Neither smart nor attractive to Russia

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Moscow surprised both the Bush administration and regional oil experts by sticking to its rejection of the US-designed “smart sanctions” scheme which Washington had hoped would be adopted by the Security Council by July 4, US independence day. Instead of knuckling under to Washington’s diktat, Russia chose to declare its independence.

There was surprise because in early June, Russia agreed to a general resolution inspired by the US that the punitive sanctions regime imposed on Iraq in 1990 had to be revised. The putative aim was to ease the embargo on civilian goods while tightening controls over items with military applications. But agreement in principle, did not mean Moscow would ever accept the specific US proposal for “smart sanctions.” In spite of claims to the contrary, this plan does not lift sanctions on goods for the civilian sector, while making it more difficult for Iraq to purchase military related equipment.

Furthermore, the US proposal seeks to end what Washington calls “smuggling” (the export by Iraq of oil outside the ambit of UN control) and prohibit foreign investment in the Iraqi oil industry. The real purpose of “smart sanctions” is to deny the Iraqi government any independent source of income and to prevent the repair and reconstruction of the deteriorating oil fields and refineries which constitute the country’s sole national resource. It was all too clear to Russia that “smart sanctions”, like 11-year old blanket “stupid” sanctions, would target Iraq as a country and its citizens rather than the government of President Saddam Hussein, which the US says it is determined to topple (though some analysts believe Washington wants “Saddam” to stay on so that the US can continue to sanction and isolate this central Eastern Arab country).

It is not in Moscow’s interest to allow the destruction of Iraq to continue. Baghdad owes Russia billions of dollars for weaponry purchased during the Soviet era. As long as sanctions remain, Iraq will not be in a position to pay. Furthermore, Russian companies handle more than half of Iraq’s legitimate oil exports, as well as lucrative cut-price illegal deals. These firms have lost their cut on legal sales since Baghdad suspended exports on June 4, in protest against the consideration of “smart sanctions” by the Security Council. Iraq said the oil would not flow again until the scheme was dropped and the UN oil-for-food programme was given an unconditional extension. Finally, Iraq has signed lucrative agreements with Moscow for the exploration and exploitation of new fields. As long as sanctions stay, these agreements cannot be implemented.

Although the threat of the Russian veto dissuaded the US from putting “smart sanctions” to the test in the council, other key players in the region, including Jordan, contributed to the abandonment of this proposal. While Jordan is prepared to acquiesce in a restructuring of the existing sanctions regime, Amman made it clear to the US that its “smart sanctions” plan would harm the interests of the Kingdom. On the one hand, favourable arrangements outside the sanctions regime would end. On the other, Iraq said it would cease all exports of oil to any of its neighbours acquiescing in the “smart sanctions” framework. As far as Jordan is concerned, the economic impact of “smart sanctions” would be devastating.

According to the authoritative, Nicosia-based, Middle East Economic Survey (MEES) of June 25, 2001, the financial cost of abiding by “smart sanctions” would be very high for Jordan. Under the current arrangement (tolerated by the UN since 1991), Jordan imports from Iraq 30 million barrels of crude and other oil products valued at $750 million per annum. MEES says that securing the same amount from another source would cost “an additional $306 million”. Furthermore, $300 million of the Iraqi oil is free while the balance of $450 million is imported on a barter basis, according to which Jordan sells locally manufactured goods to that value to Iraq. MEES sets the monetary value of the savings under this arrangement at $606 million. Combining the higher cost of importing oil from an alternative supplier and of the grant-barter arrangement, the savings to Jordan in foreign exchange amounts to $1.12 billion.

MEES points out that Iraq is Jordan’s major trading partner. Some 1,500 Jordanian companies export Jordanian products to Iraq; of these 560 are totally dependent on the trade with Iraq, or 37 per cent. 75 per cent of Jordan’s transit trade through the port of Aqaba is destined for Iraq. Of the 11,000 lorries in the Jordanian fleet, 5,000 are totally dependent on trade with Iraq. Finally, Iraq owes $1.3 billion to Jordan. Since this sum is being gradually repaid under the present arrangements, disruption would prevent Jordan collecting its dues.

While Jordan is the neighbour most dependent on trade with Iraq, Turkey would also be adversely affected by the disruption of the “smuggling” of oil and petroleum products across the frontier. The economy of southeastern Turkey, which counts on this trade would suffer stunning losses. Iraq’s Kurds trapped in the US protected “safe haven” would lose their only external source of income – transit dues from “smuggling”. And Syria, which last year reopened the oil pipeline across its territory, would lose revenues from illicit exports. Syria and Egypt, which have signed free trade agreements with Iraq, would also be denied profitable markets for their products, harming the already troubled economies of these important Arab countries. Turkey, which has lost an estimated $40 billion due to sanctions, would also see its losses continue to mount. Washington has never offered indemnification from its own pocket but only suggested that compensation be extracted from Iraq’s UN-controlled revenues.

Moscow did Iraq’s neighbours a very great favour when it blocked the adoption by the council of Washington’s “smart sanctions” proposal. For, it was neither “smart” nor attractive to Russia and other countries which have managed to either operate according to UN-tolerated extra-sanctions arrangements, like Jordan, or evade sanctions.

Mr. Michael Jansen contributed this article to the Jordan Times.

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