Iraq is breaking the United Nations-imposed oil embargo with the help of Iran’s military and the tacit cooperation of countries friendly to the United States, according to knowledgeable U.S. national security officials.
The arrangement helps raise money for Iraq and Iran, two nations that fought a bitter war in the 1980s. But it also helps several U.S. allies.
Turkey, a NATO ally, routinely allows truckloads of oil to cross the border from Iraq. Ethnic Kurds in northern Iraq who receive U.S. support–and who hosted a recent visit from a State Department delegation–take a percentage of each truckload. Jordan, another U.S. ally, receives shipments legal and illegal. Iraq also smuggles oil into Syria and Lebanon.
Washington largely ignores this activity, according to U.S. military and diplomatic sources, for a variety of logistical and political reasons.
Iran’s navy, meanwhile, collects stiff tolls from pirate tankers carrying Iraqi oil past a largely powerless, U.S.-led oil blockade in the Persian Gulf.
“Whenever the price of oil goes up, the amount of smuggling starts to increase proportionately. That is what we’ve been seeing in recent months,” Army Gen. Henry Shelton, chairman of the Joint Chiefs of Staff, recently told the Defense Writers Group, a professional journalists’ organization. “We can’t afford to maintain a large presence out there. . . . It is a difficult issue to try to stop it.”
The complex anatomy of this smuggling shows how barter, cash and competing agendas allow Iraq to raise hundreds of millions of dollars unfettered by an international embargo. It shows how the sharp increase in oil prices brings with it complications beyond the pocketbooks of Americans buying gasoline or heating oil.
It demonstrates the weaknesses inherent in trade embargoes, even those backed by the considerable U.S. military resources deployed to the Persian Gulf. And it points up some domestic concern that U.S. oil companies might lose out to foreign competitors if Iraq’s oil trade is allowed to reopen.
Dealing exclusively in cash or barter, Iraq sells this illegal oil at a drastically cut rate of less than 20 percent of the open market price because shippers risk losing everything if they are caught. The deal works for Iraq because unlike revenues from the UN-sanctioned oil-for-food program, this money comes with no strings attached. The illegal oil revenue is managed by members of Saddam Hussein’s family and helps the Iraqi leader pay for the vast security apparatus that protects his reign, and it provides desperately needed hard currency to buy illegal weapons and spare parts to rebuild his military.
Once Iranian naval forces collect their “toll” from a smuggling ship, U.S. intelligence is unsure precisely where the rest of the money goes. But the income rivals the estimated $25 million per month legally collected by Iraq, according to the State Department. And there is every indication the Iraqi shipments continue with the knowledge and approval of the Iranian government.
Early last year, Iran was halting some of the illegal shipments. But as oil prices rose–and with it, the potential for collecting illegal tolls–the Iranian navy allowed the smuggling to resume.
Shelton said Washington has protested directly to Iran, and a State Department official said the administration planned to raise a formal protest directly to Iranian representatives at the UN next month. Iran denies participating in the smuggling.
For Iran, an adversary to which the U.S. tentatively seeks an opening, the smuggling raises revenue and provides regional prestige.
For Turkey, the land shipments help bring trade drastically curtailed over the last decade by the international embargo on Iraq.
And for states farther down the Persian Gulf such as Oman, the United Arab Emirates and Bahrain–all nominally friends of the U.S.–the Iraqi oil they buy is just part of the bustling petrotrade that drives the region’s economy.
The oil smuggling continues in a heated political and economic context.
A growing chorus of protesters, including U.S. lawmakers of both parties, wants to lift sanctions on Iraq, arguing that they hurt the Iraqi people. Last August, UNICEF estimated that a half-million more Iraqi children under 5 have died since the embargo began than expected under a normal infant mortality rate before the 1991 Persian Gulf war.
Rep. David Bonior (D-Mich.) the House Democratic whip, called the current sanctions “infanticide masquerading as policy.” Citing the money Hussein’s regime reaps from smuggling, Rep. John Kasich (R-Ohio), said, “It could be argued that the sanctions have in fact strengthened the regime and weakened the people who would be needed to overthrow the regime.”
The Clinton administration wants to continue the sanctions on Iraq until Baghdad agrees to allow a resumption of weapons inspections; something the Iraqi government has said repeatedly it will not do.
But some outside experts argue that Washington’s real agenda in keeping the sanctions going is to protect U.S. oil companies that would almost certainly be cut out of a share of the lucrative Iraqi market should trade resume. France, which supports lifting sanctions, would likely be the big beneficiary of resumption of trade with Iraq. This would repeat the pattern seen just last year when sanctions on Libya were lifted and European oil firms gained lucrative contracts at the expense of U.S. competitors.
