IRAQ

Severed by the Iraqi monarchy in 1955, diplomatic relations with the USSR were reinstated in July 1958, following its overthrow, to usher in a progressing political dialogue.

A Treaty of Friendship and Cooperation, signed on an Iraqi initiative on April 9, 1972, formally remains in force. Bilateral relations found expression in over fifty treaties, agreements and protocols signed between 1958 and 1990.

The Soviet Union denounced the Iraqi annexation of Kuwait in 1990 and was active on the UN Security Council as it elaborated a resolution for Kuwait crisis settlement and post-crisis arrangements in the Gulf area. Moscow joined international anti-Iraqi sanctions to suspend military cooperation, trade and other economic contacts, and evacuated 9,000 Soviet citizens employed in Iraq and their families.

As Moscow had joined hands with the anti-Iraqi coalition, Baghdad enthusiastically greeted the abortive coup of August 1991 in the USSR to the detriment of bilateral contacts. Later on, Iraq was repeatedly stressing its interest in friendly ties with Russia, which it regards as the Soviet Union's successor.

Moscow-Baghdad political contacts were going via embassies from the time the armed conflict finished and up to 1993. In June 1993 the two First Deputy Ministers of Foreign Affairs met in Prague. R. al-Qaisi, Deputy Minister of Foreign Affairs, was repeatedly received in Moscow, February 21, August 9-10 and August 29, 1994, on Baghdad's request, and Tareq Aziz, Deputy Prime Minister, in November 1994 and June 1995. The contacts were intended to compel Iraq to cooperate with the UN Security Council on the entire range of post-crisis settlement issues, proceeding from the available decisions by the international community.

As Russia's Minister of Foreign Affairs visited Baghdad, in October and November 1994, following his negotiations with the Iraqi leaders Baghdad recognised Kuwait frontiers and sovereignty so to open an active Russo-Iraqi political dialogue, in particular, through a frequent correspondence between Yevgeny Primakov and Tareq Aziz, who paid three routine visits to Moscow in 1997.

Regular technical consultations of 1995-98, in Moscow and Baghdad, discussed disarmament issues with national leadership spokesmen of both countries represented.

Developments round Iraq came to an edge in November 1997 and again, February 1998, to bring the Gulf area to the brink of war. Russian diplomatic efforts untied the knot. Boris Yeltsin and Saddam Hussain exchanged written messages to get Tareq Aziz to the negotiation table, in November 1997. President Yeltsin again addressed Saddam Hussain several times in 1998. Viktor Posuvalyuk spent over a month in Baghdad as presidential envoy.

Kofi Annan and Tareq Aziz signed a memorandum of mutual understanding, on February 23, 1998, proceeding from which the UN Security Council adopted its Resolution No. 1154, which confirmed the United Nations' intention to comply with Resolution No. 687, Clause 22, on the oil embargo to be lifted if Iraq follows UN demand and liquidates its entire mass destruction arsenals.

Baghdad suspended weaponry inspections by UN commission and IAEA experts on August 5, 1998, after the USA and the U.K. blocked a Security Council resolution to close the Iraqi nuclear file. The Security Council retaliated by passing Resolution No. 1194, September 9, to suspend bimonthly sanction debates until Iraq resumed the entire range of contacts with the commission. The resolution approved the UN Secretary-General's initiative to join hands with the Iraqi cabinet for an all-round review of Iraqi disarmament files.

Bilateral interparliamentary contacts became more active. Iraq's National Assembly Chairman visited Moscow in January 1995. Two delegations of the Federation Council, Russia's upper house of parliament, paid routine visits to Iraq late in 1996. Vice-Speaker Sergei Baburin and MP Ramazan Abdulatipov led delegations of the State Duma, the lower house, to Baghdad in April and May 1997. Gennady Zyuganov and Vladimir Zhirinovsky, respective Communist and Liberal Democratic leaders, paid solidarity visits in November and December 1997, and were received by Saddam Hussain, National Assembly Chairman Sa'adoun Hammadi, and Tareq Aziz. Several MPs led by Vladimir Zhirinovsky delivered humanitarian aid to Baghdad from Russia's Liberal Democrats in December 1997 and February 1998.

