A discreet way of doing business with Iraq

FT.com site; Nov 3, 2000

BY CAROLA HOYOS, UNITED NATIONS CORRESPONDENT

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.

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