Iraq vows to shield oil firms from union threats

* Union threats of strikes, sit-ins may unnerve oil firms

* Iraq says will protect oil firms from unions

* Iraq unions considered weak

By Khalid al-Ansary and Missy Ryan

BAGHDAD, July 17 (Reuters) - Iraq will protect foreign firms against threats from trade unions seeking to block a major oil deal with BP (BP.L) and China's CNPC, a pillar of Iraq's bid to renew its struggling oil sector, an official said on Friday.

"The Oil Ministry stresses its rejection of threats and provocation toward anyone: the government, the ministry, foreign firms," Oil Ministry spokesman Asim Jihad said.

"The government will protect the companies," he said.

Jihad said promises of strikes or sit-ins, designed to halt the deal with the BP and partner China National Petroleum Corp (CNPC), were politically motivated and might be linked to posturing ahead of Iraq's national elections early next year.

The Federation of Oil Unions of Iraq and the Federation of Workers Councils and Unions in Iraq vow to mobilise workers against the government's plans to award the foreign group the right to develop Rumaila, Iraq's largest producing oilfield.

The 20-year deal was the sole contract awarded in Oil Minister Hussain al-Shahristani's June 30 auction. It offered eight major oil and gas fields to foreign firms, as a part of Iraq's efforts to modernise the sector and boost production that now stands around 2.5 million barrels per day (bpd).

The unions, adding to other complaints from parliament and even some within Iraq's state-run oil industry about Shahristani's contract plans, say the deal would be illegal because it was reached in the absence of new energy legislation held up by political bickering between Arabs and Kurds.

UNIONS WEAK

But trade unions, effectively banned in 1987 by Saddam Hussein, lack robust legal protection in Iraq and their influence is modest. Analysts say it is doubtful they could do very much to derail such a deal.

While Shahristani faces pressure in parliament, there is perhaps even greater pressure for quick results in the oil sector, which needs investment to reverse years of decay and to boost exports that account for almost all Iraqi government income.

"The ministry asks its employees not to involve themselves in political struggles or settling of scores, and to instead focus on their work," Jihad said, calling the recent union hullabaloo a "media fuss".

Abdullah Eskander Habib, a member of parliament's oil and gas committee, said such threats could make firms, already hesitant about setting up shop in a country just emerging from over six years of war, think again.

"I believe the union stance will affect foreign companies coming to Iraq, especially if we take into account the unstable security situation in Basra. It's well known that capital is a coward," he said, referring to Iraq's southern oil hub.

Three U.S. soldiers were killed on Thursday by rocket or mortar fire in Basra, but violence has been relatively rare in Basra since Prime Minister Nuri al-Maliki battled the Shi'ite militias and gangs that once controlled the area in 2008.

It is unclear how seriously foreign firms take such threats.

"The unions can sharpen public opinion against the companies, that's what they can do," said Ali Hussain Balou, the oil and gas committee head who is a vocal critic of Shahristani.

Balou and others have demanded Shahristani submit the Rumaila contract to parliament for approval, but the Oil Ministry says it does not require such a vote. (Additional reporting by Waleed Ibrahim; Editing by Jon Boyle)