Dr. Sa'adoun Hammadi visited Moscow, July 1-6, 1997, on an invitation by Yegor Stroyev to negotiate with him, Boris Nemtsov and Yevgeny Primakov on prospects for UN sanctions lifted and a basis prepared for large-scale Russo-Iraqi economic contacts, which were to follow. On July 2, Stroyev and Hammadi signed an interparliamentary protocol of cooperation. Dr. Hammadi visited Moscow again in September 1998 to attend the 100th jubilee session of the Inter-Parliamentary Union.

Economic contacts. Formerly one of the USSR's main economic partners in the Arab world, with a trade turnover of two billion US dollars in 1989, Iraq was supplying an annual 10.5 million tons of oil as loan payments to US billion. Ambitious contracts were made shortly before the Kuwait crisis for oilfield development in South Iraq, a gas pipeline to be laid from Al Nasiriyah to Baghdad, and build the Al-Yussefiyah thermal power plant and a number of other projects.

Military technological contacts were more extensive than any other. Iraq was to pay US billion before 1998 under target credits alone. Its total debt under implemented agreements and contracts approaches seven billion dollars.

The contacts were not resumed in 1998 with UN sanctions, introduced in August 1990, remaining valid. Iraq is vitally interested in contacts revived after sanction lifting. More than that, as it warned, it will not pay its debts to Russia unless cooperation in the field of military technology is resumed—something to reckon with, as Soviet military technological credits account for 84% of the entire Iraqi debt to Russia.

An agreement of June 13, 1986, granted mutual best-favoured nation treatment for hard currency transactions. Machinery and other industrial equipment amounted to 95% of Soviet exports to Iraq, mainly under instalment commercial credits. Imports from Iraq consisted only of crude oil, purchased to cover government target loans, to be re-exported to third countries. Thus, 6.5 million tons was purchased in 1990, of which 3.1 million was re-exported to India and the other 3.4 to Bulgaria.

To establish closer economic and technological links, the USSR granted government loans to Iraq to a total of US billion from 1959: for construction projects in the petroleum and power industries, irrigation, pipelines, etc., for which contracts were signed to a total US,550 million, obligations met to US,122 million and 825 million paid back. The Gulf War caused a suspension of contacts at a time when the total amount of obligations under on signed contracts amounted to US billion, with US billion obligations met.

Cooperation invoved 96 projects, of which 84 were finished. Of key importance among them were the North Rumailah, Luheis and Nahr Umr oilfields, total output exceeding an annual 45 million tons; the Baghdad-Basra oil pipeline; thermal and hydropower plants Al-Nasiriyah, Najibiyah and Dukhan, total 1,440 mWt; a network of Tigris and Euphrates canals and hydraulic engineering projects; an electric engineering plant in Baghdad; a farm machine factory in Iskenderiyah; a cement mill in Samawa; and glassworks in Ramadi, to name but a few.

The West Qurna oilfield was developed on contract (initial stage at an annual 11 million tons). The 1,680 mWt Al-Yussefiyah thermal power plant was built, and a 40,000 ton grain elevator in Sulaimaniyah. Assistance was provided to build the middle part of the central Tigris-Euphrates reservoir (maximum discharge 226 cu m/sec), and survey for the Al-Baghdadi hydropower system on the Euphrates. The Al-Nasiriyah-Baghdad gas pipeline construction is nearing completion (total length 345 km).

Contracts were signed to extend drilling in the North Rumailah and West Qurna oilfields, and build a second stage of the trans-Iraq gas mainline. A contract was initialled to supply equipment and materials to the construction site of a ferroalloy plant.

August 1993 launched preparatory efforts for large-scale post-sanction economic contacts as agreements were signed on trade, economic, research and technical cooperation, and the establishment of a respective bilateral commission. The parties exchanged letters on a prospective revival of projects envisaged by Soviet-Iraqi understandings of 1983, 1984 and 1986 with sanctions lifted.

