Saddam's One Thousand Nights

The Run-up to the Second Gulf War

By: Sam Vaknin, Ph.D.

Also published by United Press International (UPI)

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Written August 2002

Updated June 2005

Iraq's latest war was yet another seemingly mortal blow to its eerily resilient economy. According to Fred Horan of Cornell University, Iraq's GNP per capita contracted by one third in the aftermath of its protracted and bloodied war with Iran.

Similar drops in gross national consumption and government spending were recorded by Dr. Kamil Mahdi of the Center for Arab Gulf Studies in Exeter University. The CIA pegs the cost of the Iran-Iraq conflict at $100 billion. This was three years before the first Gulf War and the decade of debilitating sanctions that followed it.

Mahdi provides an overview of the devastation:

"A decade of war followed by a major air campaign against Iraq's infrastructure and eight years of severe and comprehensive sanctions have devastated the country's economy. Lost production and diversion of resources to military activities are far from being the only economic costs. Accumulated effects on society include the loss of life, physical impairment, breakdown of societal institutions, declining morale, emigration, and all the associated hemorrhage of skills and intellectual capabilities. The effects of induced technological backwardness, of destruction and accelerated degradation of the infrastructure, and of the increased environmental damage of short-term palliative solutions need also be mentioned."

Still, the Wall Street Journal, Time Magazine, and the BBC have all reported in the run-up to the second Gulf war, in 2002, that the streets of Baghdad were teeming with new cars and Chinese double-decker buses, its bustling markets replete with luxury products, restaurants are making a brisk business, and dozens of art galleries prospered where two languished only 4 years before.

By mid-2002, the razed bridges and airport have been rebuilt. Electricity has been mostly restored. Sumptuous mosques have sprouted everywhere. Almost $2 billion were devoted to new palatial mansions for Saddam and his family, wrote the "Washington Post" on February 27, 2001. Kurdish media related how 250 kilograms of gold were applied by imported Indian and Moroccan craftsmen in two of the palaces. Iraqi state television reported in June 2002 that Saddam exhorted his ministers to avoid corruption and nepotism.

Reconstruction reached the much-neglected Kurdish north as well. The year 2001 report of the "Ministry" of Reconstruction and Development (MORAD) in Irbil lists thousands of housing units, dormitories, schools, and guest houses built this year with an investment of $70 million.

The "Kurdistan Regional Government" announced proudly the $6 million completed restoration of the landmark Sheraton. It joined half a dozen other luxury hotels constructed with allocations from the oil-for-food program then administered by the UN on behalf of the Iraqi government and money from Turkish investors.

But not all was rosy in what used to be the "safe zones". Irrigation projects, electricity, the telephone system, schools, teacher training, health provision, hospitals, clinics, roads, and public transport - were (and still are) all in dire need of cash infusions. This was largely Saddam's doing. UPI reported in 2002 that Arab employees of the UN were pressured by Saddam Hussein "to do his bidding" in the north. Iraq refused to collaborate with UN authorities to release from its warehouses heavy equipment destined for the Kurdish parts, reported Radio Free Europe.

Iraq was thought at the time to be pursuing it program of weapons of mass destruction. It definitely was in the market for components and materials for nuclear bombs, warned the "Washington Times". Iraqi defectors confirmed the information and delineated a blood-curdling - and expensive - effort to reinstate the country's capacity to produce nuclear, chemical, and biological armaments.

According to Stratfor, in mid 2002, "Iraq (was) procuring weapons systems - such as advanced conventional weapons rather than nuclear capabilities - that would more immediately affect the outcome of a war with the United States. It is specifically seeking to enhance its air-defense capabilities, improve its ground-to-ground missiles and upgrade major battlefield weapons systems for ground forces."

Iraq felt sufficiently affluent to declare a one month oil embargo in April 2002 at a cost of $1.2 billion, to protest US partiality towards Israel. It also generously supported the families of Palestinian "martyr" suicide bombers with grants of $25,000 plus another $25,000 per each house demolished in the Jenin refugee camp by the Israelis. Smaller amounts were distributed as disability and recuperation benefits, mostly through the "Arab Liberation Front", reported the "Daily Telegraph".

Family members of the "heroes" got free enrollment in Iraqi institutions of higher education. Weeks before the war, Iraq donated 10 million euros to the Intifada. Radio Free Europe/Radio Liberty estimated that this display of Arab solidarity has cost Iraq $1 billion.

This hoary bravado masked a dilapidated infrastructure, decrepit hospitals and schools, spiraling prices, malnourished and diseased children, and a middle class reduced to penury. According to the World Bank, Iraq's population grows by 2.9 percent annually, from a base of 23 million citizens.

Infant mortality is 61-93 per thousand live births, depending on the source. Of those who survive, another 121 children perish by the age of 5. UNICEF estimated that at least 500,000 children died that shouldn't have under normal circumstances. The Iraqi Mission to the United Nations put the number at 713,000 plus a million adults. In 2002, the CNN described an ominous shortage of clean water. Inflation hovered around 100 percent.

