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Iraq Fights Back With Commerce

Facing threat of war, Hussein's government signs lucrative contracts, especially with nations that oppose the U.S.-led effort to oust the regime.

November 11, 2002|Evelyn Iritani | Times Staff Writer

For a country operating under strict economic sanctions and the threat of war, Iraq is an awfully busy place. Ships carrying tons of Australian wheat and Vietnamese rice unload their cargo every week in the port of Umm al Qasr. France's giant Alcatel telecom firm is working on a $76-million project to repair the country's telephone system, heavily damaged during the Persian Gulf War.

In the face of last week's arms-control ultimatum from the United Nations and warnings that Washington is ready to use force, the government of Saddam Hussein is fighting back with old-fashioned dollar diplomacy. Using the billions it is allowed to spend under the oil-for-food program administered by the United Nations, the Iraqi regime is conspicuously doling out lucrative contracts in hopes of undermining the U.S.-led campaign to oust it from power, according to businesspeople and Middle East experts.

Those efforts were on full display at the 35th annual Baghdad International Fair, which ended Sunday with Iraqi Trade Minister Mohammed Mehdi Saleh's announcement that his government had signed more than 20 oil-for-food contracts worth $500 million with Saudi Arabia, Iran, the United Arab Emirates, France and Spain. The 10-day trade fair attracted 1,600 companies representing 49 countries, most from the Middle East and Europe, according to the official Iraqi media.

Earlier, the Iraqis declared the government's intention to also reward Germany with contracts in exchange for its opposition to the U.S. campaign.

"Iraqi-German relations have witnessed a notable improvement after the firm positive stand of Germany in rejecting the launching of a military attack against Iraq by the U.S.," the government-run newspaper Iraq Daily stated in an article on the trade fair. "Accordingly, President Saddam Hussein has ordered to give priority to German companies to enter the Iraqi market."

But with politics and business so closely intertwined, companies and countries are keenly aware that they could fall out of favor under a new regime.

Years of war and the trade sanctions imposed by the United Nations in 1990 have forced Iraq to operate on the sidelines of the global economy. However, even a shackled Iraqi government offers attractive opportunities for firms angling for a piece of the oil-for-food program. Established in 1995, the program allows Iraq to sell oil and use the funds to buy humanitarian goods such as grains and vegetable oils, medical supplies and machinery. The U.N. must approve those contracts and can deny a sale if it does not fit the program's humanitarian goals.

In the last six years, Iraq has received more than $56 billion in oil revenue, and signed contracts for an estimated $36 billion worth of food and other supplies, under the program, according to the Coalition for International Justice, a Washington-based human rights group that just released a report on Hussein's legal and illegal revenue sources. The coalition says Hussein and his close associates took in more than $2 billion this year from illegal sales of oil to Syria and kickbacks and smuggling tied to the U.N. humanitarian program.

"These trade fairs are wonderful propaganda devices," said Susan Blaustein, a senior consultant and co-author of the coalition's report. "Baghdad can show, at least to the Arab world, that it is doing business, the sanctions aren't working and people want to do business there."

The single biggest customer for Iraqi oil has been the United States. From January to August of this year, Iraq was America's sixth-largest supplier, providing 525,000 barrels of oil a day, or 4.6% of total U.S. imports, according to the American Petroleum Institute. Refineries in Texas and California, which make their purchases largely through European traders, like Iraqi crude because it is a low-sulfur product that is cheaper to process, according to oil experts.

The Iraqi government has been quite open about using its economic clout for political gain. Iraq, the leading customer of U.S. wheat and long-grain rice in the 1980s, is now the top purchaser of wheat from Australia and rice from Vietnam. France and Russia, considered crucial counterweights to the United States in the U.N. Security Council, were the largest recipients of contracts in the early years of the U.N. program, according to U.N. documents. More recently, many of Iraq's neighbors -- Egypt, Jordan, Tunisia, Syria and the United Arab Emirates -- have seen their share of contracts increase dramatically.

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