Iraq using oil to woo allies, ease sanctions

Deals help Hussein in move toward rebuilding military

February 18, 2002|By Mark Matthews | Mark Matthews,SUN NATIONAL STAFF

WASHINGTON - With a web of licit and illicit deals, Saddam Hussein is using Iraq's vast oil wealth to lure back old friends and bind new ones to his regime, giving them a stake in his survival and undermining efforts by President Bush to generate international support for toppling him.

Baghdad's links with other countries, and with large and small companies abroad, have eased economic pressure on the regime and helped Hussein take steps toward rebuilding his military and an arsenal of fearsome weapons - despite United Nations sanctions intended to keep him militarily weak.

Iraq has the second-largest oil reserves in the world after Saudi Arabia. This enormous potential proved of little use immediately after the Persian Gulf war in 1991, when Iraq was barred by U.N. sanctions from exporting oil, and its infrastructure remained damaged by U.S. bombs.

But when large numbers of Iraqis began suffering from hunger and destitution, the United States and its allies came under intense international pressure to relax the embargo. The result was the oil-for-food program launch- ed in 1996, which allowed Iraq to export increasing amounts of oil.

The United Nations controls the oil-sale profits, which are supposed to be used for food, medicine and other humanitarian goods as well as to pay gulf war reparations to Kuwait, which Iraq invaded in 1990, and salaries of U.N. weapons inspectors.

But Iraq can pick its suppliers, and it uses the billions of dollars' worth of deals to reward its supporters and punish enemies. Companies in France, Russia and China, the three permanent members of the U.N. Security Council that have pressed for an early lifting of sanctions against Iraq, have been key beneficiaries.

Baghdad's envoy to Russia recently said trade between those two countries exceeds $4 billion a year. Russians are seen to be so successful in selling and delivering goods to Iraq that European companies have hooked up with Russian ones.

The list of goods allowed in has expanded to include electrical supplies, agricultural and water-purification equipment, vehicles and oil-industry spare parts. When an American- and British-sponsored "smart sanctions" program starts in June, Iraq will be able to import all manner of civilian goods - anything that cannot be used directly to bolster its military or make either conventional or mass-destruction weapons.

The United Nations screens the contracts to block items that might have a military application. But a senior State Department official says, "It's clear that Iraq is using commercial contracts to re-establish its military capability."

Iraq has employed its growing commercial leverage to forge mutually beneficial ties with much of the Arab world, rebuilding relationships shattered by its invasion of Kuwait. Iraq has trade agreements with Egypt, a close U.S. ally in the Mideast; Tunisia; the United Arab Emirates; Syria; Yemen; and possibly others.

Naji Sabri, Iraq's foreign minister, told the Qatar-based al-Jazeera satellite television channel in the fall that his country was intent on establishing or maintaining good relations with all of its fellow Arab states - except for Saudi Arabia and Kuwait, which have provided bases for U.S. air attacks on Iraq. "This is our strategy," he said.

Syria's relationship with Iraq reverses years of rivalry and hostility that existed between the late President Hafez al-Assad and Hussein. For Damascus, the benefits go beyond U.N.-approved commerce. Despite American and British objections, the two countries have reactivated a shared oil pipeline that is used to smuggle $1 billion worth of Iraqi oil into Syria annually.

This arrangement allows Syria, also an oil producer, to use the smuggled Iraqi oil domestically and export its own, boosting its foreign-currency reserves. Syria has officially denied importing the oil, although its diplomats have told Western colleagues privately that the Iraqi oil is a "gift" from Hussein.

If so, it's a shrewd investment. Syria holds a two-year seat on the Security Council, which gives it a vote on any resolution involving Iraq as well as a voice on the U.N. sanctions committee, which decides what Iraq can import.

If Syria, as some analysts suspect, buys the oil at a discount rather than getting it free, the money gives Hussein a major source of cash outside U.N. control that can be used to buy arms.

Since the gulf war, the United Nations has tolerated Jordan's discount purchases of Iraqi oil, aware of how the kingdom has been economically damaged by the sanctions imposed on Iraq, historically Jordan's biggest trading partner.

This, however, gives Hussein "a stranglehold on the Jordanian economy," said Kenneth Pollack, a Middle East analyst at the Council on Foreign Relations. Saudi Arabia, angry over Jordan's refusal to oppose Iraq during the gulf war, has refused to provide a low-priced replacement for Iraqi oil.

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