Rosneft is trying to strengthen its positions in the middle East

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The head of “Rosneft” Igor Sechin to visit Baghdad for talks with Iraqi authorities about the fate of the company’s contracts with the Kurdish government. He’ll probably meet with the Prime Minister of Iraq, Haider Jawad al-Abadi. According to the signed last year contract, Rosneft had to purchase the oil produced in the Kurdish-controlled region of Iraq, Kirkuk.
“Rosneft” has paid the Kurds $1.3 billion pre-payment, but the contract was not fully performed because the deposits of Kirkuk was occupied by the Federal forces of Iraq. The authorities do not recognize any agreement of the company with Iraqi Kurdistan. However, Russia has something to offer to Baghdad: first of all, this weapon export the upgraded T-90 tanks. The negotiations will, of course, by far the hardest.
International expansion of Russian oil companies is now severely restricted due to geopolitical risks and sanctions. But 10 years ago the situation was completely different. For example, ConocoPhillips was the second shareholder of LUKOIL from 20% share in the capital. Analysts of Russian and Western financial companies in all seriousness drew the scheme of merger of the two oil giants.
Now the situation is different. The Russians can only operate in Iran, Iraq or Venezuela, that is, in countries and regions that are not controlled by Western influence. The emergence of Russian PMCs in the middle East is associated primarily with the need to ensure security defence operating activities of Russian oil and gas holdings. Of course, there is the Arctic. However, the majority of Arctic fields, even when tax incentives are profitable only at prices above $100 per barrel.
International expansion reflects poorly on the capitalization of Russian oil companies, including “Rosneft”. Investors are more interested in tax regime on new fields and the percentage of profit allocated for dividends and the frequency of their payments. A key event in 2018 should be the IPO of Saudi Aramco, its pricing will become the benchmark for most oil companies from emerging markets, including from Russia. However, we believe that the Saudis principle will not sell securities cheap.
In conclusion, we should say that “Rosneft” plans to build a gas pipeline with a capacity of 30 billion cubic meters from Kurdistan to Europe, but the project was called into question, since its implementation requires the consent of Turkey on the transit. And here, probably, all will depend on the negotiations between Vladimir Putin and Recep Tayyip Erdogan.
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Alexander Razuvayev,
The Director of analytical Department,
Alpari