By Colum Lynch
Washington PostJanuary 16, 2002
Six months after Russia blocked a U.S. effort to overhaul U.N. sanctions against Iraq, Moscow has emerged as Baghdad's largest export customer, according to U.N. diplomats.
Russian companies have signed more than $4 billion in business deals with Baghdad as part of a 1996 arrangement that allows Iraq to sell oil to purchase food, medicine and other humanitarian supplies. In the last six months, Russia concluded more than $1.4 billion in trade under the U.N. program, surpassing Egypt and France as the top importers of Iraqi goods during the past five years, the diplomats said, citing confidential U.N. figures.
The expanding trade with Russia is the product of a long-standing Iraqi policy of rewarding companies from countries that help it circumvent an 11-year-old U.N. embargo imposed after its 1990 invasion of Kuwait. It poses a major challenge for U.S. diplomats seeking Moscow's support for a plan to strengthen sanctions against Baghdad.
Iraq exported nearly $30 billion in high-quality crude to refineries in the United States, Europe and Asia over the past two years. Although the proceeds from Iraq's oil revenue are controlled by the United Nations, Baghdad retains the authority to choose its trade partners.
Iraq has used its financial muscle to undermine U.S. efforts to tighten sanctions and to guarantee a stream of nearly $2 billion a year in profit from smuggling and illicit oil sales that fall outside the control of the United Nations, according to diplomats. In the past year, it has steered billions of dollars in trade to countries that resist U.S. pressure.
For Syria, which has defied appeals by Secretary of State Colin L. Powell to subject Iraqi oil imports to U.N. control, trade with Iraq has tripled during the past six months, from $300 million in the first half of 2001 to $922 million during the second half of the year, according to U.N. diplomats. Syria imports about 180,000 barrels of Iraqi crude a day, said Walid Khadduri, editor in chief of the Middle East Economic Survey.
Under the oil-for-food program launched in December 1996, Iraq can sell oil and use the proceeds to purchase food and medicine and to rebuild the country's infrastructure. But the United States and other Security Council members can place "holds" on contracts for items they suspect are intended for the Iraqi military.
The United States has used that power to block nearly $5 billion worth of contracts this year, including about $900 million in Russian deals. But it has also demonstrated a willingness to release contracts for countries such as China that have thrown their support behind Washington's sanctions policy.
The Bush administration pledged last month to release more than $200 million in frozen Russian contracts as it sought Moscow's backing for an overhaul of U.N. sanctions policy against Baghdad, a senior U.S. official said.
"We've cleared out a dozen contracts valued at over $200 million," the official said.
The United States unfroze a $147 million deal between the Russian electrical power firm Technopromexport and Iraq on Jan. 9. Washington has assured Moscow that it will release an additional $60 million once it has provided additional paperwork on how the equipment will be used. It has also made it clear that Russian contracts will flow more swiftly if Moscow agrees to endorse a list of items with potential military applications that require Security Council approval before they can be sold.
"The Russians will be rewarded by the Americans if they accept the goods review list," said a council diplomat. "But if they do, they will probably be punished by the Iraqis."
Russian Foreign Minister Igor Ivanov told Powell last year that the new U.S. sanctions policy was "a major threat to Russian trade and economic interests. We cannot allow it to pass."
Russian companies already control about one-third of Iraq's multibillion-dollar oil export market. The Russian government is trying to recover nearly $7 billion in loans made to Iraq in the 1980s for the purchase of Russian arms. Discussions between Moscow and Baghdad are underway for about $30 billion in future projects. And Russia recently signed a production-sharing agreement to export more than 600,000 barrels a day from the West Qurna oil field, Khadduri said. "At today's prices, that's about $2 billion a year," he said.
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