The parties also exchanged written messages on a basically reached understanding for West Qurna oilfield development and construction of the Al-Yussefiyah thermal plant, the Al-Baghdadi hydropower complex on the Euphrates, and the first stage, Al-Nasiriyah-Baghdad, of a trans-Iraqi dry gas pipeline.

At the Moscow talks of April 1994 Russia received for consideration cooperation proposals for oil and gas projects—oil drilling, transportation and refining to a tentative total of US billion; power industry, with four thermal plants to a total 4,000 mWt, a transmission line, and others; enterprises of chemical, petrochemical, iron-and-steel, non-ferrous metal, food and pharmaceutical industries; and transport, communications, irrigation and agricultural projects—to a total exceeding US billion.

Moscow hosted, in September 1994, a maiden session of the bilateral commission for trade, economic, research and technical cooperation. The conferees debated prospects for Russian corporate participation in building oil and gas production and processing plants, pipelines and storage facilities; power, chemical and petrochemical projects, iron-and-steel and non-ferrous metal works, etc.

The commission signed a memorandum on the establishment of a Russian-Iraqi financial investment company.

As Russia's Minister of Fuel and Power Industries visited Baghdad, April 1995, a cooperation agreement was signed for the oil-and-gas industry, which envisaged large-scale Russian participation in upgrading it after anti-Iraqi sanctions were lifted. A memorandum of intentions was signed in Baghdad, September 1995, by Russia's State Committee for Engineering and Iraq's Ministry of Industry and Mineral Resources.

The partners highlighted oil-and-gas cooperation prospects as following from the April 1995 agreement.

Iraq and the UN Secretariat signed, on May 20, 1996, a memorandum of mutual understanding on the implementation of UN Security Council Resolution No. 986, which authorised Iraq to export crude oil and oil products to a total of two billion US dollars within six months and spend the revenues to purchase foodstuffs, medicines and other humanitarian consumer necessities. Russia took necessary steps to ensure its involvement in the implementation of that resolution, known as Oil-for-Food programme.

Russia's federal cabinet authorised coordination of resolution implementation efforts by the Health Ministry, on medicine and medical equipment supplies; the Ministry of Fuel and Power Industries for Iraqi oil purchases; and the Ministry of Agriculture and Food Industry for food supplies.

Baghdad hosted the second commission session, March 1997, which signed a cooperation protocol for iron-and-steel, non-ferrous metal, chemical, petrochemical, textile, building material and pharmaceutical industries, and trade.

The session also brought an intergovernmental cooperation agreement for culture and research, and an agreement to establish an oil-and-gas drilling joint venture, with an authorised capital of US,000, Russia's interest accounting for 49%. The company will be exempt from customs duties and license charges for imports of equipment, materials, transport vehicles and consumer goods, and from profit tax during the entire term of the agreement.A contract was initialled to drill a hundred wells in the North Rumailah oilfield.

The partners specified their obligations and coordinated measures to keep within construction schedules at the initial stage of the trans-Iraqi dry gas pipeline, the 2nd stage of the Haditha-Rumailah oil mainline, oil and petroleum product storage tanks, oil desalinisation installations, and inspections of the Hor Al Amayah offshore terminal, and underwater pipelines.

A contract signed in Baghdad on March 21, 1997, envisages a second stage of West Qurna oilfield development on a production-sharing arrangement by Lukoil, Zarubezhneft and Machinoexport companies, whose interests account for 75% of the total. Within its 23 years' term, the contract envisages a total yield of 670 million tons in a field with estimated reserves approaching six billion tons. The investment is expected to recoup within six to seven years.

Russian-Iraqi trade resumed on a limited scale in 1997 as Russian companies joined the implementation of the Food-for-Oil programme under UN Security Council resolutions Nos. 986 and 1111. The first two programme stages saw Russian petroleum companies re-export the Iraqi oil quota of nine million tons to US billion—over 30% of the entire UN-authorised amount. Taking part in oil purchases were ten Russian-based companies—Zarubezhneft, Lukoil, Alpha-Eco, Rosneft, Tatneft, Naphta-Moscow, Sidanco, Onaco, Machinoimport and MES (International Economic Cooperation).

