- The Washington Times - Thursday, August 9, 2001

NEW YORK — On Saddam Hussein's list of most-favored nations, France is out and Russia is in. Iraq's neighbors — Jordan, Syria and Turkey — are also on the "in" list, but barely.

When it comes to dishing out lucrative contracts from Iraq's oil riches, Saddam doesn't hesitate to reward his friends and potential political supporters, and punish those who undermine or oppose his campaign to lift 11-year-old U.N. sanctions.

Now Iraq is fine-tuning the strategy, and hundreds of millions of dollars in trade and the fate of billions of dollars in Iraqi debt are at stake.

Last month, Saddam punished France for backing a U.S.-British plan to overhaul sanctions, which Iraq opposed because it wants the sanctions totally lifted. France's top-priority trade status with Iraq was switched to Russia, whose threat to veto the sanctions proposal had forced the U.N. Security Council to abandon it.

Iraq also uses oil to maintain support from its economically troubled neighbors. Jordan, Syria and Turkey are sold oil at cheap prices, saving hundreds of millions of dollars. In the case of Syria and Turkey, those sales violate the U.N. sanctions.

When Iraq recently halted 2 million barrels a day in oil exports to protest the U.S.-British plan, Iraq's three neighbors were not affected. But the five-week cutoff did hit the United States, which receives about half the Iraqi oil indirectly through foreign traders.

"The Iraqis are making no bones about it. Those who support them will benefit and those that don't can kiss goodbye to some of the commercial benefits they previously enjoyed," said Raad Alkadiri, a risk analyst for Petroleum Finance Co., a Washington-based energy consultancy.

The key sanction imposed after Iraq's 1990 invasion of Kuwait bans the sale of Iraqi oil. But in an effort to alleviate the impact on ordinary Iraqis, the Security Council adopted the oil-for-food program in 1995.

It now allows Baghdad to sell unlimited amounts of oil — provided the money goes into a U.N.-controlled fund for humanitarian relief, oil industry repairs and war reparations.

The oil-for-food plan wound up allowing Iraq to reward its supporters on the Security Council — namely Russia, China and until now France — by giving them contracts to both sell Iraqi oil and supply goods under the U.N. program.

In the program's first four years, France won more than $3 billion in contracts. But this year it was eclipsed by Egypt as Iraq's top trade partner, and now French companies are likely to be getting fewer contracts.

A French diplomat dismissed the Iraqi market as "peanuts," but Iraq's poor neighbors and economically shaky Russia cannot afford to spurn Baghdad.

In threatening to veto the sanctions overhaul, Russia said it was pursuing its economic interests — just as Western nations do. Moscow said it lost $30 billion because of the sanctions, mostly from stalled oil deals and Iraq's inability to repay $8 billion in Soviet-era debt.

After the U.S.-British plan was dropped July 3, Iraqi Trade Minister Mehdi Saleh said Moscow would be rewarded with "priority in contracts and trade dealings" along with Syria, Jordan and Turkey. Egypt, Lebanon, India, China and some Southeast Asian countries also get priority.

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