Oil events show Iraq's challenges

BAGHDAD - A standoff between Iraq and Iran over a remote oil well ended peacefully yesterday as Iranian forces pulled back from the disputed site.

Also, in Baghdad, officials approved a preliminary deal with an international group to develop another oil field, one of Iraq's most prized.

Together, the events highlighted the economic and diplomatic challenges facing Iraq as it tries to expand its reach in the global oil market.

In Iraq's southern Maysan province, soldiers escorted a dozen oil workers back to well No. 4 on the al-Fakkah oil field after Iranian forces withdrew overnight. Iraqi soldiers planted an Iraqi flag at the well where Iran's flag had flown during the dispute that began Thursday.

"The problem is solved now," said Abdul-Karim Elaibi, Iraq's senior deputy oil minister. Diplomatic talks over the disputed border were continuing, he said.

Well No. 4 stopped producing oil in the 1980s as a result of the Iran-Iraq war, but "Iranian harassment" started in 2007 after Iraq worked to get it operational again, he said.

Iran and Iraq claim parts of al-Fakkah. Located 200 miles southeast of Baghdad, the oil field has an estimated 1.5 billion barrels in reserve.

In Tehran, the office of Iranian Foreign Minister Manouchehr Mottaki said he and his Iraqi counterpart, Hoshyar Zebari, discussed the case by phone late Saturday.

Mottaki said Iran was committed to talks with Iraq through a joint border committee and blamed "foreign elements" for causing disruption - echoing earlier Iranian accusations that foreign media had tried to undermine ties between the two countries, according to a statement on the Web site of his office.

Iraq this year signed contracts with several foreign companies to develop its oil fields. The Maysan oil fields, also known as Missan, were among those offered for development to foreign oil companies in June, though no bids were received.

Meanwhile, in Baghdad, Iraqi officials signed a preliminary deal with an oil consortium led by European giant Royal Dutch Shell P.L.C. and Malaysia's state-run Petronas.

The deal, which still must be approved by Iraq's cabinet, is critical to the country's postwar recovery. It is aimed at boosting Iraq's oil exports and bringing in money to help rebuild after the 2003 U.S.-led invasion and decades of neglect and international sanctions under Saddam Hussein.

Iraq has not been able to raise output to even close to pre-2003 levels and, with outdated technology, is limping along at roughly 2.5 million barrels per day. That is well short of Iraq's goal of joining the ranks of other heavyweight members of the Organization of Petroleum Exporting Countries.

Shell-Petronas won the right to develop the southern Majnoon oil field - with estimated reserves of 12.5 billion barrels - during Iraq's second round of postwar bidding, which offered 15 oil fields earlier this month.

The Shell-Petronas deal was one of only seven awarded to international consortiums during the two-day bidding round that began Dec. 11. International companies largely shied away from oil fields in the country's most violent regions.