Where Does Iraq's Money Go?
Published March-April 2002
The ink was barely dry on the 1991 cease-fire before the U.N. Security Council set up a commission to process claims against Iraq totaling more than $300 billion for damages suffered during the Persian Gulf War. The claims totaled almost five times the cost of the war.
With no money budgeted for its administration, the U.N. Compensation Commission, a subsidiary organ of the Security Council, was launched on the "voluntary contributions" of U.N. member nations to the U.N. Working Capital Fund. Why the "voluntary contributions" are not more straightforwardly called "loans," however, is a mystery because Iraq will be paying the yet-to-be determined interest they are earning. According to a U.N. Treasury spokesperson, the total amount loaned to the Working Capital Fund for the work of the commission is not public information.
Since its inception, the Compensation Commission has become a small industry. Nearly 100 nations have beaten their path to the commission’s doors with their claims against Iraq—over half the membership of the United Nations, literally more than half the world. Headquartered in Geneva in a villa called La Pelouse, a former residence of three successive secretaries-general of the League of Nations, the commission handles the documentation of the 2.6 million claims, which takes up approximately 3,500 square yards of storage space. The commission’s secretariat—its administrative operations—employs a full-time staff of 240, whose salaries are paid for by Iraq (along with the commission’s office supplies, building maintenance costs, etc.) out of the 30 percent of its oil sales earmarked for reparations.
Blood from a Stone
Suffering under comprehensive economic sanctions dictated in August 1990 by U.N. Security Council Resolution 661, which exempted only food and medicine, Iraq continually refused the terms of the Security Council’s offers (Resolutions 706 and 712) to sell limited amounts of oil to meet its humanitarian needs. Finally, in December 1996, Iraq agreed to the plan to do so spelled out in Resolution 986. With 30 cents of every dollar Iraq earned in oil sales for the next four years going to the Compensation Commission, however, the oil-for-food program could have been more honestly called the oil-for-food-and-reparations program.
Effective in early December 2000, the percentage of Iraq’s oil sales earmarked for reparations was reduced to 25 per cent, with the newly freed 5 per cent going to humanitarian relief. Additionally, 1 per cent of Iraq’s oil sales that had been earmarked for other administrative purposes was temporarily suspended last year so that that 1 percent also could be applied to Iraq’s humanitarian needs.
But Iraq’s extensive oil industry repair needs must also come out of its "humanitarian" allowance. The group of U.N. experts who traveled to Iraq in January 2000 to assess the state of the oil industry there described it as "lamentable" and declining. They concluded that if it is left unchanged, lack of materials, spare parts and long delivery times "will lead inexorably to the demise of the oil industry." The recent 6 percent increase in Iraq’s "humanitarian" funding, we can be sure, will be aimed at keeping alive the golden goose.
The Compensation Commission is composed of (1) a governing council that determines policy and has the last word on the recommendations of the panels of commissioners, (2) panels of commissioners that evaluate the claims and recommend compensations, and (3) a secretariat to provide services to the governing council and the panels of commissioners. According to the commission’s website (www.unog.ch/uncc), the composition of the Governing Council "is the same as that of the fifteen-member Security Council at any given time." The salaries of the council members do not come out of the compensation fund, but are paid by their countries of origin.
But the expense reimbursements of the experts who come to Geneva to constitute the panels of commissioners—their transportation, lodging, meals and fees for their expertise—do come out of Iraq’s oil sales allocated for compensation. According to a commission spokesperson, the annual total of the money needed to run the commission is "confidential." Reparation payments must get in line behind these "confidential" expenses, but their postponement is palatable: Iraq’s indebtedness is rolling up all the time at compound interest. Claimants for Iraqi reparations earn interest on the unpaid balance of their claims from the date of loss. Interest will be paid after the principal amount of awards, but the rate of interest has not yet been determined.
Everyone Wants a Piece
Seeking $80 billion in reparations from Iraq are 5,280 companies. One hundred fifty-two of them are U.S. companies claiming a total of $2.4 billion. But because the names of the claimants are "confidential" until their applications are approved, we cannot know how many U.S. companies, for instance, might be making claims from subsidiaries incorporated in foreign countries, which are counted as claims from the country of incorporation. An Italian-based subsidiary of a major U.S. corporation, for example, would be counted as an Italian company.
