The governments of South Korea and Iraq have combined to sign a $3.55 billion deal, in which the former will help rebuild the war-torn country in exchange for oil and gas reserves.
The mutual-interest pact was signed on Tuesday by South Korean President Lee Myung-bak and by his Iraqi counterpart Jalal Talabani. However, the deal is not expected to be completely finalised until later on in the year.
Seoul is set to provide a sustained investment in technology to help start rebuilding infrastructure in Iraq, in return for a steady supply of oil, and rights for development of the industry in the mineral-rich nation. More specifically South Korea will be granted the rights to the oil field of southern Basra, which account for around 70% of Iraq’s current output. Iraq possesses the world’s third-largest reserves of crude oil.
South Korean Presidential spokesman, Lee Dong-kwan said: “This, of course, is now a small deal because it entitles is to over two billion barrels of oil, which will be enough to supply the entire nation for nearly the next three years.”
For the Asian nation the deal ensures a steady flow of oil for a future, amongst which the price of a barrel remains uncertain. At current South Korea imports around 870 million barrels of crude per annum.
In a similar vein to neighbouring China and Japan, South Korea is clearly stepping up its attempts to reduce its own burden of oil dependency. By securing stakes in overseas oil field they are capable of alleviating themselves from this.
The right to sign independent oil firms has long been a hotbed for debate, and tension, between the Kurdish regional government and the Iraqi, Shi’ite Arab-lead central government. The struggle between the two sides has often played itself out in public as the two sides battle for vital control over both territory and – more importantly – oil reserves. Baghdad has stated in the past that such contracts are illegal without the prior consent of the central government.
However, of late the dust has begun to settle somewhat. State-operated KNOC recently entered into a $2.1 billion investment in Kurdish oil fields by itself, after consortium members dropped out over fears of political instability.
In reference to Tuesday’s landmark deal South Korea’s Energy Ministry, commented: “We regard the new agreement as evidence that tensions between South Korea and Iraq, due to Korea National Oil Corp’s involvement in the Kurdish oil development business, have eased.”