Contracts made in 1997 amounted to a total US million: 53 million for medicine purchases, and 12 million for engineering products—250 tractors, power plant equipment and grain elevator spare parts; and re-export goods—sugar, rice, legumes, tea, babyfood and toilet soap to a total US million. A third programme stage started January 5, 1998, under UN Security Council resolution No. 1143. That year's oil purchases by the ten Russian companies accounted for 40% of total Iraqi exports, with Zarubezhneft, Lukoil, Rosneft and Alpha-Eco leading.

Positive trends became felt in the exports of Russian-manufactured farm machinery as total industrial purchases in the second stage exceeded US million. A breakthrough was made with medical equipment and medicines—a new field of Russian exports. The companies Vremya, S.S.S.R. and Ercapharm extended their share from US to 50 million, about a quarter of the Iraqi Ministry of Health second-stage quota.

Re-export foodstuff contracts under resolution No. 1111 skyrocketed from US to 96.7 million. The Interrosagro, MES, Machinoimport, Roscontract and Aromatsintez received the biggest orders for 1997.

Russian companies' humanitarian exports to Iraq approached US million in 1997.

The next year, Russian exporters joined suppliers of equipment and spare parts to rehabilitate Iraqi petroleum industry according to Resolution No. 1175.

Contacts between ministries and departments are progressing. A delegation of the Ministry for Emergency and Calamity Relief led by minister Sergei Shoigu visited Baghdad in December 1996. Invitations from Baghdad came to the Transport and Communications ministers and the chairman of the State Committee for Hydraulic Projects. A cooperation agreement was drafted by Russia's Ministry of Communications and Iraq's Ministry of Transport and Communications.

Certain progress was made by cultural and research contacts, which resumed the practice of intergovernmental agreements, in particular, by the Committee for Higher Education, which grants an annual 75 scholarships to Iraqis studying in Russia. Russian delegates regularly take part in the Babylon folk festival.

Post-sanction period. An agreement and initial documents were signed in 1998 for the Babel, an oil-drilling joint venture, co-founded by Russia's Zarubezhneft and Rosneft and the Iraqi Drilling Co.

Oil-and-gas industrial cooperation is one of the most promising for Russian companies.

Prospected deposits, estimated at 112 billion barrels, concentrated in 73 Iraqi oilfields, of which a mere 15 have been developed and another 30 ready for exploration. Estimated reserves amount to 214 billion barrels, while certain experts in the Iraqi Ministry of Oil estimate them at 220 billion.

Nationalised between 1972 and 1975, Iraq's petroleum industry is the backbone of the national economy. It accounted for 85% of the entire national income and over 98% of exports before the embargo was introduced.

The government is ready with an oil industry revival programme, which envisages large-scale exploration, with several thousand wells to be drilled, and purchases of up-to-date equipment, in particular for a dozen major oilfields. Export potentials will grow to imply oil transportation and storage efforts—storage tanks, oil tank farms, pipelines and terminals to build.

According to latest estimates, tentative gas deposits amount to 4.5 to 5 trillion cu m, with 3.1 trillion confirmed. Development will start with major fields within the initial five years after the embargo is lifted. Iraq has already signed an agreement for gas supplies to Turkey.

At least US billion is necessary to rehabilitate and update oil production up to 2010, says the Ministry of Oil. Foreign companies are expected to provide up to a half of the sum in exchange for production-sharing and other forms of development participation.

Petrochemistry, iron-and-steel and non-ferrous metal industries, and engineering would develop apace within post-sanction years. President Saddam Hussain is monitoring the military-industrial commission. which is drawing up new civil-oriented production programmes, e.g., car and bus assembly, with Russian-manufactured all-terrain vehicles to be bartered for oil.

The Revolutionary Command Council approved a law on government companies, which entered into force in 1998 to grant to such companies the right to cooperate with foreign commercial ventures. So Russia has prospects to set up in Iraq trading companies, joint-stock companies with Russian capital, and bilateral investment companies. The law enhances the chance to resume and step up trade and other economic contacts by setting up commercial companies with Russian capital.

Economic sanctions of nine years' standing were badly harassing Russian companies' participation in trade and other economic contacts with Iraq throughout 1998. Whatever cooperation took place was only incidental.

