[PEN-L:29511] economic diplomacy

["Ian Murray" <seamus2001@xxxxxxxxx>]

Russia, Iraq Plan Deal to Bolster Ties
$40 Billion, 5-Year Accord Covers Energy, Infrastructure

By Peter Baker
Washington Post Foreign Service
Saturday, August 17, 2002; Page A01


MOSCOW, Aug. 16 -- Russia and Iraq plan to sign a new five-year
economic cooperation agreement worth $40 billion, reinforcing
Moscow's close ties to Baghdad even as the United States weighs a
military attack to drive Iraqi President Saddam Hussein from power,
Iraqi and Russian officials said today.

Russia's apparent refusal to abandon its longtime ally, despite
vigorous U.S. efforts to isolate Iraq, could make it even more
difficult for the United States to rally Russian and other skeptical
world leaders behind any invasion.

The five-year agreement will deal with cooperation in a variety of
fields -- foremost oil, but also electrical energy, chemical
products, irrigation, railroad construction and transportation,
according to officials here. Soviet or Russian specialists built
much of the infrastructure in Iraq, and so Baghdad wants Russian
expertise to help repair or upgrade it.

Russia has continued to strengthen ties with all three of the
countries branded the "axis of evil" by President Bush: Iran, Iraq
and North Korea. Despite President Vladimir Putin's friendship with
Bush and support for the war on terrorism, Moscow last month
released a separate plan calling for increased nuclear cooperation
with Iran and this week invited North Korea's leader to visit
Russia.

Russia plays a particularly important role in the future of Iraq.
Russia has long been one of Iraq's chief benefactors in the
international arena and a major trading partner and military
supplier. But Bush aides have expressed hope that the United States
could mollify Putin enough to keep protest to a minimum in the event
of war.

For its part, Iraq has been lobbying hard to keep Russia in its
corner, recognizing the dearth of friends that will stand up for it
in a moment of crisis. Few countries have more significant economic
interests in Iraq than Russia, totaling billions of dollars both in
the form of unpaid Soviet-era debts and unrealized post-Soviet oil
contracts.

"Russia was, is and will be our main partner," said Abbas Khalaf,
Iraq's ambassador here. "What we need from Moscow is moral,
political and diplomatic support because Iraq has shown the whole
world that it can defend itself. America's aggressive statements
against Iraq aroused negative reaction in Russia."

Khalaf scoffed at recent speculation that Moscow has privately
signaled Washington that it would not seriously object to an attack
on Iraq. Russia, he predicted, would do everything it could to stop
a war.

"We're sure of it because Russia is a country which supports peace
and stability in the whole world," he said. "It has a moral
responsibility to prevent such aggressive plans against Iraq."

Khalaf, a high-ranking Foreign Ministry official and Hussein's
personal translator, was dispatched to Moscow as the new envoy a
month ago and has been making the rounds here to solidify the
Russian political establishment behind Iraq. He disclosed the
planned economic agreement in an interview today at the embassy in
central Moscow and senior Russian officials confirmed it.

Oleg Buklemeshev, a top deputy to Prime Minister Mikhail Kasyanov,
confirmed that after years of negotiations the "framework" has been
vetted by various government agencies and sent to his boss's office
for final approval. "All the ministries have agreed to the
document," he said in an interview. As for a signing ceremony, he
said, "It could happen very soon."

But Buklemeshev stressed that nothing in the economic program would
violate U.N. sanctions imposed on Iraq after its 1990 invasion of
Kuwait and said that no arms would be involved. "I can assure you
it's absolutely in line with all the existing international
decisions toward Iraq," he said. U.S. officials should not object,
he added. "They should be okay provided they have correct
information."

Under U.N. resolutions, Iraq can sell only limited amounts of oil
each year to pay for food and medicine and rebuild the country's
infrastructure. The sanctions are supposed to remain in place until
U.N. inspectors certify that Iraq has eliminated its efforts to
obtain nuclear, chemical and biological weapons. But Baghdad threw
out the inspectors in 1998.

U.N. and Iraqi officials have jousted recently over readmitting
inspectors. Russia has encouraged a resolution of the issue that
would forestall a U.S. military attack.

As long as the sanctions remain in place, Russian oil companies
cannot proceed with their most ambitious plans to develop Iraqi oil
fields. However, Russia gets the largest share of the petroleum sold
under the U.N. oil-for-food program and overall still does about $4
billion in business a year with Iraq.

Just Thursday, Russia proposed changes in the pricing rules in the
oil-for-food program that it argued have penalized Baghdad and
discouraged oil sales. Russian diplomats pushed for a special
session of the U.N. Security Council's committee on Iraq sanctions
to consider the issue.

Russia and Iraq have concluded a number of economic deals that have
only sometimes come to fruition.

State Department officials in Washington said they were unaware of
the pending agreement and expressed hope it would remain within
limits imposed by the U.N. sanctions. "Russia is a Security Council
member and knows full well their obligations under U.N. Security
Council resolutions," a senior State Department official said. "But
we are not aware of any particular agreement."

Some Russian oil executives expressed doubt that the agreement could
amount to much, given the international political climate. "We
couldn't broaden our relationship with a regime that has a policy
like that," said one oil company official who did not want to be
identified.

At the same time, many of the oil executives were clearly eager for
the chance to pursue more opportunities. Several asked how much
money the new blueprint might mean for their companies.

Regardless of the economics, the symbolism of a signing ceremony
could irritate U.S. officials. Iraqi and Russian officials said the
ceremony likely would take place in the next two weeks in Baghdad
and involve cabinet-level officials, such as Iraq's oil minister and
Russia's energy minister. Iraq had hoped Kasyanov might come, but
his aide, Buklemeshev, said he did not think the prime minister
would participate.

"Without question, there will be a big ceremony," said Khalaf, the
Iraqi ambassador. "Just recently, they informed me that it will be
at the end of August." Iraqi officials want to hold it in Baghdad,
he added, as a way for the Russians to show "moral support."

The disclosure of the economic agreement with Iraq follows the
release of a Russian blueprint for expanding ties with neighboring
Iran as well. That document, signed by Kasyanov, envisioned Russia
building five additional civilian nuclear reactors in Iran in
addition to the one already under construction at Bushehr. Top Bush
aides complained to Russian officials that such cooperation could
help Iran develop nuclear weapons.