In hindsight, none of these data proved to be reliable. Estimates varied widely. The CIA said that the trade deficit in 2000 was $1 billion and the external debt amounted to a whopping $139 billion. Not so, countered the Economist Intelligence Unit (EIU) - external debt was a mere $53 billion in 2001. The EIU also forecasted a 2 percent drop in GDP in 2002 - but a growth of 6 percent in 2003 commensurate with a recovery in oil production.

Still, things were not as bad as relentless Iraqi propaganda made them out to be. Infant mortality figures are suspect as are most other Iraqi statistics. The BBC interviewed an Iraqi defector whose two year old daughter was maimed by interrogators. He claimed to have participated in fake "baby funerals". There is no telling if this were true or a part of the propaganda war waged at the time by the would-be combatants.

According to the BBC, Iraqi life expectancy for men in 2002 was 66 years. Women outlived them by 2 years on average. Annual income per capita was c. $600. GDP per capita was $715, down from $3000 only a decade before - or maybe double that per the Economist Intelligence Unit.

Even these figures were misleading. According to the CIA 2001 World Factbook, Iraq's GDP per capita in terms of purchasing power was a more respectable $2500. GDP has grown by 15 percent in 2000 - or 4 percent according to The Economist Intelligence Unit - though admittedly from a dismally low base.

An efficient rationing system kept Iraqis well fed on 2200-2500 calories per day, according to the UN. A thriving black market facilitated the smuggling of cigarettes, software, home appliances, video films, weaponry, food, carpets - and virtually every other necessity or luxury - into Iraq from Syria, Jordan, Turkey, Iran, Cyprus, and the West Bank.

UN reports consistently accused Iraq of under-utilizing the funds at its disposal.

Between June and December 2000 - as the US State Department gleefully announced - Iraq disposed of only 13 percent of the money allocated to health supplies, 6 percent of the allotment for education, and 3 percent of the cash available for spare parts for its crumbling oil industry.

It neglected to mention, though, that, during the same period, more than 1150 contracts were still pending approval in a nightmarish bureaucratic battleground between the US and the UK and other members of the Sanctions Committee. This was before the introduction of "smart sanctions" in early 2002. The new scheme allowed Iraq to import all things civilian not itemized in a 332-page dual use "Goods Review" list.

Iraq received over $4.5 billion of food and medicines a year through the UN-administered oil for food and medicines program. When the war broke out, another $13 billion were in the pipeline. According to the UN, Iraq had sold more than $56 billion of oil between 1996-2002. Iraq's export income could not be used to defray the costs of local goods and services or to pay salaries. The UN dispensed with $15 billion in Iraqi oil proceeds since 1991 to compensate countries and individuals affected by Iraq's aggression.

Another unsupervised source of income was the surcharges Iraq levied on its oil. Middlemen and trading companies paid the official - bargain - price into a UN account and hidden commissions to Saddam's regime. The UN told the "Wall Street Journal" that between 20 and 70 cents per barrel have accrued in these illicit accounts since December 1, 2000.

The Congressional General Accounting Office stated that "conservatively ...  Iraq has illegally earned at least $6.6 billion since 1997 -  $4.3 billion from smuggling and $2.3 billion in illegal surcharges on oil and commissions from its commodities contracts".

This translates to c. $1 billion per year. Yet, it may have been a wild over-estimate. The typical surcharge had long been more like 15 cents a barrel. Moreover, downward pressure on oil prices in 2000-2 coupled with renewed UN vigilance put a stop to this lucrative arrangement. Retroactive pricing of Iraq's oil by the UN had considerably damaged Iraq's exports to Russian and other amenable lifters of its oil. There was a "substantial shortfall in the funds available for programme implementation", as the UN put it.

The UN Secretary General himself criticized the program in June 2002:

"The programme has continued to suffer because of a number of factors, including:  the cumbersome procedures involved in formulating the distribution plan, and the late submission of the plan which has seem subjected to thousands of amendments; slow contracting for essential supplies by the Iraqi Government and the United Nations agencies and programmes; and the inordinate delays and irregularities in the submission of applications for such contacts to the Secretariat by both the suppliers and the agencies and programmes concerned."

In a letter addressed to the Acting Chairman of the Security Council's 661 sanctions committee on 1 August 2002, the Executive Director of the Iraq Programme, Benon Sevan, expressed "grave concern" regarding the cumulative shortfall in funds and warned of "very serious consequences on the humanitarian situation in Iraq".

Mr. Sevan appealed to the members of the Committee and the Government of Iraq to "take all necessary measures to resolve the difficulties encountered in improving the critical funding situation, including, in particular, the long outstanding question of the pricing mechanism for Iraqi crude oil exports ... The cooperation of all concerned is essential."

