The Great Exodus of Iraqi Oil, considering the mass exodus of major Western oil companies from Iraq in recent months, shows no signs of reversal anytime soon. Russia and China are in a better position to advance their own interests in this oil- and gas-rich country. This major Iraqi oil exodus is unlikely to change, even with the recent Iraqi elections that left anti-U.S. cleric Moqtada al-Sadr as the de facto leader, alongside the 'Sairoon' coalition (Forward Movement). This was not lost on Lukoil in its approach to the giant West Qurna 2 super oil field, located about 65 kilometers northwest of the southern port of Basra and holding approximately 14 billion barrels of reserves. The threat by Lukoil to Iraq’s Ministry of Oil over West Qurna 2, or vice versa, is a common and much-anticipated feature of the oil market for seasoned observers, and this year is no different. First, there was Lukoil's threat to sell part or all of its stake in the field unless terms were improved, to which the Ministry of Oil initially did nothing. Then came the Ministry calling Lukoil's bluff, stating it would leave if desired, provided a buyer could be found—leaving Lukoil silent for some time. Now, the familiar crossroads has been reached where the Russian company has stated that, if it wishes to remain, it wants improvements to the terms of its deal on West Qurna 2. Both parties have their reasons for wanting changes, tied to field operations and major events that shape subsequent tactical stances. In August 2017, Lukoil announced plans to dramatically increase production at West Qurna 2. At the time, the field was producing around 400,000 barrels per day (roughly 9% of Iraq's total oil production) under Lukoil’s operation, which held a 75% stake in the field, with the remaining 25% owned by Iraq’s state-run North Oil Company. The development plan aimed to boost crude oil production to 480,000 barrels per day in Phase 2, followed by an additional 650,000 barrels per day in Phase 3, which would focus on the deeper Yamama formation. The final target of 1.13 million barrels per day may seem high to some, even though the initial target was 1.2 million barrels per day. However, it was fully justified both by U.S. geologists during the U.S. occupation and by various International Oil Companies (IOCs). The issue, even back then, from Lukoil's perspective, was its belief that the remuneration rate it received per barrel was too low. At the time, the Russian company had spent at least $8 billion developing the field, according to its spokesperson, yet it was compensated only $1.15 per barrel of recovered oil. This was the lowest rate paid to any IOC in Iraq at the time, dwarfed by the $5.50 per barrel paid to Gazprom Neft for developing the Badra oil field. Lukoil recognized that developing West Qurna 2 on its own would allow it to double its overseas production once Phase 3 began (Lukoil's total global hydrocarbon production was 2.2 million barrels per day in 2016). However, it also acknowledged that Iraq's low global lifting costs per barrel ($1–2 per barrel excluding capital expenditure and $4–6 per barrel including capital expenditure) meant its profit margin per barrel, based solely on recovery compensation, was very thin. It also irked the Russian company that, due to Iraq’s ongoing cash crisis, the Ministry of Oil still owed Lukoil around $6 billion for various unpaid compensations on recovered barrels and other development payments. In August 2017, Lukoil was assured that the Ministry of Oil would pay the $6 billion owed to the company as soon as possible, and higher compensation rates per barrel would be considered promptly. Additionally, the Ministry agreed to provide more flexibility to the Russian company in implementing the Development and Production Service Contract terms for the West Qurna Contract Area (Phase 2) signed by Lukoil on January 31, 2010. This would allow Lukoil to implement its field investment development program over an extended contract period from 20 to 25 years. This extension would lower the average annual cost for Lukoil. For its part, the Russian company agreed to invest at least $1.5 billion in the oil field within the next 12 months, with the aim of increasing production from 400,000 barrels per day to 1.13 million barrels per day—a deal that was agreed upon. More issues from Russia’s perspective began soon after the new agreement, with delays in repaying the $6 billion owed by the Ministry of Oil and less stringent implementation of the development investment program. Given the Ministry's agreement as far as Lukoil was concerned, the Russian company decided not to justify further at that time, believing that, with some justification, it would still not proceed smoothly. However, from the Ministry of Oil's perspective, its view of Lukoil's activities significantly changed in November 2017 (just three months after the August agreement) when it learned that Lukoil had not only achieved production of 650,000 barrels per day during various extended periods but could also maintain production of at least 635,000 barrels per day going forward. Still, the company chose not to do so for economic reasons outlined earlier. "At that time, the Ministry of Oil agreed to extend the contract period to 25–30 years, effectively reducing the daily capital cost per barrel of recovered oil and allowing Lukoil the option to increase its stake from the current 75% to 80%," a source working closely with Iraq's Ministry of Oil exclusively told OilPrice.com. "In return, Lukoil agreed to invest an additional $1.4 billion in the short term and a further $3.6 billion, depending on variables such as OPEC quotas and continued development of export capacity in the South," the source said. That concludes the report, "The Great Exodus of Iraqi Oil: Great News for Russia," from GICTrade. Read other updated articles and news on commodities and forex at GIC Journal, such as "The Benefits of Forex Trading: How to Profit & Calculate It." Also, hone your trading skills by obtaining a scalping guide ebook and participating in the NFP Live Trading event.