The Iraqi government reported Tuesday it has approved a $3 billion deal with China. An original deal had been brokered in 1997 but was canceled following the 2003 invasion. It would be the first contract honored by the Iraqi government from the former regime.

China, however, says the deal is still in the negotiation stages. Chinese Foreign Ministry representative Jiang Yu said the reports from the Iraqi government were wrong, Voice of America reported.

China National Petroleum Corp. would emerge as one of the first international companies developing Iraqi oil, flouting Western oil majors.

Iraqi Oil Minister Hussain al-Shahristani said the Western firms had not acted quickly enough to secure long-term deals for Iraqi oil reserves, the third-largest in the world.

Iran influencing Iraqi energy sector
The influence of the Iranian government on Baghdad has prompted officials there to discourage Western oil firms from tapping Iraq's substantial reserves, sources say.

Sources in the Iraqi Oil Ministry who spoke to Iraqi daily Azzaman on condition of anonymity said officials in Baghdad are moving quickly to secure a $3 billion, 20-year contract with the state-owned China National Petroleum Corp. rather than several Western oil majors.

Russia may also be a favored developer. Both countries brokered deals in the 1990s with the former regime, and the Chinese contract would be the first deal honored by the current government in Iraq since the U.S. invasion.

Though sources were uncertain of the degree of influence Iran had over the deal with China, they noted both the Interior and Finance ministries were held by Shiite officials who have warm relations with Tehran.

The allegation corresponds to complaints from U.S. officials that Iran is meddling in the internal affairs of Iraq and few developments occur without at least some level of advisement from Tehran, Azzaman said.

Meanwhile, Iran has become a key trading partner with Iraq, reaching several joint agreements with officials in Iraqi Kurdistan and the Shiite south.

West not ready for Iraqi oil deals, analyst says
An international analyst said the Western energy community may wait on the sidelines for Iraq's internal climate to settle before moving on oil contracts.

China is close to securing a $3 billion deal to explore the al-Ahdab oil field in Wassit province, but analysts say questions over security and internal conflicts in Iraq could have an influence on the direction of Iraqi energy policy.

In an interview with Trend Capital News, Mary Ann Tetreault, professor of international affairs at Trinity University in San Antonio, said China's growing population and booming economy make it more willing to take certain risks to secure oil supplies.

"The Chinese have imperatives that make them willing to take such risks. Other companies may have other imperatives that make Iraq attractive in spite of the drawbacks," she said.

The situation over the status of Kirkuk and the ongoing row between Iraqi Kurdistan and the Iraqi central government, not to mention the lack of effective legislation over the energy sector and a fragile security environment, makes investment risky, Tetreault said.

"Iraq has made great strides getting rid of outside terrorists, but we have no idea about the degree and range of sedimentation of criminal organizations, both national and transnational, and whether the people controlling the government now are prepared to share power or not," she said.

Regardless, with the third-largest oil reserves in the world, Iraq remains attractive to international investors.

"Other foreign companies are quite interested in investing in oil in Iraq. It is under-explored and under-produced," Tetreault said.

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