The foreign-economic companies and amalgamations Tractorexport, MES, Avtoexport and Hydromachservice are comparatively successful at a medium level of business activity, with their considerable experience on the Iraqi market. They have been registered by the host country's related ministries and state companies, and have, or at least intend to set up, offices in Baghdad. Selkhozpromexport farm machine dealers have a chance to resume grain elevator construction in Sulaimaniyah, update several others, and assemble prefab metal elevators.

Trade and other economic contacts with Iraq in 1998 proceeded within the framework of the 3rd and 4th implementation stages of the memorandum of mutual understanding between the United Nations and the Iraqi government. Contracts have been signed for foodstuffs to US million, medical commodities 60, and industrial equipment and spare parts, 220.

UN Security Council Resolution No. 986 opened the door for the first time since sanctions had been introduced for Russian supplies in such essential and promising fields as oil-and-gas, power and medical industries, transport, communications, water supply, sewage, farming and irrigation.

Tender offers for particular items of equipment, materials, foodstuffs and medicines were a basic form of attracting overseas partners to the Iraqi market. Apart from suppliers' nomination, whose patterns verged on coercion, trends have become visible for tougher centralisation. All bids are analysed by ad hoc teams in state companies, and suppliers they select are approved by related ministries, and by the cabinet with major projects.

Taking part in Iraqi oil purchases were 13 Russian companies; they bought 197.45 million barrels to a total of US billion. Over fifty Russian suppliers were taking part in food, medicine, machinery, equipment and spare part export tenders to sign contracts to a total US million. Considerable amounts of transactions show that the Iraqi market, the way it is now, attracts Russian companies, and bilateral trade provides sizable additions to Russia's federal purse.

Iraq had no claims to make on Russian oil purchasers for a year. Later, however, Russian partners were out of schedule with commodity deliveries to US million at the 2nd to 4th stages, including US million at the 4th stage. All of them, with the exception of the MES, thwarted rice supplies at the 3rd stage and wheat at the 4th, after coordinator ministries gave up monitoring of Russian companies they had nominated and registered.

Iraq disapproves the list of Russian food suppliers bloated to 48 and growing still, while a mere dozen of them really mean to supply. At the 5th stage, 18 companies proposed sugar deliveries, although the Russian quota was a mere 100,000 tons. To share it out in equal slices meant shipments at a loss for every exporter, with vessels underloaded, or a need for cooperated shipping. Iraq's Grain Committee finally selected eight suppliers for final talks and contract signing. Russia's wheat quota came up to 475,000 tons at the 5th stage, as against 435,000 at the previous stage.

Russia's participation in the 31st Baghdad International Fair. The city hosted the 31st of its annual international trade fairs from November 1 to 10, 1998. Participating companies represented 66 countries. Saudi Arabia, Oman, the United Arab Emirates, Cuba, Argentina and Germany were appearing for the first time.

Eleven ministers from Arab and other countries were leading national delegations. A majority of national expositions proceeded from Iraqi humanitarian needs—foodstuffs, medicines and medical equipment, food industry technologies, consumer electronics, etc.

Russia had no government-sponsored exposition that time, and represented seven foreign-trade associations and 18 companies. Arousing the greatest public interest was the produce of Tractorexport, Hydromachservice, GAZ autoworks, and Medtechnika medical equipment manufacturers from Kazan. Those companies' displays won memorial medals of the fair committee.

Taking part in the fair were Mordovian, Tatar and Bashkir republican delegations. Mordovia was offering the most interesting display. Leading its delegation was the republican Minister of Foreign Economic Relations. The exposition presented products of its two leading industrial companies, while Stands and advertisements carried detailed information about 72 export-oriented companies; 33 enterprises offered 65 investment projects to build or update a wide range of industrial enterprises to a total of two billion dollars.

Belarussian, Ukrainian and Kazakh companies are active on the Iraqi market. They were successfully promoting their products at the fair, and obtained many preliminary orders.