One U.S. corporation whose claim has been approved is the Halliburton Company. Halliburton’s claim of $36 million is a relative drop in the bucket for the $15 billion oil services company, but to an Iraqi whose monthly earnings are the equivalent of several U.S. dollars, the figure would seem astronomical. The stock options and restricted stock Halliburton gave its CEO Dick Cheney before he became Vice President of the United States totaled $35.7 million—about the amount of Halliburton’s claim against Iraq.
To date, the commission has approved claims against Iraq for $36 billion and actually paid out almost $14 billion to claimants. But with unknown U.N. expenses and indeterminate interest expense accruing, we cannot know what total Iraq will really be asked to pay. Also indeterminate on the other end is how much Iraq needs to restore its infrastructure. If the repair bill for the electrical system in Iraq’s three Kurdish northern governorates is estimated at between $1 billion and $1.5 billion, for example, how much will it cost to repair the electrical system in the remaining 15 governorates in the center and south?
Experts delegated by the International Telecommunication Union concluded on a mission to Iraq in August 1998 that Iraq’s "entire telecommunications infrastructure is deteriorating to such an extent that the quality of service is beyond comprehension." The mission cited poor communications between hospitals and the warehouses storing medicines and other medical goods, the problem of transmitting faxes and the impossibility of transferring computer files; it concluded that it would take $1 billion and seven to 10 years to implement the necessary repairs and changes. "No one knows what the state of decay (in Iraq) is," said a U.N. source. "Forty per cent of the water that is pumped leaks, and most of the plants need complete overhaul. It is an emergency situation. When something breaks, it is fixed piecemeal or patchwork. (The Iraqis) are understaffed—most of the technical people have left."
Since December 1996, Iraq has sold more than $50 billion worth of oil, or about $10 billion per year. (In November 2000, Iraq requested that all its oil sales be converted to Euros, since it considers dollars the "currency of the enemy.") By comparison, its annual oil revenues were $14.5 billion the year before the Gulf War (although at the time, because of the Iran/Iraq War, the country was also $70 billion in debt). With the Gulf War 10 years in the past and no ceiling on the amount of oil Iraq may now sell, one might imagine that Iraq is rolling in dough.
But is $10 billion per year really $10 billion per year? When the proceeds from Iraq’s oil sales go into the Iraq account—administered, according to U.N. Security Council Resolutions, by the U.N. Treasury—every dollar is divided as follows:
- 25 cents for the U.N. Compensation Commission for reparations;
- 13 cents for the humanitarian needs of the Kurds, who make up 13 per cent of Iraq’s population;
- 2.2 cents to run the U.N. Office of the Iraq Programme, which administers the oil-for-food program;
- 0.8 cents to run the U.N. Monitoring, Verification and Inspection Commission known as UNMOVIC; and
- 59 cents for humanitarian and oil industry needs for the central and south, where 87 percent of Iraq’s population lives.
Iraq’s annual $10 billion in oil sales, then, really boils down to $5.9 billion a year for the majority of Iraqis; and every purchase Iraq wishes to make that has not been "fast-tracked" by the Office of the Iraq Programme must still be approved by the "661 Committee," the committee established by Security Council Resolution 661 in August 1990 to monitor the sanctions. In a letter to the chair of the 661 Committee dated January 7, 2002, Benon Sevan, Executive Director of the Office of the Iraq Programme (www.un.org/depts/oip) that administers the humanitarian contracts, expressed "grave concern at the unprecedented surge in the volume of holds placed on contracts by the Committee." The holds were on contracts for humanitarian supplies worth $4.28 billion and oil industry equipment worth $767 million.
Iraq appropriately paid more than $610 million in reparations to Kuwait for the cost of putting out its oil fires (the "Well Blowout Claim"). As extensive as the damage to Kuwait was, however, it put out its oil fires in a matter of nine months and repaired many of its damaged buildings within three to four years. During the Gulf War, Iraq was "bombed back to a pre-industrial age" and for the last 10 years has been kept there: a nation on the dole with its own money, its people deprived of wages and unable to exercise their right to work.
If only we would learn from history. After World War I, John Maynard Keynes, then a young economist, quit the Paris Peace talks in protest against the harsh reparations exacted from Germany. From the vantage of our knowledge of World War II, we can appreciate how prescient Keynes’ words were when he said in 1920 what repercussions we might expect when a nation is treated as cruelly as he believed Germany was being treated. As Keynes, ever the literary voice, put it, "Vengeance, I dare predict, will not limp."