brokerage.

Monday's deal comes after years of talks between Russia and Iraq in which Russia has tried to link debt forgiveness to its oil companies getting access to the country's oil deposits.

A similar write-off proposal floundered last year after the Iraqi government said it would not accept a Russian offer to forgive $10 billion in Soviet-era weapons debt in exchange for Russian companies getting access to the Rumaila field in southern Iraq.

Monday's deal is part of one struck in 2004 between Iraq and the Paris Club group of creditor nations, under which Russia and other countries promised to forgive 80 percent of Iraq's debt.

Kudrin said Monday that Russia would initially give Iraq a 65 percent discount on the overall $12.9 billion debt, and that 80 percent of the outstanding $4.5 billion would be written off after a series of multilateral talks with Paris Club members. Further reductions on the remaining 20 percent would depend on Iraq fulfilling a series of conditions set by the IMF, Kudrin said.

After the $12 billion write-off, the remaining $900 million would be restructured over 17 years, allowing Russia to collect an extra $1.1 billion in interest.

The IMF conditions envisage Iraq restoring oil output to 2.2 million barrels per day, reducing inflation to 12 percent and raising GDP by 7 percent per year.

"I believe that is most likely achievable in 2009," Kudrin said.