ExxonMobil’s Interest in Acquiring the West Qurna-2 Oilfield

Geopolitical and Macroeconomic Implications of a Giant Asset Transfer from Russia to the United States

1. Introduction: Why West Qurna-2 Matters in 2025

West Qurna-2, located in southern Iraq, is one of the world’s largest oilfields, with more than 8 billion barrels of recoverable reserves and a production capacity of 470–480 kb/d. It has been operated by Russia’s Lukoil, which holds a 75 percent stake and acts as operator under Iraq’s technical service contract framework.

Following US-UK sanctions imposed in late 2025, Iraq halted all payments to Lukoil, forcing the Russian company to declare force majeure on the project. This created a strategic vacuum in one of Iraq’s most vital revenue sources.

ExxonMobil’s subsequent expression of interest in acquiring Lukoil’s stake is more than a simple corporate transaction. It intersects three critical global themes:

1. The evolution of sanctions against Russia
2. The restructuring of energy governance in the Middle East
3. The stability of global oil supply and price formation

The following report analyzes this development through a macroeconomic and geopolitical lens.

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2. Background: Why Lukoil Is Exiting and Why Iraq Is Seeking a New Operator

2.1 Collapse of project viability under sanctions

US and UK sanctions disrupted all financial flows to Lukoil. As a result:

• Iraq suspended payment of cost recovery and remuneration fees
• Lukoil was unable to fund operational expenses and capital investment
• Service providers halted activity
• The company declared force majeure

This episode demonstrates how sanctions on corporate entities can effectively neutralize strategic energy assets without directly targeting the physical infrastructure.

2.2 Iraq’s strategic rationale: Preservation of fiscal stability

Iraq derives roughly 90 percent of government revenue from oil. A prolonged shutdown of West Qurna-2 would:

• Undermine fiscal capacity
• Reduce Iraq’s negotiating leverage within OPEC+
• Raise domestic political pressure

Iraq publicly stated that its national oil companies cannot assume full operational responsibility for an asset of this scale. Hence the government has invited bids from major international oil companies, explicitly including US supermajors.

This decision reflects economic rationality: Iraq needs a technically competent and financially robust operator that can stabilize production quickly.

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3. ExxonMobil’s Strategic Incentives

3.1 Long-life, low-cost resource acquisition

In an era of energy transition, Exxon’s upstream strategy still prioritizes giant, low-cost, long-duration assets that provide predictable cash flows. West Qurna-2 offers:

• Extremely large reserves
• Low lifting costs
• Long productive life

These characteristics make the asset highly attractive despite regional risk.

3.2 Re-establishing influence in Iraq and the broader Middle East

Exxon previously operated the neighboring West Qurna-1 field but gradually exited due to contractual and political difficulties. Interest in West Qurna-2 signals:

• A renewed strategic commitment to Iraq
• Rebalancing of Exxon’s Middle East portfolio beyond Saudi Arabia and the UAE
• Restoration of its historical position as a major Iraq operator

Exxon has also recently signed cooperation frameworks with Iraq on other upstream projects, suggesting a broader diplomatic and commercial rapprochement.

3.3 Alignment with US foreign policy: A high-synergy transaction

This is the most geopolitically consequential dimension.

An Exxon takeover advances US policy objectives by:

1. Cutting off a major revenue source for Russia
2. Ensuring no loss of physical oil supply, thereby stabilizing global prices
3. Strengthening US corporate presence in a critical region
4. Supporting Iraq’s fiscal and political stabilization

In essence, the transaction allows Washington to combine two goals that typically conflict:
sanctions enforcement and global supply stability.

This policy alignment significantly increases the probability of regulatory approval.

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4. Competitive Landscape: Exxon as the Most Logical Operator

Reuters reports that several US supermajors, including Chevron, have explored potential acquisitions of Lukoil’s overseas assets. However, for West Qurna-2:

• Operational scale
• Iraq-specific experience
• Balance-sheet capacity
  all point to Exxon as the most credible candidate.

Three outcome scenarios are plausible:

• Scenario A: Exxon acquires a majority stake and becomes sole operator (base case).
• Scenario B: Exxon leads a consortium with one or two US majors.
• Scenario C: Exxon withdraws over contractual issues, enabling another supermajor to enter.

Scenario A or B remains most likely.

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5. Implications for the Global Oil Market

5.1 Avoidance of a supply shock

A complete shutdown of West Qurna-2 would remove roughly 0.5 percent of global supply, tightening markets. Rapid takeover by a US major would:

• Minimize physical supply disruption
• Reduce geopolitical risk premiums in futures markets
• Improve expectations of medium-term production stability

Thus the transaction is more a risk-premium reducer than a price-raising event.

5.2 Shifting power dynamics within OPEC+

For Russia, the loss of this asset is economically damaging and strategically symbolic.

Within OPEC+, the transfer of operational control to a US company:

• Weakens Russia’s influence in supply coordination
• Enhances the relative weight of Gulf producers aligned with Western interests
• Reconfigures the governance architecture of Iraqi production

This represents a subtle but meaningful shift in the global energy power map.

5.3 Compatibility with the energy transition

Although the acquisition appears counter to decarbonization efforts, from an economist’s standpoint:

• Low-cost Middle Eastern oil remains the anchor of the global marginal cost curve during the transition period
• Transparent, well-governed operatorship by a Western major improves environmental compliance
• Stable supply supports a smoother transition to low-carbon systems

Therefore the move is not inherently contradictory with long-term climate pathways.

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6. Risks That Could Block the Transaction

1. Regulatory uncertainty in sanctions licensing
   The US Treasury’s temporary license must be extended; political developments could alter licensing conditions.
2. Contractual complexity in Iraq’s service-contract framework
   Disputes over remuneration fees, cost-recovery formulas, or local-content requirements could derail negotiations.
3. Security and infrastructure risks
   Instability in Basra, pipeline vulnerabilities, and export-terminal bottlenecks directly affect project IRR.

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7. Conclusion: A Prototype for Sanctions-Era Energy Governance

ExxonMobil’s interest in West Qurna-2 reflects a rare convergence of:

• Corporate economic logic
• Host-country fiscal stability needs
• US geopolitical strategy
• Global market stability considerations

Crucially, this transaction embodies a new model in the sanctions era:
removing revenue from adversaries without removing supply from the market.

If executed successfully, it may serve as a precedent for how major energy assets are reallocated amid geopolitical fragmentation and long-term energy transition.