RS21462 -- Russia and the War in Iraq Updated April 14, 2003 Most discussions of Russian interests in Iraq focus on economic factors. Moscow, however, has cultivated friendly relations withBaghdad since the 1960s as part of its general strategy toward the region in connection with the Arab-Israeli conflictand the broaderCold War. The U.S.S.R. was Saddam's main arms supplier during Iraq's 1980-1988 war with Iran. Russia stillperceives itself ashaving strategic interests and an historic role in that region and does not want to be seen as betraying a long-timefriend. Nevertheless, many analysts assume that economic factors have driven Russian policy toward Iraq. Baghdad owed Moscow $7-$8billion for Soviet-era arms sales during the Iran-Iraq War. Adjusted for inflation, this debt may total $10-12 billiontoday. It is widelybelieved that one of the reasons why Russia regularly took Iraq's side in U.N. debates in the 1990s over liftingsanctions was tofacilitate debt repayment, especially as Russia was very short of hard currency. Russian oil companies havecontracts that could beworth as much as $30 billion over 20 years to develop Iraqi oil fields. In addition, Russian firms have contractsworth billions to helpmodernize Iraq's economic infrastructure. In August 2002, Iraq announced that Russian firms would receivecontracts worth $40billion over 5 years to modernize Iraq's oil, electrical, chemical, agricultural, and transport sectors. (1) Another Russian interest is the price of oil. The Russian economy is extraordinarily dependent on oil and gas exports. In 2000,Russia's oil exports earned $25.3 billion. The total Russian Federal budget in 2000 was $48 billion. The price ofoil peaked near $40per barrel ($/bbl) in early March 2003. Russia profits greatly from high oil prices, the biggest single factor behindRussian economicgrowth today. But Russian leaders fear that a post-Saddam Iraq (with the second largest proven oil reserves in theworld) mightmaximize its oil output, dramatically driving down the price of oil. Some analysts estimated that a $6/bbl fall inthe price of oil couldcut Russia's projected economic growth in 2003 in half. A sharper price drop, below $18/bbl, would severely impactRussiangovernment revenues, jeopardizing Moscow's ability to pay salaries and pensions and to fund its already meagersocial expenditures. With a Duma (lower legislative chamber) election in December 2003 and Putin expected to seek reelection in March2004, such adevelopment is dreaded in the Kremlin. (2) Many observers believe that Russian policy is also motivated by a desire to restrain U.S. global domination and rein in perceived U.S.tendencies toward unilateralism and excessive reliance on military force. The idea of a multi-polar world not totallydominated by asingle "hyper-power," in which Russia would be a major international player, still has strong appeal in Russia. Although Putin hasadopted a generally cooperative stance toward the United States, he does not want to be perceived at home as anAmerican "vassal"nor to give the Bush Administration a blank check where Russian interests are concerned. Thus, Russia may havehad an interest inprinciple in opposing "unilateral" U.S. military action in Iraq. Putin does not seek to project Russia into theforefront of ananti-American coalition. He seeks, in cooperation with traditional U.S. allies France and Germany as well as withRussian partnerssuch as China, to put some limits on U.S. power, especially its recourse to "unilateral" military force. Against Russia's economic interests in Iraq and its interest in restraining American global domination, is the strategic decision Putinmade in 2001 to reorient Russian foreign and defense policy toward broad cooperation with the United States. Putinsees Russia'seconomic reconstruction and revitalization proceeding from its integration in the global economic system dominatedby the advancedindustrial democracies - something that cannot be accomplished in an atmosphere of political/military confrontationor antagonismwith the United States. Putin therefore shifted Russian national security policy toward integration with the Westand cooperation withthe United States. (3) Most observers believe thisremains the basis of Putin's national security policy. By February 2003, Russian experts concluded that war in Iraq was virtually inevitable and Russia began evacuating its citizens. Although Russia opposed U.S. military action. it hoped to prevent this disagreement from damaging broaderbilateral relations. OnMarch 12, Deputy Foreign Minister Georgi Mamedov said that if war erupts, Russia "will cooperate with the UnitedStates for anearly resolution" of the conflict. "We will strive