Russia appeared at the fair thanks to the efficiency of two commercial companies which specialise in exhibitions: Inconnect, Apt. 2, 45 Komsomolsky Prospekt, Moscow, 119270; and Negus Expo International, Apt. 505, Bldg. 2, 22 ul. Pavla Korchagina, Moscow, 129278.

GAZ autoworks owed a memorable exposition to an Iraqi-based agency company, Qindi Trading, to which the GAZ and the Kharkov Tractor Works granted exclusive rights of selling their products in Iraq.

The Russian trade representation received, early in 1999, an official invitation from the Iraqi Government Exhibition Company for Russian companies to appear at the 32nd Baghdad Fair, November 1-10, 1999. The invitation was forwarded to the federal Ministry of Trade.Russia or France? Who is to dominate the Iraqi market? Largely determined by the sanctions, Iraq's economic patterns did not see any change in 1998, with trade preferences for countries active on the international scene for the sanctions lifted or reduced.

Russia's position is rather strong in that respect thanks to the implementation of the Food-for-Oil programme. Now it is one of the leading and most promising partners of Iraq in trade and other economic activities.

To renew and extend large-scale bilateral contacts, financing matters must first be settled by allocating the remaining part of government loans for projects envisaged by the Parties' letters of August 5, 1993, and granting soft commercial credits to Russian companies engaged in the implementation of intergovernmental understandings.

There is a chance to reduce sanctions in 1999, so the search for funds appears the most topical of all related issues. If it is shelved again, Russia has an ample chance to lose its position in the Iraqi market after the sanctions are lifted.

Russia's active stance in the Iraqi crises of 1998 encouraged the sympathies of local governmental and business circles. Russian companies and agencies have preference in tenders, and their Food-for-Oil quotas grow with every stage of its implementation.

There are no embassies or trade representations of other CIS countries in Iraq and, consequently, no economic contacts to speak of, either.

Russian companies were occasionally supplying commodities from those countries under the humanitarian programme, for instance, of Kazakh and Ukrainian wheat. Iraq approves such transactions, so there are prospects for Russian companies to mediate in the sales of Belarussian lorries and tractors, Ukrainian buses and power equipment, etc.

An utter lack of financing reduced investment and other bilateral economic contacts under intergovernmental agreements to nought. Prospects are suspended for government loans to finance priority projects referred to in the Parties' letters of August 5, 1993 (1st stage of the West Qurna oilfield development, and Al-Yussefiyah thermal plant construction), just as for commercial credits to finance construction and updating of oil and gas enterprises under the April 25, 1995, agreement.

An investment joint venture to finance other cooperated projects is only emerging, though its establishment was on the agenda of the Russo-Iraqi commission first session in September 1994. Consequently, cooperation offers are frozen in such promising fields as petrochemistry, metallurgy and engineering.

The Soviet Union and later Russia were traditionally exporting to Iraq materials and equipment for the oil and gas industry, power engineering and construction, irrigation and farming, automobile, aircraft, and miscellaneous technologies. The Iraqi market may be of future-oriented interest to Russia as regards passing licenses, now-how and production methods, supplies of machinery, equipment and raw materials for the above-mentioned fields and those which emerged under the Food-for-Oil programme, for instance, health care, education, municipal economy, water supply and sewage included.

In this, Russian commodities must go at competitive prices, and display quality in terms of consumer and technological standards alike. This will be necessary with close competition that sanctions lifting will usher in. It will be expedient to draw on the experience of certain East European countries, which grant access to foreign markets and long-term state support to winners of government-arranged bidding tenders. Similar government monitoring of the most efficient Russian export-oriented companies emerging on the Iraqi market will promote unified pricing policies and eliminate fraudulent competition.

In addition, the Iraqi market serves as an example that prompts the question of correlating the objective of building a normal market economy in Russia with the patterns of government regulation of transnational economic activities, practised in a majority of developed countries. The French experience is particularly helpful, with its consistent drawing up and implementation of a set of government support measures to buttress French companies on the Iraqi market. This policy is likely fairly soon to bring France to top position on that market.

Russia, on the contrary, may lose its position after the sanctions are lifted or even be ousted from the market altogether unless the government provides practical assistance to companies, above all, in financial matters.