Iraqi debt gives Russia mixed relief

Posted in Russia | 11-Nov-04 | Author: Sergei Blagov| Source: Asia Times

MOSCOW - In an apparent gesture of goodwill toward the US-backed Iraqi administration, Russia has pledged to write off part of the embattled nation's debt. However, old secrets may resurface during the process of debt bargaining; Russian companies and individuals may come under scrutiny in the perennial United Nations oil-for-food inquiry.

Moscow is ready to begin negotiations with Iraq on canceling a significant amount of its multibillion-dollar debt, Russian Deputy Foreign Minister Yury Fedotov announced last weekend. Russia is "prepared to substantially reduce the debt and also to reach agreements on the repayment of the remaining part of the debt", Fedotov said. However, he conceded that negotiations on the amount of the debt have not yet begun.

Before the war, the Kremlin had publicly spoken against the use of force to oust Saddam Hussein without authorization from the UN Security Council, where as a permanent member Russia has a veto. Moscow remains critical of the illegal invasion and has declined to supply peacekeeping troops to the US-led coalition in Iraq.

Prior to Saddam's demise, Russian oil firms had signed contracts worth US$4 billion with Iraq to develop the country's oil reserves. The Kremlin had also been discussing with Saddam's regime a five-year economic cooperation program worth $40 billion.

However, despite these high stakes, Russian President Vladimir Putin has stated that Russia does not wish to see the US defeated in Iraq. Moscow has also pledged to use its traditional economic and trade ties with Iraq to help to assist in the country's recovery.

Russia had previously said it had no intention of writing off debt after learning it could not participate in the US-funded reconstruction projects. However, last December, Russia offered to reduce Iraq's debt to Moscow from some $8 billion to $3.5 billion and pledged multibillion-dollar investments in rebuilding Iraq.

In exchange for Iraqi debt writeoff, Moscow now expects some benefits from helping to rebuild the country, notably oil deals. Russian government and oil-industry officials have made it no secret that they expect more oil deals in post-Saddam Iraq, but this is where things might get sticky. Negotiations on the amount of the Iraqi debt Russia will forgive could eventually unearth a sensitive issue for Moscow: allegations of graft in the UN-run oil-for-food program in Iraq.

Earlier this year, there were media reports that 46 Russian companies and individuals allegedly took part in a illegal kickback scheme for trading Iraqi oil under the oil-for-food program. Entities linked to the Russian Orthodox Church, the Communist Party and the Liberal Democratic Party allegedly took part as well.

After UN Secretary General Kofi Annan's moves to approve a corruption probe into the oil-for-food program, Russian officials and oil companies have denied allegations of graft, yet Moscow has been lukewarm over the possible UN investigation into the program.

Russia was Iraq's largest supplier in the program. Of the $18.3 billion in oil-for-food contracts approved by the Security Council since the program began, some $4.2 billion went to Russia. Eleven Russian oil companies - Zarubezhneft, LUKoil, Onako, Sidanko, Sibneft, Alfa Eko, Zarubezhneftegazstroi, Mashinoimport, Rosneft, Nafta-Moskva and MES - were buying tens of million barrels of oil from Iraq in oil-for-food deals.

The scandal, sometimes nicknamed "UNSCAM" or "oil-for-fraud", has turned ugly in recent months. In July, Ihsan Karim, head of the Board of Supreme Audit and the Iraqi official heading the investigation into the oil-for-food program, was killed in a bomb attack. Also in July, the US House committee issued a subpoena for financial records from Banque Nationale de Paris, a French bank that handled oil-for-food funds. It remains unclear whether Russian companies are mentioned in Iraqi audit records, or if they could be subpoenaed in the US.

Russia has been wary of a graft probe into the UN-run Iraq oil-for-food program as its companies would be among the first candidates to come under scrutiny. Russian officials have expressed reservations over the UN inquiry and described it as a "historical inquiry", with diplomats arguing that Moscow did not want to look backward into the history of the old issue of the Iraqi humanitarian program. Russia has also insisted that accusations of oil-for-food graft were intended to elbow the Russians away from Iraqi riches.

As Iraq's largest suppliers in the UN oil-for-food program, Russian companies still work on contracts related to the rebuilding the country's infrastructure under the oil-for-food program, reportedly totaling about $1 billion. However, in May Russia ordered all of its citizens in Iraq to leave the country after the escalating hostage crisis there. Moscow also blamed the exodus on the US-led coalition forces' failure to control the overall security situation in Iraq.

Yet despite some acrimony, Moscow has been keen not to alienate Baghdad. "We are willing to talk either with the existing Iraqi government or with the one to come to power via elections, which we hope will take place on time in January next year," Fedotov stated this month. "We are ready to negotiate with the Iraqi government, as well as authorities due to come to power following the elections, which, we hope, will be held in time, in January next year," he said.

Therefore, Moscow has made it clear it would be willing to deal with any upcoming Iraqi administration. Yet apart from eyeing Iraqi hydrocarbon riches, Moscow has been mulling more proactive policy in the region. Russia has repeatedly called for an international conference on Iraq. Last June, Russia also revealed a plan to work out a collective security initiative for the Persian Gulf region, which would be based on mutual security guarantees.

Meanwhile, Russian officials this month indicated plans to co-sponsor, jointly with Saudi Arabia, an international energy forum in February. The meeting in Riyadh is supposed to discuss problems such as perceived oil market overheating as well as measures to forestall a possible sharp decline in oil prices. Yet it remains to be seen whether the joint conference in Riyadh, or continued volatility in Iraq, could prove instrumental in preventing a possible oil-price fall.

Based in Moscow, Sergei Blagov covers Russia and post-Soviet states with special attention to Asia-related issues. He has been contributing to Asia Times Online since 1996. Between 1983 and 1997, Sergei Blagov spent some seven years in Southeast Asia, mainly in Vietnam. In 2001 and 2002, Nova Science Publishers, NY, published his two books on Vietnamese history.