16 July 2001
Using its oil as both weapon and bribe, Iraq — thanks to Russia and some of its Arab neighbors — has thwarted US attempts to revamp the 11-year-old UN sanctions regime, and end Baghdad’s control over oil smuggling. For Washington, which launched the initiative in February as a cornerstone of its Mideast foreign policy, it’s back to the drawing board.
A Russian “nyet” to the Anglo-American ideas on smart sanctions left the Security Council simply deciding to roll over the oil-for-food program for five months, without reference to the proposals. The US and UK refuse to give up, insisting the ideas are still on the table. But the few gains they made, particularly in winning French and Chinese support, might evaporate by the time a vote is held on a new oil-for-food resolution in November.
French diplomats insist they didn’t adopt the American position; it was more that the US moved closer to the French stance on reviewing sanctions. But once Iraqi threats to punish the proposals’ supporters translate into action, Paris might have to rethink if Total Fina Elf is to remain in contention for Iraqi oil and development contracts. The US won Chinese support with promises to unblock an $80 million telecommunications contract that had been put on hold by the sanctions committee, diplomats say. China, too, might also change tack if it thinks Iraqi contracts will dry up.
Analysts say America’s failure to win agreement from Russia and Iraq’s neighbors on smuggling reveals a remarkable misreading of political and economic realities.
First, it failed to take into account Russia’s huge economic interests in Iraq, the only country that guarantees it a toehold in the Mideast Gulf.
It also ignored the influence wielded by Russian oil companies, which ultimately stopped Moscow calling for any tightening of sanctions, or stricter controls over Iraqi oil lifters. A Russian oil team, including Slavneft, Lukoil, Sibur, Zangas, and Soyzneftegasexport, visited Iraq this week to express their support. All are angling for work. Slavneft hopes to sign a $150 million service contract soon for Iraq’s Suba field, assuming the UN approves the contract on the grounds that it will maintain production. Slavneft has also acquired tender documents for a contract to build a gas processing plant at Luhais, and plans to bid for drilling work in the South Rumaila and Saddam fields. Sibur, an affiliate of gas giant Gazprom, is hoping to utilize associated gas from oil fields in southern Iraq. Stroitransgas meanwhile hopes to participate in construction of a $1.4 billon oil pipeline to Syria, as does the Alfa Group.
US Secretary of State Colin Powell and his discreet envoy, Ed Walker, who have spent the last few months shuttling between the US, Mideast, and Europe trying to sell smart sanctions, also underestimated Baghdad’s clout in the region. In announcing in March that Iraq’s neighbors backed the new policy, both are said to have misread the subtle signals coming from Syria, Turkey, and Jordan. For the three, it’s not a question of being compensated for a few million dollars worth of smuggled Iraqi oil. Iraq has become Syria’s top business partner, with trade of nearly $1 billion a year. Cheap Iraqi crude and smuggling keep Jordan’s economy afloat. And without the “taxes” levied by the Kurds on every barrel trucked into Turkey, Ankara would have an even bigger Kurdish problem.
The US suggestion that UN monitors control these countries’ border crossings with Iraq also revealed a lack of sensitivity. In the region, the idea is perceived as an attempt to usurp the countries’ sovereignty; as such, none of the three wanted to be seen selling out to the US at a time when Washington’s lack of even-handedness in its Mideast dealings is criticized daily.
After Powell failed to achieve a concrete ceasefire between the Palestinians and the Israelis this week, leaving the Palestinian card — which Saddam uses to inflame anti-US feeling in Arab capitals — in the Iraqi leader’s hands, Walker admitted that America’s Mideast policy is in disarray.
Over the next five months, Washington will have to address those diplomatic failures, as well as the basic premise behind “smart sanctions.” The first is terminology. Calling them “smart” sanctions suggests the existing embargo isn’t smart. Using the word “sanctions” and talking of tightening them alienates those who regard sanctions as a temporary measure that should be eased over time. Furthermore, advocating tougher arms controls implies that Iraq has managed to get around the ban on weapons imports, undermining the entire sanctions regime.
Iraqi views also have to be considered. The suspense that followed this week’s rollover — whether Iraq resumes exports, or not — underlines the fact that although it’s not consulted on UN decisions, in practice, it’s Baghdad that decides when, and how much, oil flows.
The debate over the program’s 11th phase is likely to be extremely tough. The US will try to reach consensus on a revised sanctions regime on the eve of the expiry of the current phase on Nov. 30, when oil markets are normally tight ahead of winter. Nearer term, another battle looms when Iraq resumes exports, which have been suspended since Jun. 4. Baghdad will have to submit a July pricing formula for approval by UN overseers. If the UK and US decide to undo some of the damage caused by the failed resolution by trying to reduce the Iraqi kickbacks factored into official selling prices, sabers will rattle again.
By Ruba Husari, London
(Published in Energy Compass, 16 July 2001)