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U.N. Vote Ends Russian Oil-For-Food Plan
May 22, 2003
By STEVE GUTTERMAN
Associated Press

MOSCOW - Russia has perhaps more to lose than any other country from the U.N. Security Council's decision Thursday to end 13 years of Iraqi sanctions, a period in which Russian companies saw a financial bonanza from deals with Baghdad.

Under the oil-for-food program, which allowed Baghdad to sell oil and buy food and other imports under the U.N. sanctions, Russian companies got preferential terms for contracts to supply products ranging from rice to refinery equipment.

In exchange for the contracts, which often saw Russian companies charge premium prices, Moscow used its place on the Security Council to push for the crippling sanctions to be lifted.

"All these contracts were concluded mainly for political motives," Deputy Foreign Minister Yuri Fedotov acknowledged last week. "Iraqis perhaps would have been happy to acquire - for a lower price - more comfortable Italian tractors, with air conditioners practically, but they signed the contract with us."

Those contracts were imperiled Thursday when the U.N. Security Council overwhelmingly approved a resolution empowering the United States and Britain to govern Iraq and use its oil wealth to rebuild the country. The resolution passed by a 14-0 vote, with Syria absent.

U.N. Secretary-General Kofi Annan will review $10 billion worth of contracts existing under the program - many of them Russian - to decide whether they are still needed.

From the outset of the oil-for-food program in 1996 through May 2000, Russia and France each received contracts for deliveries to Iraq worth about $2 billion, more than any other country, according to a report released in September by the nonprofit Coalition for International Justice.

Jim Placke, a senior associate with Cambridge Energy Research Associates in Washington, said that Iraqis he had spoken to had said, "Sometimes we get a bunch of junk, and we're paying too much for it, but that's what the regime wants to do."

Russia also played a leading role in the other side of the program: Over five years of Iraqi oil exports, the bulk of the contracts went to Russian firms, the CIJ report said. Placke said that the Iraqis at first dealt with many countries, but later narrowed the field.

Russian companies would then sell the oil to others. Among those involved were major oil industry companies including Lukoil and Zarubezhneft.

"Essentially what they were doing was seeking leverage and currying favor and advantage with permanent members of the Security Council, principally Russia and France," Placke said.

For some time, analysts said, Iraq demanded hefty kickbacks from oil buyers. That practice was later halted by a new U.N. pricing mechanism, but it was considered one source of cash for Saddam and his family cited in the CIJ report.

With major Western oil companies pushed out by Iraq or withdrawing because of concerns about kickbacks, "a whole collection of oil traders that nobody had ever heard of - and probably most of them didn't have anything but office space and a telephone - began to be the principal buyers of Iraqi crude," Placke said.

Yevgeny Volk, head of the Moscow office of the Heritage Foundation, said that type of business is common in Russia, where companies that get contracts often are chosen by the state - "or more precisely by bureaucrats who, for choosing a company that is close to them, receive money in the form of bribes and privileges."

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