The UN registers the outcomes:

"As at 2 August, the revenue shortfall had left 1,051 approved humanitarian supply contracts, worth over $2.25 billion, without available funds. The sectors affected by the lack of funds were: food with $356 million; electricity with $353 million; food handling with $325 million; agriculture with $297 million; housing with $286 million; water and sanitation with $216 million; health with $159 million; telecommunication and transportation with $152 million and; education with $111 million."

Saddam's Iraq bribed countries near and far with cheap oil. In the months before the outbreak of hostilities, it signed nine free trade or customs agreements with, among others, Lebanon, Oman, and the United Arab Emirates as well as with Syria, an erstwhile irreconcilable foe. According to the "Washington Post", 200,000 barrels a day flowed through the re-opened pipeline to the Syrian port of Banias - in breach of UN Resolution 986 (i.e., the oil for food program).

Syria sold to Iraq goods worth at least $100 million a month, including, according to the "Times" of London, tanks and other weaponry. The two countries agreed to establish a joint telephone company and to abolish capital controls. t the time, Syria and Jordan were the only two countries with air links to Baghdad and other Iraqi destinations.

Iraq also pledged to construct an oil refinery in Lebanon and re-open a defunct pipeline running to Lebanon's ports. It inked $100 million worth of import contracts with Algeria and removed 14 Jordanian enterprises from its blacklist of companies which trade with Israel. Iraq catered to Jordan's energy needs by supplying it with heavily discounted oil carried by trucks across the border. A 100,000 barrels-per-day pipeline was slated to become operational by October 2004. A free trade agreement was being negotiated.

Not surprisingly, the Jordanians protested vocally against renewed inspections of freight in the porous Red Sea port of Aqaba. Even Iraq's mortal enemies started mellowing. A border crossing between Saudi Arabia and Iraq was inaugurated with great pan-Arabic fanfare in mid-2002. It was instantly inundated by more than $1 billion in bilateral trade, according to the London-based Arabic daily, "al-Hayat".

The list of renegades continues. Iraq and Sudan vowed to establish a free trade zone. Until it clamped down on the practice in 2002, Turkey turned a blind eye to a $1 billion annual diesel-against-everything market on its border with the rogue state. Egypt allowed more than 90 of its companies to participate in a commercial fair in Baghdad in April 2002.

Egyptian business concluded contracts worth $350 million with Iraq between December 2001 and May 2002, trumpeted the Egyptian news agency, MENA. This on top of more than $4 billion of contracts signed since 1996. Residential and commercial projects with Egyptian construction groups were on track.

Russia peddled to Iraq more than $5 billion of goods between 1997 and 2002, confirmed then Middle East and North Africa department head in the Russian Foreign Ministry, Mikhail Bogdanov. The Iraqis put the figure higher, at $30 billion in bilateral trade. Even American companies were able to hawk $230 million worth of food and pharmaceuticals, according to the Wall Street Journal. Iraq sold $90 million of oil to South Africa's Strategic Field Fund, charged the South African opposition Democratic Alliance.

The Ukrainian UNIAN news agency reported the purchase of technical equipment by Baghdad even as the "Financial Times" aired the allegations of a former Ukrainian presidential security guard that his country sold a sophisticated $100 million radar system to the outcast regime.

Iraqi largesse comes with strings attached. ITAR-TASS reported in August 2002 that the "Ural" auto works shipped 400 trucks to Iraq every month. Interfax said in April 2002 that a Russian oil company, Zarubezhneft, was invited to develop an oil field in southern Iraq with proven reserves of more than 3 billion barrels.

According to Stratfor, prior to the war, Iraq still owed Russia $10-12 billion for Soviet era materiel. But Iraq was open about its conditioning of future orders on Russian anti-American assertiveness. Similarly, it had cut wheat imports from Australia by half due to the latter's unequivocal support of American policies.

Iraqi business at the time appeared alluring. The country is vast, mineral-rich, and with a well-educated and sinfully cheap workforce. Hence the decision by 185 multinationals, recounted in 2002 by the "Wall Street Journal", to forgo almost $3 billion in Gulf War related reparations claims - in return for aid contracts under the oil-for-food program.

Still, Iraq's financial clout was constrained by the rundown state of its oil fields. Lacking spare parts and investments in exploration and development, it produced c. 2 million barrels per day - about two thirds its capacity. According to the US government, one third of this quantity was smuggled, in contravention of the oil-for-food program. Iraq's pipelines lead to Turkey and to the south of the ravaged country. This made it vulnerable to Turkish or Saudi-Arabian and Kuwaiti collusion in a US-led campaign against its regime.

Moreover, U.S. oil companies, such ExxonMobil, ChevronTexaco, and Valero Energy purchased nearly half of Iraq's oil exports. Iraq desperately tried to diversify but its interlocutors were confined to the likes of Belarus with whom it held talks about revamping its oilfields and petrochemicals industry. With 100 billion barrels in proven reserves, Iraq now attracts the attentions of Western oil companies following the regime change brought on by the war. Iraqi citizens must be holding their breath.

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