No More Oil for Food in Iraq

IraqThe UN Oil for Food humanitarian programme for Iraq will officially expire on November 21, ending an entire era in the life of Iraq and other nations that have been co-operating with Iraq in the past seven years. The totalitarian economy of Iraq limited by international sanctions is giving way to a free market, with completely different rules of the game.

The Oil for Food programme was approved on April 14, 1995 by UN Security Council Resolution 986, but it was launched only on December 10, 1996. It regulated Iraq's foreign trade in conditions of sanctions imposed on Iraq after its invasion of Kuwait in 1990-1991. Returns from the regulated production of oil were used to purchase humanitarian commodities, i.e. food, industrial equipment, stationery and medicines (involving 24 sectors of the Iraqi economy), as well as to finance the UN's work in Iraq and reparation payments in the wake of the Iraq-Kuwait war. From December 1996 to March 20, 2003, Iraq exported oil to the tune of $65 billion and received humanitarian goods worth $31 billion from March 20, 1997 to October 21, 2003.

Russia used the Oil for Food programme to return to the Middle East markets and reach out into the Gulf region. Russian firms that went to Iraq subsequently moved on to Saudi Arabia, Kuwait, Algeria and other regional countries.

The humanitarian aid programme also became one of the first examples of co-operation between business and diplomacy in Russia. Diplomats proudly recall that the foreign ministry shouldered the responsibility for promoting Russia's involvement in the Oil for Food programme. As a result, the Russian share in the purchase of Iraqi oil reached 30% (40% in some years) of the overall volume of Iraqi oil exports.

Russia was also a leader in the humanitarian deliveries to Iraq, though the bulk of them were not made in Russia, but re-imported from other countries, including the USA with which Iraq did not officially collaborate. Well-informed sources say the aggregate worth of contracts signed by Russian firms with Iraq totalled $5-6 billion. Russia has delivered to Iraq commodities to the tune of $2.3 billion and will deliver approximately $2 billion worth of goods within the next six months. In all, 100-150 Russian companies took part in the programme.

Initially, a large part of humanitarian goods delivered by Russian firms to Iraq were foreign-made. But the share of Russian-made commodities, mostly machinery and equipment, grew considerably by the end of the 1990s. It is difficult to provide exact figures, as a large part of the deliveries were of joint make. Russian companies have won a niche in the Iraqi power engineering, irrigation, water supply and transport spheres. In particular, Iraq imported about 3,000 Russian KamAZ lorries.

The contacts Russian firms have established in Iraq offer them a chance to keep their place in the country after the lifting of sanctions. Russians traded via Iraqis who will carry on their commercial operations in their country, no matter what.

The Oil for Food programme was suspended when the military operation against Iraq was launched on March 19, 2003. But the Iraqis needed humanitarian aid, above all food and medicines, more than ever before. Accordingly, in lateMarch the UN Security Council adopted Resolution 1472, which changed the scheme of the humanitarian aid programme.

The UN assumed the functions of the Iraqi government, in particular concerning the distribution of commodities among Iraqis. Resolution 1483, adopted on May 22, 2003, defined the status of the USA and Britain in Iraq as occupying powers and made them responsible for developments in the country. At the same time, economic sanctions against Iraq were lifted. It was also stipulated that the humanitarian aid programme would expire on November 21.

The USA wanted to curtail the programme sooner, but Russian diplomats ensured that it was continued for six months, a period needed to determine the fate of 5,000 signed and already financed contracts to the tune of $10 billion.

Under Resolution 1483, the Iraqis, the UN and the interim coalition administration were to analyse all financed contracts and choose priority ones. Work on these contracts will continue until the summer of 2004 and possibly longer, until they are implemented completely.

Moscow ensured the recognition of 85% of the fully financed Russian contracts as priority deals. One of the largest is the construction of the Yusifia heat and energy station by the Tekhnopromexport equipment exporting company, one of the very few that has resumed operation in the unstable situation in Iraq. Others are so far making reconnoitring visits to the country.

As for the remaining 15% of the Russian contracts, they have not been annulled. Instead, they have been put on ice until the appearance of a legally elected Iraqi government, which will decide their fate.

The former Iraqi authorities signed contracts on the construction of irrigation and industrial facilities and agricultural elevators with Russian companies, in particular with the North Caucasian Sevkavkazelevatorspetsstroi elevator building company, the Gidromashservice hydro equipment firm, the Intermash machine-building company, and the Selkhozpromexport agricultural machinery exporter.

These contracts are worth $15-20 to $170 million each but they had not been UN-approved before the last war and hence were not given priority rating. However, Russian diplomats hope they will be implemented as part of the economic rehabilitation of Iraq. Indeed, why should Iraqis look for new partners when they have old reliable ones? Although the USA is distributing Iraqi contracts, Russian firms do not think their work in the country in the past seven years has been for nothing; they firmly believe that they will preserve some of the standing they have won there.

Meanwhile, Russia is preparing to fulfil its remaining obligations to Iraq as part of the Oil for Food programme. The USA has pledged to assist it because commodities worth $6 billion are to be delivered to Iraq in the next six months. These deliveries will play the leading role in the restoration of the country because the donor assistance, which the international community has promised to give Iraq, will not take any practical form soon. In other words, the programme will continue to benefit the Iraqi people even after it has officially expired.

Marianna Belenkaya, RIAN

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Author`s name Petr Ermilin