“There’s almost always a hidden agenda,” said Wenonah Hauter, an energy expert with Public Citizen, a non-profit advocacy group. “When you look at American policy concerning Iraq, it’s in large part motivated by the oil industry and who will be able to go in there and partner with that nation.”
Senior U.S. diplomatic and military officials described in detail how the smuggling operation works.
In southeast Iraq, small tankers and tugs pulling barges make their way about 18 miles up the Shatt al-Arab, the mouth of the Tigris and Euphrates Rivers, from the narrow stretch of coast that Iraq occupies on the Persian Gulf between Kuwait and Iran. The vessels are often decrepit, well past their useful life and therefore would represent only a nominal loss to the smuggling enterprise. Usually the cargo they carry is worth much more than the ship itself.
At an oil pumping facility south of the port of Basra, Iraq, they take on diesel fuel or crude oil, paying in cash $50 to $60 per metric ton compared to current market prices running up to $200 per metric ton. Once out in the Persian Gulf, the vessels make a sharp turn and hug the Iranian coastline. The multinational UN Marine Interception Force cannot go inside a 12-mile limit without the permission of the country involved, and Iran has not given its permission.
Iranian navy vessels then intercept the tankers where, for an additional fee of roughly $30 to $40 per metric ton, the captain of the ship can buy safe passage down the Iranian coastline and, more important, get false papers indicating the oil is of Iranian origin.
Once they reach the Strait of Hormuz, the tankers dash across the relatively narrow international waters, hoping to evade interception. They usually succeed. Once on the western shore of the gulf, they offload at ports in Oman, the United Arab Emirates, Bahrain or Qatar, which are all countries that receive various forms of U.S. military assistance relating to the perceived threat from Iraq and Iran.
“The vast, vast majority gets through,” said a U.S. official.
Thus, having paid roughly half the market price for a cargo of fuel, the smuggler is able to sell it at full market value.
In some cases, U.S. officials say, the countries that buy the fuel know exactly where it came from.
“I didn’t say `complicit,’ ” State Department spokesman James Foley said. “I did say that, to some degree, we do have a problem with some of the states in the region. But to a large degree, we believe that a lot of this is happening without the knowledge of governments in the gulf.”
In recent months, this form of smuggling has accelerated dramatically, reaching the highest levels since the embargo was imposed. In 1998, Iraqi illegal oil exports by sea averaged 50,000 barrels a day, according to the State Department. Today the rate is twice that.
But more than half of all the smuggled oil coming out of Iraq goes by land in tanker trucks bound for border crossings with Turkey, Syria and Jordan. In 1998, when the rate of smuggling was far less, a BBC reporter counted 700 trucks, most of them carrying diesel fuel, passing through the Kurdish-controlled border town of Dohuk, Iraq, into Turkey. The legally approved oil that is part of the oil-for-food program passes into Turkey via pipeline.
These shipments continue under the nose of UN officials performing various monitoring jobs in the region and occur only after the truckers have paid a passage fee to the Kurds, who continue to play their middleman role despite open, mutual hostility with Iraq and Turkey.
A senior State Department official said the U.S. is loath to intervene because Turkey holds an important position in Washington’s national security posture, providing water to friendly states in the region and allowing U.S. warplanes to fly patrols over northern Iraq from Incirlik Air Base in southeast Turkey. Unlike the shipments by sea, there is no practical way for U.S. or UN forces to intercept the oil being trucked out of Iraq.
Jordan, another U.S. ally, strives to maintain cordial, or at least civil, relations with its more powerful neighbor, Iraq. This combined with Jordan’s long reliance on Iraq for oil has led to a special exemption from the UN embargo. Even so, according to U.S. officials, some shipments into Jordan come from smugglers offering below-market prices for oil. Syria and Lebanon also receive regular shipments.
All these countries deny knowingly taking part in the smuggling.
The accelerated flow of smuggled oil from Iraq, though considerable, is barely a trickle in the world oil market and so has no effect on prices. The roughly 200,000 barrels per day smuggled out of Iraq represent less than 7 percent of that nation’s total oil production. Iraq has the world’s second-largest proven oil reserves, with 11 percent of the world total, surpassed only by Saudi Arabia, according to Paul McDonald of Global Energy Intelligence.
Precisely what Iraq is buying with its smuggling revenues is impossible to say for sure, according to U.S. officials. But vessels picking up Iraqi oil have been observed bringing everything from tires to computers to car batteries into the country. And some of the money goes to buy palaces, cars and other luxuries for Hussein, his family and his large entourage of palace guards.
