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. Last Updated: 07/27/2016

Russia's Balancing Act

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Iraq appears to be on a collision course with the United States. The response to this week's report from chief UN weapons inspector Hans Blix will indicate just how imminent this collision is, but in any case the interests, real or perceived, of the United States -- regime change, weapons of mass destruction, oil -- have received considerable publicity in recent weeks.

Less is heard about Russia's interests in Iraq, why they exist and what form they take. Certainly few issues expose the contradiction at the heart of Russia's political establishment more than Iraq. On one side is a nationalist clique that has argued for the lifting of sanctions and the revival of the arms trade with Iraq. On the other side are ranged President Vladimir Putin's political and economic advisers, who have long realized that breaching sanctions would have led to political and economic isolation. The costs for Russia of supporting the present Iraqi regime have increased after Sept. 11, 2001, and the government has accordingly adopted a pragmatic balancing act in its Iraq policies.

Russia, and particularly the Russian elite, take an interest in Iraq for two reasons. The first is political and perhaps dates from a reluctance by some to accept that the world has moved on from the Cold War days of the Soviet Union. The grandstanding in relations between the United States and Russia, of which Iraq became a part, during the Yeltsin era typified this reluctance.

The Putin presidency has been marked by a much more pragmatic approach toward relations with the West. Russia's interests in Iraq are largely economic and commercial, although at the strategic level its interest in Iraq is indistinguishable from its shared interest with the West in Middle East stability and the defeat of terrorism. Old style Soviet Arabism that underlay the historic relationship with Baathist Iraq has gone for good -- not least because of the strong Russian-speaking community in Israel created by the mass Jewish emigration from the crumbling Soviet Union.

The more cooperative relationship between the United States and Russia, however, has not meant Russia giving the United States carte blanche to act on Iraq without the approval of the UN. The Security Council is one of the last vestiges of superpower status and aspiration, certainly for four of the five permanent members. Hence, ensuring its involvement in decision making is important for Russia. However, it is also important that it is willing to take those decisions, and that is why I do not believe that in the final analysis Russia would veto a UN resolution on Iraq. Not only would it set the country at odds with the United States, it would reduce the influence of the one body where Russia has a voice equal to that of the United States. Here are Russia's fundamental external interests -- which cannot be outweighed by specific interests (strategic, economic and commercial) in Iraq, and still less by mere nostalgia for lost power. Putin's famous pragmatism is based on a recognition of these realities

The second reason why Iraq is of interest is economic. As a pariah state, its very isolation allows countries willing to deal with it more opportunities and leverage than in a more normal competitive environment. By virtue of being willing to deal with Iraq when the United States and Britain are not, whether dressed up as "engagement" or as good commercial practice, Russia ought to have a head start in the country whenever normal commercial relations resume. Only 24 of Iraq's 73 known oil fields are currently being developed, with the remaining 49 available as investment opportunities.

This economic rationale must have assumed that when sanctions were lifted, for whatever reason, the same people would be running the important sectors of the economy, principally oil. Sept. 11 and the Bush administration's focus on Iraq has removed that certainty. It would still be reasonable to assume that many of the same people remain in power but the question remains whether a future Iraqi government would honor interests developed with its predecessor regime.

Russia's strategy, while not necessarily designed to cope with a leadership change, may still be successful. While the Iraqi National Congress has said it will review any deals to determine whether they are in the Iraqi people's interests, LUKoil's West Qurna deal may well pass that test. Of more concern are statements that the United States will have "a big shot" at Iraqi oil and hints from U.S. officials that any relationship with the Hussein regime will be viewed in a negative light in a "post-Saddam" Iraq. All the more important then that the widely believed bargain between the United States and Russia (Russia's tacit acceptance in the UN of the need for change and U.S. support for the protection of Russian interests in a "post-Saddam" Iraq) should be real. Certainly statements by Russian oilmen suggest that such an implicit agreement exists.

Russia's commercial interests are threefold: oil, debt and oil-for-food. The direct oil interests have most prospectivity, with LUKoil's West Qurna field the best of them. This is a contract for the development of a 7.8 billion barrel field in southern Iraq signed in 1997. It has been a contentious development all round, with Iraq demanding that LUKoil proceed with the project in defiance of sanctions and LUKoil refusing to do so. This culminated in the seemingly temporary loss of the license by LUKoil in December. While this has been reversed as the Iraqis realized that alienating one of their major allies was the wrong thing to do at this stage, it illustrates the unpredictable nature of seemingly secure contracts in Iraq.

Debt is the second main issue. Russia has inherited all the Soviet Union's external financial claims and liabilities. It is now spending up to $10 billion a year servicing Soviet-era debts, but as for Soviet-era claims these are almost all irrecoverable. The debts of oil-rich Iraq are a rare and important exception, as their face value amounts to perhaps $8 billion with interest on top. So the main Russian interest is to get these loans repaid -- and then resume arms sales to Iraq while also potentially becoming a major foreign player in Iraq's oil and gas sector.

The oil-for-food deals -- cargoes exported under UN auspices to finance imports of food and medicine -- in which Russian companies play a major role, have become a pervasive and, in the view of many, corrosive influence on policies on Iraq. Numerous trading companies with links to individuals and groups in Russia have been used as off-takers by the Iraqis, who have been able to reward both individual companies and interest groups in Russia, as well as the country itself, for support on sanctions etc.

The issue for Russia and its interests in Iraq is whether a new Iraqi regime will honor those interests. Whatever the agreement between Russia and the United States over Iraq (which both sides would probably rather not see aired publicly), a "post-Saddam" regime in the country may have a different view of the matter. Russia -- like its oil companies -- will need to tread a fine line between protecting its interests through relations with the Hussein administration and the threat of damaging its interests in a future Iraq by allowing those relations to become too close.

Stephen O'Sullivan, head of research at United Financial Group, contributed this comment to The Moscow Times.