to minimize negative effects and bring the situation back topolitical and diplomaticarenas." (4) As the Bush Administration began to make clear in 2002 its determination to overthrow the regime of Iraqi President SaddamHussein, Moscow reassessed its Iraq policy. By mid-2002, some Russian officials and scholars hinted that Moscowmight not objecttoo strongly to U.S. military action against Iraq, provided that Washington did not act unilaterally and that Russianeconomic interestsin Iraq were respected. (5) These discussions werereported in the Russian and U.S. press and undoubtedly were detected in Baghdad. Iraq's announcement (August 16, 2002) of the $40 billion agreement for Russian firms to modernize Iraq'sinfrastructure may havebeen an attempt to ensure Russian political support. However, in December 2002, Iraqi authorities cancelled a $3.7billion contractwith Lukoil, Russia's largest oil company to develop the huge West Qurna oil field. Many analysts viewed this asretaliation againstLukoil, whose CEO, Vagit Alekperov, reportedly held discussions with U.S. Energy Secretary Spencer Abrahamand Iraqi oppositionleaders about Lukoil's future role in a post-Saddam Iraq. (6) Moscow can also be seen trying to balance its interest in preserving a major role for itself in a multi-polar world in cooperation withFrance, Germany, and China, on one hand, against its desire to avoid conflict with the United States on an issueWashington views asvital, on the other. This was demonstrated in the negotiations leading up the U.N. Security Council's (UNSC)approval of Resolution1441 (November 8, 2002), in which France took the lead in pressing the United States for concessions while Russiaplayed a moremoderate role. Many observers believed that the conclusion of Putin's balancing act would be a deal with Washington whereby Russia would agreenot to use its UNSC veto in return for U.S. guarantees of Russian economic interests in Iraq. A Russianparliamentary leader close toPutin suggested such a deal in October 2002. (7) InFebruary 2003, Boris Nemtsov, former Deputy Premier and now leader of a liberalpolitical party, wrote that, "If the Americans and British can reassure Moscow that a future Iraqi regime will not beprejudicial toRussian economic interests, they will be better placed to secure its acquiescence." (8) Putin sent his chief of staff, Aleksandr Voloshin,to Washington (February 24-25, 2003), where he met with the President, Secretary of State, and National SecurityAdvisor. TheRussian press reported his trip as, "an attempt to seal concrete economic deals in return for Russia's support orabstention on theSecurity Council." U.S. sources made a similar assessment. (9) Based on U.S. and Russian press reports and discussions with U.S. and Russian officials, it appears that the U.S. response is asfollows: Russia's economic interests in Iraq will receive due consideration. However, a) Iraq owes money to manycountries. Its debtto Russia ought not be put in a special category in preference to all others. b) U.S. oil companies, among others,have been shut out ofIraq for years. Why should Russian firms be guaranteed a special privileged place in post-Saddam Iraq, possiblyat the expense ofU.S. firms? c) Contrary to persistent Russian belief, the United States does not control the price of oil and cannotguarantee specificprice levels. U.S. officials reportedly suggested an informal "gentleman's agreement" to respect Russian economic interests in Iraq. (10) Russiawanted concrete, unequivocal guarantees. As one Russian think tank director put it, "There were talks with the U.S.about Russianeconomic interests in Iraq, but they did not succeed. There were [American] expressions of sympathy but noguarantees." (11) On February 28, 2003, the U.S. State Department designated three Chechen groups with alleged links to Al Qaeda as terroristorganizations. On March 6, the Senate unanimously approved the Strategic Offensive Reductions Treaty, and onMarch 10, SenLugar introduced a bill ( S. 580 ) to exempt Russia from the provisions of the Jackson-Vanik amendment. None of thesemoves are directly related to Iraq, except perhaps in their timing. (12) The Bush Administration also brandished sticks as well as carrots. U.S. Ambassador to Russia Alexander Vershbow reportedly toldRussian reporters on March 12 that a Russian veto of the U.S.-backed Security Council resolution on Iraq woulddamage bilateralrelations. Vershbow mentioned cooperation on security, energy, antiterrorism, antimissile defenses, and the spaceprogram as areasthat could be adversely affected by a Russian veto of the resolution. (13) In February 2003, Russian opposition to U.S. military action against Iraq hardened.