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U.S. Firms Aiding Iraqi Oil Industry

Commerce With Baghdad Grows Quietly as Washington Urges Regime Change

By Colum Lynch
Special to The Washington Post
Sunday, February 20, 2000; Page A23
UNITED NATIONS, Feb. 17—Four years ago, when he was director of central intelligence, John M. Deutch headed up American efforts to overthrow Iraqi President Saddam Hussein. Today, Deutch sits on the board of Schlumberger Ltd., a multinational company that is helping Baghdad service its oil rigs.

As secretary of defense during the Persian Gulf War, Richard B. Cheney played a key role in the U.S.-led military coalition that forced Iraq to retreat from Kuwait. But as chief executive officer of Halliburton Co., a Dallas-based maker of oil equipment, Cheney recently held a major stake in Dresser-Rand and Ingersoll-Dresser Pump Co., two American players in the reconstruction of Iraq's oil industry. While the United States and Britain wage almost daily airstrikes against military installations in northern and southern Iraq, U.S. companies, executives and even some architects of American policy toward Iraq are doing business with Saddam Hussein's government and helping to rebuild its battered oil industry. Though perfectly legal, the growing U.S.-Iraqi commerce has been kept quiet by both sides because it seems to fly in the face of Washington's commitment to "regime change" in Baghdad and Saddam Hussein's claim to be defying the world's lone superpower. The United Nations also helps both countries avoid embarrassment by treating the business arrangements as confidential.

The trade is permitted under the "oil for food" deal, a humanitarianexemption from the U.N. trade embargo imposed on Iraq after the 1990 invasion of Kuwait. It allows Iraq to sell oil and use the proceeds, under U.N. supervision, to purchase food, medicine and other humanitarian goods, as well as spare parts to keep the oil flowing.

Placing bids through overseas subsidiaries and affiliates, more than a dozen U.S. firms have signed millions of dollars in contracts with Baghdad for oil-related equipment since the summer of 1998, according to diplomats, industry officials and U.N. documents.

"The United States is the cradle of the international oil industry," said James Placke, who tracks Persian Gulf oil production for Cambridge Energy Research Associates, a consulting firm. "A lot of the equipment in Iraq's oil industry was originally made in America, and if you want spare parts, you go back to the original supplier."

Most U.S. oil companies have been prohibited by Baghdad from directly purchasing Iraqi crude since the United States bombed Iraq during Operation Desert Fox in December 1998. But Iraq nevertheless has emerged in the past year as the fastest growing source of U.S. oil imports, according to Larry Goldstein, president of the Petroleum Industry Research Foundation.

American companies, he said, now purchase about 700,000 of  the 2 million barrels of oil exported daily by Iraq, mainly  through foreign middlemen who load the Iraqi crude and transport it directly to American ports, primarily in the Gulf of Mexico.

"The Chevrons and the Exxons of this world have to buy from the Russians, the French and the Chinese traders," said  Goldstein. But, he added, "the U.S. spare parts industry is too dominant to ignore."

After approving the oil-for-food exemption in 1996, the U.N. Security Council gradually raised the amount of oil Iraq was allowed to sell, and on Dec. 17 it removed the ceiling.

In June 1998, the 15-nation Security Council voted to allow Iraq to buy up to $300 million in spare parts every six months. The council is considering a proposal to double that limit.

According to U.S. government figures, American firms account for only a tiny share of the nearly $10 billion in trade that has been conducted under the oil-for-food exemption. U.S. citizens have received licenses to export about $15 million of oil-related spare parts and $400 million of food, medicine and water treatment equipment to Iraq, according to the State Department.

But those figures do not count most products purchased by Iraq from American subsidiaries abroad. This indirect U.S.-Iraqi  trade is tracked by the United Nations, which must approve all the contracts. But little information about it has been made public.

The U.N. humanitarian program for Iraq maintains a Web site that lists contracts by number, with a brief description of the goods involved and the country--but not the company--selling them to Iraq. According to this, the United States has been responsible for only 2 out of 2,080 contracts for oil spare parts submitted to the United Nations for approval. France, China and Russia, by contrast, submitted a total of 746 contracts.

America's real share of this trade, while unclear, is certainly far greater. Until recently, visitors to the Web site could search for a company name and then call up the contract numbers associated with that company, allowing cross-referencing between contracts and companies. The search engine was shut down last week after U.N. officials learned that The Washington Post had used it to investigate U.S. companies doing business with Iraq through foreign subsidiaries.

John Mills, spokesman for the U.N. Office of the Iraq Program, declined to comment on the extent of U.S. trade with Iraq, saying it was proprietary trade information.

According to diplomats and the Web site, American firms that have done business with Iraq, directly or through subsidiaries, include such petroleum industry giants as Halliburton, the world's largest oil field service company; Schlumberger, the second largest oil field servicer; the Fisher-Rosemount unit of Emerson Electric Co. in St. Louis; the Hamilton Sundstrand unit of United Technologies in Windsor Locks, Conn.; and Baker Hughes Inc. of  Houston.

Deutch, the former CIA director who sits on the board of Schlumberger, and officials at the firm's New York headquarters did not respond to requests for comment on their dealings with Iraq. A Halliburton spokesman, Guy Marcus, confirmed that two of his firm's former joint ventures--Dresser-Rand and Ingersoll-Dresser Pump--conducted business with Baghdad. "The joint ventures sold spare parts to Iraq through European subsidiaries," he said.

Marcus added, however, that Halliburton's share of both joint ventures was sold in the last two months to Ingersoll-Rand of Woodcliff Lake, N.J., which now wholly owns them. He also said that Cheney, the former secretary of defense, "was not involved in the management of either joint venture and was not involved in the decision to make such sales" to Iraq.

According to one diplomat at the United Nations, Dresser-Rand and Ingersoll-Dresser Pump signed $29 million in contracts for spare parts with Iraq through affiliates in Austria, France, Germany and Italy. Marcus said he did not know whether that figure was accurate.

Peg Hashem, a spokeswoman for Hamilton Sundstrand, confirmed that a French subsidiary, Dosapro Milton Roy, sold pumps for Iraqi water treatment plants in a contract worth "under $1 million." She said it was also possible that the firm had sold additional equipment to Iraq.

Spokesmen for Dresser-Rand, Dresser-Ingersoll Pump Co. and Baker Hughes did not respond to requests for comment on their ties to Iraq. But a Fisher-Rosemount spokesman, Walt Sharp, acknowledged that it has sold equipment to Iraq. Although he was not sure of the value of the contracts, he said, all the deals were approved by the Treasury Department and a U.N. Security Council sanctions committee.

Indeed, Diplomats said Washington has been a greater obstacle for American businesses than Baghdad. The United States has placed "holds" on more than 1,000 contracts valued at $1.5 billion under the oil-for-food program, including some held by American companies. A review of 22 Fisher-Rosemount contracts, for example, showed that the United States had held up eight and approved seven; the remainder were pending or had been canceled.

"We don't play favorites," said a State Department official.

Copyright 2000 The Washington Post Company

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