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,
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
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
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
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
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,
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.