South Korean Firms Face Financial Risk in Iraq Project
Four construction companies face over 1 trillion won in unpaid fees and potential deposit loss for an Iraqi oil refinery.
Updated on Oct. 23, 2026 in Oil and Gas
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Four South Korean construction companies are at risk of losing over 1 trillion won after Iraq withheld payments and threatened to seize a contract deposit related to the Karbala Refinery project. Iraq cites unresolved facility defects and tax issues as primary reasons for the financial standoff.
Why it matters
The dispute complicates the future of the 6.8 billion dollar refinery project as Iraq demands significant compensation for construction flaws. Negotiations have faced major setbacks following leadership changes within the Iraqi oil ministry and the arrest of a key vice minister.
Four construction firms are currently owed 625.4 billion Korean won, with an additional 420.2 billion Korean won deposit at risk of confiscation. Iraq has further demanded 834.8 billion Korean won in compensation for 162 identified project defects.
The players
SCOP
This is the Iraqi state-owned company that commissioned the Karbala Refinery project.
Lee Jae-gang
He is a lawmaker planning to push for a government-wide support system to address the unpaid claims.
The details
The construction companies completed the transfer of the 140,000-barrel-per-day refinery facility in December 2023. Iraq is now requiring facility shutdowns or root-cause analyses for 120 of the 162 defects before releasing payments, complicating site access for the builders.
Timeline
2016: Companies recovered partial payments by selling crude oil.
December 2023: Companies handed over the refinery to the Iraqi side.
April 2025: Iraq agreed to pay 33.5 billion won in fees.
May 2026: Negotiations to resolve unpaid fees began.
October 27, 2026: Parliamentary audit on unpaid claims is scheduled.
Market Landscape
The current dispute marks a departure from the 2016 crude oil payment settlement where companies successfully recouped partial funds. This financial gridlock highlights the ongoing risks inherent in large-scale international infrastructure projects managed by state entities.
This dispute highlights the significant financial risks faced by international contractors working with state-owned enterprises in volatile markets. Investors should note how leadership turnover in foreign governments can disrupt long-term project revenue and cash flow.
The takeaway
Companies operating in high-risk international markets must ensure that tax and defect documentation protocols are strictly aligned with local state requirements. Managing these bureaucratic hurdles remains essential to avoiding the loss of contract guarantees and project fees.
What happens next
A parliamentary audit regarding these unpaid claims is scheduled to take place on October 27, 2026.
Further reading
For broader coverage of international energy infrastructure developments, visit the Oil and Gas section.
Source note: This article includes information reported by 조선일보.
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