Iraq's Odious Debts

Who can sell Iraq’s oil?

Stephen Evans
BBC News
April 17, 2003

After the soldiers come the diplomats – and also lawyers in their legions.

As the fog of war clears in Iraq, a miasma of legal detail is descending. The question is whether the new, imposed regime in Baghdad will have legitimacy.

If it does not, any deals it makes, say over the sale of oil, will be contentious.

The old regime, whatever its undoubted blemishes, was internationally recognised.

UN vote hurdle

Lawyers say that the new one could be, but primarily if the United Nations Security Council meets and ratifies the change.

The snag to that approach is that the Security Council comprises France and Russia with vetoes, and also Syria, a country not currently in the United State’s good books.

“I don’t believe the US has the legal power under international law to sell Iraq’s oil absent a new resolution from the Security Council,” says David Goldwyn, a Washington-based lawyer who has advised previous US administrations.

Lawsuits and seizures

The point is not just academic. A company buying Iraqi oil could face lawsuits from people or firms who argue the new regime in Baghdad does not have legal title to the oil.

Courts could be asked to halt the sale and tanker-owners might well find themselves the subject of litigation.

So the US intention of using Iraqi oil to finance Iraqi reconstruction would first have to overcome this high legal hurdle.

Beyond that, the main developers of the Iraqi oil fields before the war were French and Russian companies, a fact that may help partly explain French and Russian opposition towards the war in the first place.

Russian firm Lukoil is saying that it expects continuity of contract.

Its line is that “a deal’s a deal” and that it expects the new regime to honour the old regime’s obligations, something the US may be loathe to do.

Mending fences

Beyond the legal hurdles, there are diplomatic obstacles, though these may not be so serious.

The allegation by critics of the Bush administration before the war was that it was about oil.

“No Blood for Oil” was the anti-war slogan on the streets, no doubt put in a more refined manner in the corridors of the foreign ministries of Paris or Berlin (or perhaps not).

There are now voices in the US saying that a tactful way forward would be to invite companies from outside the coalition to help in Iraqi reconstruction.

There are equally strong voices, though, retorting that American blood was spilt and American dollars were spent so the benefits should flow to those who made the sacrifices.

There are also issues over Iraq’s substantial debt.

It currently owes about $50bn (–à32bn) to a suprising range organisations around the world, including the South Korean conglomerate Hyundai.

Even if the new regime wanted to pay off the debt, there is the question of why it should.

Blood money

After all, Saddam Hussein used much of the borrowed money to pay for his wars against Iran and Kuwait and his repressive forces.

As the New Yorker magazine put it: “Asking the Iraqi people to assume Saddam’s debts is rather like telling a man who has been shot in the head that he has to pay for the bullet”.

But the rules are there: tyrannies may fall, but their debts live on.

Harvard economist Professor Michael Kremer told the BBC there should be a new institution which would declare some regimes “odious”.

Such a designation would mean that once that regime fell, the debts would be nullified.

This would discourage banks from lending to them as they would know they would not get their money back after a regime change.

But that is only a proposal. In the meantime, Saddam Hussein’s debt lives on for the new administration to deal with.

And so does its awkward legal status, a status which will hold up rebuilding and provide much time, effort and money for lawyers.

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