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. Last Updated: 07/27/2016

Russians Take On Iraq Oil Embargo




BAGHDAD, Iraq -- Nearly a decade after the United Nations imposed a punitive oil embargo on Iraq, leading members of the Russian political and business elite are complaining more loudly and assertively than ever - and some are even calling for Russia to break the embargo.


Russia has for years lobbied the UN to lift the sanctions on Iraq, and the Foreign Ministry on Tuesday confirmed that this remained "a long-term task" of national foreign policy.


But willingness to defy the United States on this issue has grown - both with the tenure of former Middle East scholar Yevgeny Primakov in government and with the cooling of Western-Russian relations in the wake of the Kosovo crisis and the Bank of New York scandal. These days, everyone from Cabinet ministers to oil barons to President Boris Yeltsin himself is talking up the virtues of partnership with Iraq and its oil.


Fuel and Energy Minister Viktor Kalyuzhny this week - fresh from a trip to Baghdad, where he delivered a personal greeting message from Yeltsin to Iraqi leader Saddam Hussein - says the UN embargo costs Russia billions.


"Only Russia tries firmly and completely to comply with the embargo's terms," Kalyuzhny said in an interview. "Russia has already lost roughly $9 billion as a result."


By comparison, the Russian 1999 federal budget is about $24 billion.


The Iraqis have made more dramatic claims. Most spectacularly, the Iraqi ambassador to Russia, Hassan Fami Ju'ama, told Pravda newspaper last month that Russia had lost a grand total of $72 billion in potential revenues it could have earned by helping develop Iraqi oil projects and other dealings.


As Pravda noted, that figure would dwarf all of the economic aid Russia has received from the International Monetary Fund over the same period. For Pravda, the logic is simple: Ditch the IMF and cozy up to Baghdad.


Not everyone makes such claims of Iraqi wealth, or argues that tapping such wealth would necessarily involve a nasty break with Washington. But the Russian consensus is that the UN embargo costs Russia billions. "We have lost a $10 billion annual trade turnover with Iraq, [a country] whose debt to Russia is $7 billion," Yury Shafranik, head of the Central Fuel Co., said in an interview with the business daily Vedomosti. Shafranik now heads a Russian-Iraqi cultural exchange committee packed with Russian oil and manufacturing company representatives who are all united to push for breaking the oil blockade.


Sanctions on Iraq came about in the wake of the Persian Gulf War of 1991, when Hussein's invasion force was driven out of Kuwait. The United States hoped the sanctions would lead to popular uprisings and Hussein's downfall. But Hussein remains in power, and the UN three years ago moved to soften the economic burden on ordinary Iraqis by adopting the so-called oil-for-food program.


Russian, French and Chinese traders "lift," or bring to market, Iraqi crude, and wire the revenues to a UN-supervised account with the Banque Nationale de Paris in New York. Iraq, under UN supervision, is allowed to use roughly two-thirds of the revenues for purchasing humanitarian goods or spare parts for the energy sector. The other third is paid to Kuwait as compensation for the invasion.


On Monday, the UN Security Council, in recognition of soaring world oil prices, gave Iraq permission to export more than ever - $8.3 billion worth of crude every six months, up from the $5.26 billion previously allowed.


Much of this oil - according to Iraqi Oil Minister Amer Rasheed, 40 percent of it - is lifted by Russian oil traders, who make essential money on the commissions. This is another plum bit of business the Iraqis can use to try to wring concessions out of Russian companies.


Upon his return to Moscow this week, after a two-hour meeting with Hussein, Kalyuzhny was upbeat about Iraq. "My personal opinion is that Iraq is not the country that it used to be in the early '90s," he said.


Kalyuzhny's message from Yeltsin assured Hussein that the Kremlin would continue to fight to lift sanctions, and expressed hope that the Russian delegation that Kalyuzhny headed would "give an energetic impulse to the cementing of our cooperation in various issues, including in strategic oil and gas projects."


It was not all mutual admiration. A large part of Kalyuzhny's mission was to cool Iraqi anger at foot-dragging on the part of Russian oil companies. Investing in the development of Iraqi oil fields is unattractive as long as the embargo lasts.


Kalyuzhny has warned that Russians must seize the opportunity and get a foot in the door now. And indeed, Russia's major oil, gas and service companies have vast interests in Iraq's crude reserves - and an edge in lining up such business thanks to Baghdad's gratitude to Russia for its lobbying to end the sanctions.


Among those with potential development projects under negotiation are oil companies Zarubezhneft, LUKoil, Zangas, Rosneft, Onako and Tatneft; natural gas monopoly Gazprom; and oil trader Mashinoimport.


Of these, so far only LUKoil has a firm contract - for the development of the West Qurna-2 oil field in southern Iraq. LUKoil, however, has said UN sanctions have made them reluctant to follow through with a scheduled investment of about $200 million over the last two years.


LUKoil says that seven oil-for-food contracts, worth a total of $23 million, remain unapproved by the UN, and Kalyuzhny said overall only 33 of 80 such contracts between the Iraqis and Russian companies have gone through the UN bureaucracy.


The Iraqis are nevertheless pushing LUKoil to invest, and according to Kalyuzhny, angry Iraqi officials even convinced LUKoil to put in a new management team at West Qurna-2. LUKoil first vice president Ravil Maganov is currently in talks with the Iraqi government over the field.


One result of Kalyuzhny's Baghdad mission was an informal two-month moratorium on Iraqi claims against Russian oil companies - a breather Kalyuzhny hopes the Russians will use to decide what they want to accomplish on the Iraqi market.


"Every [business opportunity in Iraq] that is not related to weapons has to be taken care of by the Russian oil companies," Kalyuzhny said. "If [Russian] oil companies start fulfilling their [investment] contracts, there will be no tragedy. [But] if we lose Iraq - it will be difficult."


Kalyuzhny claims that companies from the United States, France, Algeria, Canada, Vietnam and China are working with Iraqi partners, and that Iraq supplies crude and fuel products to Turkey, regardless of UN sanctions.