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Russia exchanges debt for Iraqi oil

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KAI RYSSDAL: There was an interesting oil-related quid pro quo between Russia and Iraq today. First, Russia agreed to forgive Iraq’s $13 billion debt for military equipment that was delivered back in Soviet days. In return, Iraq will revive oil contracts the two countries signed before Saddam Hussein was deposed, and the Russian oil conglomerate Lukoil will pump $4 billion into Iraq’s underperforming oil fields.

Marketplace’s John Dimsdale reports from Washington.

JOHN DIMSDALE: Russia has been working to restore its Iraqi oil connections ever since the U.S. invasion. Writing off Iraq’s old debts helped give the Russians an inside track, but analysts say today’s deal is also a sign of security improvements in Iraq’s oil fields.

ADAM SIEMINSKI: Things are starting to get a little bit better from a business standpoint in Iraq now. Hey, McCain was right, the surge worked.

That’s Deutsche Bank oil analyst Adam Sieminski. He says the Russian agreement will make oil more plentiful, and that’s good news for global markets. Russia doesn’t need the oil, so it will sell Iraq’s oil to international customers. Waiting in the wings is another deal the war put on hold, this one with the French oil giant Total, and since Iraq is sitting on some of the world’s biggest known oil reserves, Sieminski anticipates more contracts in the near future.

SIEMINSKI: Getting deals like this is something that will progress as the violence in Iraq subsides and the government moves along on determining exactly how they are going to interact with the international oil companies. So the U.S., French, British, Russian and Chinese oil companies will probably all be doing something in Iraq.

Many doubted Russia could salvage its Iraqi oil investments after the war, given U.S. dominance in the country, but in 2004 the U.S. company ConocoPhillips became a strategic partner with Russia’s Lukoil, giving the Iraqi government the green light to resume contract negotiations.

In Washington, I’m John Dimsdale for Marketplace.

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