#12
eurasianet.org
October 23, 2002
IS RUSSIA DEMANDING TOO HIGH A PRICE FOR SECURITY COUNCIL SUPPORT ON IRAQ?
Mark N. Katz: 10/23/02
A EurasiaNet Commentary
Editor's Note: Mark N. Katz is a professor of government and politics at George Mason University.

Bush Administration frustration with the United Nations Security Council is rising after three permanent members, including Russia, voiced objections to a US-sponsored draft resolution designed to contain Iraq' potential to manufacture weapons of mass destruction. In Russia' case, Moscow is reportedly asking a high price for its support of US efforts to oust Iraqi dictator Saddam Hussein: the protection of Russian oil interests in Iraq.

The US draft resolution, submitted October 21, leaves open the possibility of Security Council authorization of the use of force in the event that Iraq doesn' fully cooperate with weapons inspections. In rejecting the draft, Russian Foreign Minister Igor Ivanov expressed reservations the following day about use-of-force language in the draft resolution, the Interfax news agency reported. The other Security Council permanent members expressing opposition to the draft were France and China.

According to various media reports, Moscow could be persuaded to change its Security Council stance, coming around to support a resolution authorizing an American-led intervention against Iraq. But for Moscow to do so, the Bush administration will have to make some difficult decisions. High level officials in Washington and London, including Colin Powell and Tony Blair, have indicated a willingness to "recognize" Russia' economic interests in Iraq. But it is far from certain whether that means leaving existing Russian-Iraqi energy arrangements in place after Saddam's hoped-for ouster.

Iraq possesses a huge quantity of proven but undeveloped oil reserves -- according to some estimates as much as 100 billion barrels. It may have as much again in unproven reserves. Over the past several years, Russian oil companies have concluded several contracts with Saddam' regime to develop these oil fields. A 1997 contract signed by Lukoil is said to be worth upwards of $20 billion, while a 2002 contract signed by Zarubezhneft could be worth $90 billion.

However, these and other Russian oil ventures have yet to be implemented because UN economic sanctions against Iraq remain in effect. In recent years, Moscow has tried to have these sanctions lifted, but Washington and London have refused to budge. The US desire for a UN mandate in its latest attempt to remove Saddam has created a new opening for Russia. In effect, Moscow seeks to secure US recognition of the Russian energy contracts --regardless of whether Saddam stays or goes -- in exchange for Russia's Security Council vote.

Russian oil industry representatives and government officials have offered three reasons why the United States and Britain should agree to such an arrangement. Firstly, Russian firms, which now control 40 percent of legal Iraqi oil exports under the "oil for food" program, say the lifting of economic sanctions against Baghdad could deprive them of potential earnings.

Further, Russian oil firms argue that they won these oil development contracts in Iraq under fair and open circumstances. Thus, the contracts should not be reopened and be subject to potential competitive bids from Western conglomerates. Finally, Moscow pundits have pointed out that Russia's state budget is dependent on maintaining oil prices. Thus, a change in Iraq's status quo may undermine Russia's economic security. If Iraq is allowed to significantly increase oil exports, there is a chance of a global glut that could force energy prices to drop. Such a turn of events could create a budget crisis in Russia that the government can ill afford, Moscow experts say.

Each of these arguments has flaws. Concerning Russian participation in the "oil-for-food" program, Baghdad only awarded Russian oil firms such a large share of energy exports (as well as Saddam's illegal ones) as an inducement to Moscow to help protect Iraqi interests in the international diplomatic arena. From the start, the Russian firms knew that the arrangements created by UN sanctions were destined to end at some point. The profits Russian firms are reaping should thus be considered a windfall. Expectations of a permanent source of revenue are unjustified.

Similarly, Russian oil firms didn't win their contracts to develop Iraqi oil fields based solely on economic factors. Politics was the determining factor; Saddam offered the oil deals as an incentive for Moscow's diplomatic support. In a truly open bidding environment, Russian oil firms simply do not have the access to capital, technological capability and managerial talent to match Western conglomerates. Russia firms would likewise be hard-pressed to meet Iraq's oil-sector development needs, especially in the event of Saddam's ouster.

Agreeing to Moscow's asking price for Security Council support could easily prove counter-productive for US interests. For example, it is highly unlikely that Baghdad would willingly agree to limitations on Iraqi oil exports in order to protect the Russian government's budget revenue stream. For the United States to go along with such an arrangement could possibly foment anti-American sentiment in Iraq.

Sooner or later, Moscow must confront the fact that its past support for the Iraqi dictator could complicate future relations with post-Saddam Iraq. Moscow appears to think that it can perhaps defer, or even defuse this dilemma -- calculating that Washington may be desperate enough to make a deal on oil interests in return for Security Council support.

If this is the case, Russia may be overreaching. US President George W. Bush has indicated that the United States is prepared to launch military action even without a Security Council resolution. If a potential US offensive succeeds in driving Saddam from power, both Washington and post-Saddam Baghdad will want to develop Iraq's untapped oil reserves as quickly as possible to promote reconstruction.

By holding out for everything, Moscow risks being left with nothing. If Moscow were more supportive of the United States in the Security Council, Russian oil firms would stand a better chance of being players, alongside Western conglomerates, in the ongoing development of the Iraqi energy sector. Russia's current asking price for Security Council cooperation appears prohibitive. The result may well be that Moscow is excluded from post-Saddam Iraq -- more by a new leadership team in Baghdad than by US officials.

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