Analysis: Losing the Iraq war

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, Nov. 8 (UPI) -- The Security Council Friday approved a tough resolution calling upon Iraq to disarm or face military action. The decade-old sanctions regime has provided countries such as Ukraine, Belarus and the Serb part of Bosnia-Herzegovina with lucrative commercial opportunities.

According to international and Israeli media, they all illicitly sold arms and material -- from active carbon filters to uranium -- to Iraq's thuggish rulers, though Ukraine still denies it vehemently.


The impending war and the lifting of sanctions likely to follow will grind these activities to a halt. This would not be the first time the countries of Central and Eastern Europe -- from the Balkans to the steppes of Central Asia -- bear the costs of Western policies against Iraq.

In the wake of the Gulf War, Iraq defaulted on its debts to all and sundry. The members of COMECON, the now-defunct communist trade bloc, were hit hardest. According to Mikhail Margelov, chairman of the International Affairs Committee of Russia's Federation Council (upper house), Iraq still owes Russia alone about $7 billion to $12 billion in pre-1990 principal, mainly for arms purchases.


Macedonian construction groups were active in Iraq between 1950-90. They are owed tens of millions of dollars -- the equivalent of 5 percent of gross domestic product, say sources in the government. Yugoslav, Czech, Polish and formerly East German firms are in the same predicament.

A typical case: the Belarus news agency, Belapan, reported recently how Leonid Kozik, leader of the Federation of Trade Unions of Belarus, co-chairman of the Belarusian-Iraqi Joint Commission on Trade and Economic Cooperation and a close aide to Belarusian President Aleksander Lukashenka, traveled to Iraq in an effort to recoup millions of dollars owed to the Belarusian metals and energy concern Belmetalenerga.

The unfortunate company -- the country's exclusive export channel to Iraq -- sold to it a range of goods, including 500 tractors worth more than $5 million in 1999.

The chances of recovering these debts diminish by the day.

East-West Debt, an international financial company specializing in purchasing and recovery of overdue trade or bank debt in high-risk countries, published this advisory recently: "Many enterprises, banks and insurance companies are still holding uninsured trade debts on Iraq, due to exports or loans originating from before 1990. Please be aware that these claims on Iraq may become time-barred."


Russia reasonably claims to have sustained $30 billion in lost business with Iraq since 1991. Even now, dilapidated as it is, Iraq is a large trade partner.

According to the United Nations, bilateral trade under the oil-for-food program since 1996 amounted to $4.3 billion. The real figure is higher. Russia's oil industry is private and keeps much of its revenues off the books. Tens of thousands of Russians used to purchase Iraqi goods in Turkey and sell them back home -- a practice known as the "shuttle trade."

Russia and Iraq confirmed in August they are negotiating $40 billion to $60 billion worth of cooperation agreements in the oil, agriculture, chemical product, pharmaceutical, fertilizer, irrigation, transportation, railroad and energy sectors.

According to The Washington Post, some of the 67 10-year accords relate to oil exploration in Iraq's western desert. An Iraqi delegation, headed by the minister of military industry, visited Belarus last month in an effort to conclude a similar economic package. But such contracts are unlikely to materialize as long as the sanctions remain intact.

Radio Free Europe/Radio Liberty reports that Russian firms already control two-fifths of sales of Iraqi oil in world markets. Even American companies use Russian fronts to trade with the embargoed country, claim sources in the energy sector.


The Financial Times exposed two years ago similar arrangements between U.S.-based suppliers, oil and service companies and West European entities.

According to The New York Times, a Russian consortium, led by Lukoil, signed a 23-year, $3.5 billion agreement with Baghdad to rehabilitate some of its crumbling oil fields. According to the British Broadcasting Corp., Lukoil also inked unusually favorable production-sharing agreements with the desperate Iraqi government.

Whether these $20 billion concessions will be honored by Baghdad's post-war new rulers is questionable. Even the current regime is incensed that Lukoil hasn't started implementing the contracts due to U.N. sanctions.

According to Asia Times, the Iraqi government has recently excluded the Russian firm from its list of accredited suppliers under the oil-for-food program.

A Russian state-owned oil company, Zarubezhneft, is said by the London Observer to have signed a $90 billion contract to develop the bin-Umar oilfield. It subcontracted some drilling rights in the West Qurna fields to Tatneft, another Russian outfit. The Washington Post reported a $52 million service contract signed last October between Slavneft and the Iraqi authorities.

The International Energy Agency's World Energy Outlook 2001 claims the Iraqis have awarded foreign oil contracts worth a staggering $1.1 trillion, much of it to Russian, French, and Chinese firms.


Russia is well placed to enjoy Iraq's graces while Saddam Hussein is in power. It is scrambling to secure similar access in an American-sponsored post-conflict reign, according to the Observer, hence much of the haggling in the United Nations over language and America's freedom of action.

Even more crucially, Russia's aspirations to replace Saudi Arabia as the world's largest and swing oil producer and to become America's primary source of oil may be dashed by U.S. control of Iraq's enormous proven reserves.

The rising tensions in the Gulf may be providing Russia and its extractive behemoths with a serendipitous windfall -- but, in the long run, Russia's rising oil star is threatened by a permanent American stranglehold over Iraq's 112 billion barrels.

A successful American campaign not only jeopardizes Russia's future interests, but its present income as well. A drop in oil prices -- more than likely as Iraq is pacified and its oil production surges -- will hurt Russia. Below a certain price for crude, Russia's domestic fields are not worth developing.

Between the rock of contract-freezing sanctions and the hard place of American dominance, Russia was forced to vote in favor of the U.S.-sponsored resolution in the Security Council. It may signal a new period of cohabitation -- or, more likely, the beginning of a long tussle over commercial interests and economic benefits.


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