Russia has cultivated relations with Iraq and Kurdistan for quite some time.

As geopolitical chess pieces move, Moscow, with Beijing as its ally, strategically advances towards controlling the energy narrative and investment in Iraq, an effort to distance Baghdad from Western energy engagements and align it with the emerging Iran-Saudi Arabia axis. By the year 2023, Russia’s stake in Iraq’s energy sector is expected to reach a significant $19 billion mark. In a notable development during March 2023, the Iraqi state-owned Dhi Qar Oil Company (DQOC) ratified the development plans for Block 10 reserves, a sector that encompasses the entire Eridu field, the most significant oil discovery on Iraqi soil since 2003. Preliminary assessments suggest that the Eridu oil field houses an immense reserve, ranging between 7 and 10 billion barrels. The exit of Inpex, a Japanese corporation, from its 40 percent holding in Block 10, which boasts the substantial Eridu discovery, has facilitated a streamlined path for Lukoil to assert dominance over this resource-rich expanse. Concurrently, the departure of Exxon Mobil from the lucrative West Qurna oil field in Basra has allowed Lukoil to reacquire its shares.

The tapestry of military and energy collaborations between Russia and Iraq paints a picture of their deepening cooperative relationship. An enterprise such as Lukoil has channelled up to $11 billion into Iraq’s southern provinces, notably the Basra region. Beyond the oil fields, the maritime sector emerges as a fertile ground for Russian-Iraqi collaboration. With Iraq’s strategic placement along critical maritime conduits complemented by Russia’s seasoned expertise in port development and maritime logistics, the convergence of interests is unmistakably evident. Such collaborative ventures aimed at enhancing Iraqi port infrastructure and fostering robust maritime cooperation are anticipated to significantly bolster the efficiency and throughput of Iraq’s maritime trade routes, attracting heightened trade and investment flows.

The discourse then shifts to probe the genesis of Russia’s involvement in Iraq. It questions the catalysts behind Russia’s strategic shift in the region. Do the Russian and Chinese strategic projects in Iraq and its vicinity propose a rectification of historical injustices dating back to the post-World War I era? What ramifications do the oil and gas resources of Iraq and the Kurdistan Region hold for Russia’s geopolitical ambitions? And what historical-political narratives could the Russian presence in the region be scripting for Iraq and the Kurdish populace?

In the broader context of global geopolitics, the preference matrix for global powers and industrial magnates remains skewed towards ensuring national security and fostering a competitive edge in energy distribution. This was evident at the COP28 climate change summit in Dubai, held from December 1 to December 4, 2023, where 134 nations inked the UAE Declaration. The summit saw an assembly of over 70,000 participants, including government leaders from 200 countries and a congregation of decision-makers, scientists, experts, heads of state, and members of international bodies, engaging in earnest dialogues to unearth solutions and financial strategies for climate change initiatives.

Yet, conspicuously absent were the two largest industrial nations. The UN Secretary-General, in his COP-28 address, starkly emphasized the imperative of ceasing fossil fuel consumption to rescue our planet. However, this environmental plea stands in stark contrast to a backdrop dominated by geopolitical strategies, reactions, the hydrocarbon industry’s sway, and energy pricing in the global economic arena.

Within this complex weave, Simon Watkins—esteemed financial journalist, former head of institutional forex sales and trading, later director of forex at the Bank of Montreal, and a geopolitical risk consultant to major hedge funds in London, Moscow, and Dubai—sheds light on Russia’s geopolitical maneuvers. His 2023 publication, The New Global Oil Market Order And How To Trade It, delves into Russia’s strategic advances in Iraq and the Kurdistan Region from the onset of 2017 through the culmination of 2023. Watkins elucidates how these developments have altered the dynamics of the global oil market, forging new paradigms and dictating novel rules of engagement.

