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A Discreet
Way of Doing Business with Iraq
FT.com site; Nov 3, 2000
BY CAROLA HOYOS, UNITED NATIONS
CORRESPONDENT
article
source the Financial Times
Millions of dollars of US oil business
with Iraq are being channelled discreetly through European and other
companies, in a practice that has highlighted the double standards now
dominating relations between Baghdad and Washington after a decade of
crippling sanctions.
Though legal, leading US oil service companies such as Halliburton,
Baker Hughes, Schlumberger, Flowserve, Fisher-Rosemount and others, have used
subsidiaries and joint venture companies for this lucrative business, so as to avoid straining
relations with Washington and jeopardising their ties with President Saddam
Hussein's government in Baghdad.
By submitting their contracts to the UN via mainly French subsidiaries, many of which do little
more than lend their name to the transaction, the companies are treated as European, rather
than US or Japanese, applicants.
In 1998 the UN passed a resolution allowing Iraq, the world's sixth largest oil producer, to buy spare
parts for its dilapidated oil industry.
Since then, only two of the 3,058 contracts for oil industry parts that have been submitted to the UN have
officially come from US companies. But the facts behind these figures tell a
very different story.
US companies have in fact submitted contracts worth at least $100m to the
UN for approval to supply Iraq with oil industry spare parts, through their
foreign subsidiaries. Some informed estimates put that value as high as $170m.
They have used, or allowed, associated companies, mainly in France, but also in Belgium, Germany, India,
Switzerland, Bahrain, Egypt and the Netherlands, to put the contracts
through.
"It is a wonderful example of how ludicrous sanctions have become,"
says Raad Alkadiri, analyst
at the Petroleum Finance Company, a Washington-based consulting firm. "On the one hand you
have the
Americans, who do not want to be seen trading with Iraq, despite the fact that it is above board and
legitimate, because that would contradict their image of being tough towards
Iraq.
On the other hand you have the Iraqis, who on the technocratic
level would like to buy the best stuff on the market - in many
cases that comes from the US - but politically have to be able to say they
are refusing to deal with US companies," he said.
Halliburton, the largest US oil services company, is among a significant number of US companies that
have sold oil industry equipment to Iraq since the UN relaxed sanctions two
years ago.
From 1995 until August this year Halliburton's chief executive officer
was Dick Cheney, US secretary of defence during the Gulf war and now
Republican vice-presidential running mate of George W.Bush.
From September 1998 until it sold its stake last February, Halliburton owned 51 per cent of Dresser-Rand. It
also owned 49 per cent of Ingersoll-Dresser
Pump, until its sale in December 1999. During the
time of the joint ventures, Dresser-Rand and Ingersoll-Dresser Pump
submitted more than $23.8m worth of contracts for the sale of oil industry
parts and equipment to Iraq. Their combined total amounted to more than any
other US company; the vast majority was approved by the sanctions committee.
Mr Cheney is not the only Washington heavyweight to have been affiliated
with a company trading with Iraq. John Deutch, a former director of the
Central Intelligence Agency, is a member of the board of Schlumberger,
the second largest US oil services company.
Schlumberger has submitted at least three contracts for well-logging equipment and geological software via a
French subsidiary, Services Petroliers Schlumberger, and through Schlumberger
Gulf Services of Bahrain.
Some of the companies, such as General Electric and Dresser-Rand, say
that not only political considerations shape their decision to do business
through their European offices.
"It is customary for GE to do its business for the Middle East out
of its European
offices," says Louise Binns, a GE spokeswoman, who
acknowledged that GE does business with Iraq. Other companies the FT contacted admitted doing business with
Iraq, either directly or through
their subsidiaries.
US companies that use foreign associates can also reduce the risk of
their contracts being blocked by France and Russia in retaliation for blocks
by the US.
The US is behind nearly all the $289m of contracts delayed by the sanctions committee, which has received
$1.7bn of contracts. These delays
were ostensibly intended to prevent transfer to Iraq of dual-use technology
that could be adapted for military purposes.
"Washington doesn't want to enable the Iraqi economy to recover, therefore it keeps the infrastructure
very weak," a UN diplomat said.
However, Iraq is the US's second biggest Middle Eastern oil supplier after Saudi Arabia, making Washington
uneasily dependent on Iraq's steady oil flow. Using this influence as an oil
provider, as well as the ties it has developed with US business, Iraq has
tried to acquire lobbying power in the US.
Despite the US business ties to Iraq, however, fear of official US disapproval of contacts with Baghdad
has also prompted one US ally - Japan - to do its trade through third
parties.
Tomen, the Japanese company supplying industrial transport equipment to Iraq, submits its contracts through
its French subsidiary, Tomen France.
US companies have themselves been among those which have suffered from
the US practice of blocking contracts. But they have an edge when it comes to
arguing for the approval of their contracts, diplomats say.
By temporarily dropping their guise as European companies, they have managed to reverse the blocks by going
directly to US officials, rather than having their case argued by the
European mission on behalf
of their subsidiary.
At least two US companies have recently managed to reverse Washington's
objections over their contracts. In an exchange of letters between company
officials and one UN mission, seen by the FT, it became clear the US
companies had resolved its case directly with Washington. Few non-US
companies have been able to exercise similar influence.
Copyright © Financial Times group
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