For Watkins, the quintessence of oil in determining a nation’s economic destiny is unequivocal. Its influence is so profound that it molds both domestic and international policy of major oil producers and consumers. In a realm where the stakes tower high, the key players in the global oil theatre are inclined to employ every conceivable strategy to secure an advantage. The trader, thus, must remain vigilant of the seismic shifts that have transpired over the recent years, particularly with the advent of the COVID-19 pandemic reshaping the conduct of the world’s leading oil market stakeholders and redefining political and diplomatic strategies at the regional echelon.

It was from the Kurdistan Region that Russia initiated its strategic manipulation. Rosneft and Gazprom, behemoths that function as extensions of the Russian state apparatus, though commercial in their pursuits, ultimately serve the Russian government’s directives, Vladimir Putin’s vision, and the plethora of entrepreneurs whose fortunes are tethered to uninterrupted access to global energy reservoirs. Since 2018, through a series of calculated business transactions, Rosneft has emerged as a notably assertive arm of Russian state interests. Its prominence is underscored by hefty investments across key foreign policy theatres for Russia, spanning the Arctic, China, Vietnam, Venezuela, Africa, and the Middle East.

In a significant episode in June 2017, a delegation from the Kurdistan Regional Government, led by Prime Minister Nechirvan Barzani, Deputy Prime Minister Qubad Talabani, and Minister of Natural Resources Ashti Hawrami, attended the St. Petersburg Economic Forum. The forum, attracting 130 national leaders and 12,000 attendees, culminated in a pivotal contract with Ross Oil.

Typically, oil and gas contracts involve the product owner, the exporting party, and the buyer. In the agreement between the Kurdistan Region and Rosneft, a $1 billion investment was earmarked for constructing a liquefied gas pipeline from the Kurdistan Region to the markets designated by Rosneft. Since 2017, Rosneft has extended $3.5 billion in loans to the Kurdistan Regional Government (KRG) and has inked deals for the development of five oil blocks. As of April 2018, both parties committed to a geological exploration program and the commencement of pilot production. This agreement gained significance as the two largest American energy conglomerates, Exxon Mobil and Chevron, vacated several fields in the Kurdistan Region between 2015 and 2016. Amidst the military onslaught against ISIS, the federal government in Baghdad withheld financial support for the Kurdistan Region, including payments for the Peshmerga forces. In 2017, as the Kurdistan Region edged towards an independence referendum, it became apparent that the United States would not back the Kurds against Baghdad or support their quest for political sovereignty. Despite voting for independence, the Kurdish referendum was scuttled due to pressure from the Iraqi government and the absence of American endorsement.

For Iraq, the endgame of Russia’s maneuvers became clear with the effective Russian ascendancy over the oil and gas sectors in the Kurdistan Region. The grip was fastened through a trifold strategy: an upfront financing of US$1.5 billion through advanced oil sales, an 80 percent operational interest in the region’s five pivotal oil blocks, and a 60 percent stake in the vital pipeline previously established by the Kurdistan Regional Government. This pipeline, slated for a $1.8 billion investment to augment its capacity to 1 million barrels daily, has since become a cornerstone of Russian sway in the region.

In the ensuing narrative, Russia’s tactics have culminated in a sudden face-off with the Iraqi central government in Baghdad, the ultimate step in its grand scheme to seamlessly integrate the Iraqi Kurdistan Region with the rest of Iraq. With 2023 on the horizon, Russia’s involvement in Iraq’s gas sector is set to deepen. In this context, Russia and China are strategically positioning themselves to cement their hegemony over the entirety of Iraq. The orchestrated exit of Inpex from the expansive Eridu field exemplifies their expansionist strategy in action.

From the inception of the Soviet Union in 1922, Russia’s foreign policy has been characterized by an impulse to extend its influence into regions of turmoil. The current Russian endeavor to assert its will in the Middle East, building upon its aggressive posturing in neighboring Iran, is therefore in keeping with historical precedence. The objective in September 2017 was not just to extend Russian influence into Iraq, but to maneuver in the semi-independent Kurdistan region as a precursor to broader dominion over southern Iraq. With this, Russia aims to preside over the unification of northern and southern Iraq under its influence, thus affirming its long-standing expansionist ambitions.

Tracing the energy alliance: Russia and Iraq’s shared history

Russia’s involvement in Iraq and the Kurdistan Region’s energy sector has emerged as a significant development in the geopolitical landscape. Michael Barantschik, an authority on Middle Eastern oil and gas history, traces the origins of trade and investment relations between the two regions to a complex past. From medieval trade routes spanning the Volga and Caspian Sea to the establishment of formal diplomatic relations in 1944, the foundation was set for a strategic alliance. This bond was further strengthened when Russian President Vladimir Putin forgave much of Iraq’s Soviet-era debt in 2008, paving the way for a $4 billion oil deal and marking a deeper economic involvement. The trend continued in 2012 with the Russian oil company Lukoil playing a significant role in Iraq’s energy sector.

This burgeoning relationship has since expanded beyond mere energy transactions. In a gesture of goodwill and strategic partnership, Russia has offered 200 free educational courses to Iraqi citizens, underscoring a commitment to broader cooperation. Economic ties have also been bolstered through agreements aimed at boosting cooperation in the oil sector, including exploration, drilling projects, and infrastructure development. These agreements represent a vital step towards deepening energy ties and ensuring a steady flow of investments, which are critical to the sustainability and growth of the Iraqi oil industry.

In the gas sector, Iraq’s aim to reduce flaring has found a partner in Russia’s extensive experience in gas production and processing. The potential for technical assistance and joint investments in gas processing facilities presents a promising area for collaboration. However, the relationship is not solely confined to energy. Exploring new avenues for economic cooperation across different sectors, including agriculture, technology, and manufacturing, can create a diversified economic engagement, enriching the ties between the two nations.

The importance of transportation and infrastructure in Russia-Iraq bilateral relations is undeniable, forming the backbone for enhanced trade and economic cooperation. Iraq’s ambitious $17 billion project to enhance its transportation infrastructure is aimed at creating a major trade artery from the southern Faw Port to the Turkish border. This project is seen as a cornerstone for a sustainable non-oil economy and a means to foster economic integration within the region.

However, the political climate has not always been conducive to steady progress. Kirkuk, the birthplace of the Iraqi oil industry, has experienced its share of turmoil. British Petroleum’s (BP) memorandum of understanding in 2013 with the Iraqi Oil Ministry’s Northern Oil Company was a promising development for field exploration and research. Yet, the incursion of ISIS and the subsequent control of Kirkuk oil fields by Kurdish forces put a damper on operations, leading to BP’s eventual exit, leaving behind their work and a potentially transformative production increase unfulfilled. This departure opened the door for Russian companies to strengthen their presence in the region.

The strategic interests of Russia in the region go beyond simple economic ties. The concept of Eurasia, a cornerstone of Russian geopolitical thought, reflects an ambition to change the unipolar system of world governance. This aim is evident in Russia’s desire to maintain a presence in strategic energy basins, historically dominated by Western powers. Turkey’s strategic location at the heart of Eurasia underlines its importance in any energy dealings emanating from the Kurdistan Region or Iraq.

The Kurdistan Region’s energy sector, with its complex political economy and national security challenges, is waiting for a comprehensive strategic project to strengthen its natural resources. Such an initiative would enable the region to undergo a geopolitical transformation, increasing its political, economic, diplomatic, and security strengths.

Russia’s increasing involvement in Iraq and the Kurdistan Region’s energy sectors reflects a broader pattern of economic ambition and strategic positioning. However, the path to solidifying these ties is littered with challenges, both internal and external. Geopolitical tensions, international sanctions, and a complex regulatory environment create significant obstacles to economic cooperation. Engaging in an ongoing dialogue at the bilateral and regional levels is essential to address these concerns and foster a stable environment for economic collaboration. Strengthening financial infrastructure and exploring alternative financing mechanisms can mitigate financial barriers, facilitating trade and investment flows between Russia and Iraq.