Russia’s Gazprom Implicated In New Bid to Expand Rogue State Energy Production, Provide Life Support To Saddam Hussein

(Washington, D.C.): Even by Persian Gulf standards, the deal that Saddam
Hussein has
reportedly reached with his longtime enemy, Syrian dictator Hafez Assad, is an audacious one. It
would permit Saddam to expand substantially his hard currency-earning oil exports by bringing
back online the pipeline connecting the Iraqi oil field at Kirkuk to the Syrian port of Banias. Prior
to its closure by Damascus some sixteen years ago, Banias was an important outlet for Iraq’s
crude oil that has been closed by Damascus. If this transaction is completed, both of these rogue
states stand to benefit financially and strategically.

Not surprisingly, with the Iraq sanctions regime at least nominally still in place, it has been a
difficult and time-consuming task for Baghdad to raise the sizable hard currency investment
needed for this project. Indeed, it may not have been possible under present circumstances but for
the intervention of Saddam Hussein’s old KGB case officer, Yevgeny Primakov, and the huge
Russian natural gas monopoly, Gazprom — a still-largely state-owned enterprise that has
repeatedly been used as an instrument of the Kremlin in its efforts to undermine U.S. embargoes
and policies.

According to a 3 December 1998 Bloomberg report:

“Russia’s OAO Gazprom, the world’s biggest natural gas company, plans to take part
in restructuring an oil pipeline from Iraq to the Mediterranean port of Banias in Syria,
Russian daily Vremya reported. Gazprom will rebuild a stretch of
pipeline from the
Iraqi border to the Syrian port and upgrade a terminal and an oil refinery there.
(Emphasis added.)

Deja Vu All Over Again

In October 1997, the William J. Casey Institute expressed concerns about the probable
repercussions of a Clinton Administration decision to ignore a foray then being made by Gazprom
and a consortium led by the French energy company, Total, into Iran for the purpose of
developing Tehran’s $2 billion South Pars off-shore gas deposits. In a
Perspective entitled The
French And Russians Certainly ‘Don’t Get It’– The Question Is: Does the Clinton-Gore
Team?, the Institute warned, “[This deal] will accelerate the evisceration of
economic sanctions
as a U.S. policy tool.” ¹

Specifically, the Institute anticipated that a debilitating by-product of such a capitulation by
the
Clinton Administration would be that other international oil companies would line up to
enter
Iran, confident that the White House would again provide a “green light” for more foreign
energy engagement with the world’s leading sovereign sponsor of terrorism. The
Clinton
Administration, nonetheless, chose to waive sanctions required by the Iran-Libya Sanctions Act
(ILSA), citing strengthened “commitments” (read, empty promises) by France and Russia to curb
technology and weapons exports to Iran. In the words of Secretary of State Madeleine Albright,
the Administration’s decision “would be more effective than sanctions — which will not stop the
project — in achieving ILSA’s objectives.” ²

The vacuousness of this claim and the futility of the policy it attempted to rationalize are now
unmistakable. As the Casey Institute predicted, the South Pars deal was not an
aberration.
Rather it has proved to be a blueprint for accelerated foreign investment in
Iran. Gazprom’s
Deputy Chief Executive, Valery Remizov, underscored this reality in November of last year when
he announced that the company would seek to develop the Iranian Khorasan gas fields (which
have reserves of several hundred billion cubic meters of gas) and would soon complete a
feasibility study regarding a proposal to build an underground gas storage facility near the Iranian
city of Saranja.

What is more, on 2 March, two European energy companies — France’s ELF and Italy’s ENI
—
announced that they are getting into the Iranian oil sector, as well, in contemptuous defiance of
ILSA. According to yesterday’s Financial Times, the companies will spend $540
million to raise
production at Iran’s offshore Doroud field near Kharg Island by 90,000 barrels a day with a view
to producing 220,000 b/d there by the year 2003. Thanks to their technology and know-how, the
Iranians expect to increase “Daroud’s recoverable reserves from 600 million barrels to 1.5 billion
barrels.” ³

If It Worked In Iran

Gazprom’s shareholders in the Kremlin — who have, in the year since the ILSA sanctions were
waived, gone to considerable lengths to: increase, not curb, militarily-relevant
technology exports
to Iran; intensify their malevolent activities in the Caspian; promote a burgeoning entente with
China through sophisticated weapons sales; and undermine UN and NATO solidarity on Iraq and
Kosovo — apparently have discounted the prospect that there will be any significant fallout from
their help to Saddam in reopening one of Iraq’s principal oil lifelines.

Let us be clear: Should Primakov get away with his latest bid to help Iraq — a country with
which
the United States is, as a practical matter, now at war — the effect will be to compound greatly the
damage his government is doing to U.S. and Western interests in the Persian Gulf with its sale of
nuclear reactors and missile technology and components to Iran. For one thing, the estimated
300,000 barrels per day increase in Iraq’s oil exports that would be made possible by a successful
resurrection of the Kirkuk-Banias pipeline would represent a clear violation of the UN sanctions
against Baghdad. For another, in addition to providing Saddam with critically needed
hard
currency life-support, this high-profile endeavor would doubtless further embolden other
Gulf states, as well as European and Asian allies, to ramp up economic and financial ties
with Iraq, thereby further emasculating the teetering UN sanctions regime.

The Bottom Line

The combined effects of the proposed increase in Iraq’s oil-for-food ceiling ⁴ and the reopening of
the Iraq-Syria export pipeline will likely prove inimical to U.S. efforts to “contain” Saddam
Hussein, such as they are. In addition, to increased Iraqi revenues — at least a portion of which
will inevitably wind up being used to advance illegal weapons programs rather than for
humanitarian purposes — could easily translate into the loss of American lives.

Accordingly, Gazprom should be informed forthwith that proceeding with this
sanctions-busting activity with Baghdad will result in the imposition of unilateral U.S. import
controls against it (denying all access to the U.S. market, as well as the private U.S. debt
and
equity markets for a specified period of time). Meanwhile, if these reports are
validated, the
Pentagon should begin contingency planing to destroy the pipeline prior to it being reopened.

For its part, Congress should immediately hold hearings on this latest Russian-led
threat to
American policy and interests in the Persian Gulf. The Clinton Administration must be
held
accountable for its short-sighted decision to finesse Gazprom et.al.’s violations of ILSA in Iran —
a decision that has only served to encourage the Russians, Europeans and others to pursue
insidious investments and energy collaboration initiatives with both Iran and Iraq.

While Congress is at it, the security dimensions of the Iraqi oil-for-food program
should also
be carefully reviewed. If, as seems likely, it turns out that this program is actually
enabling
Saddam (either directly or by dint of the inherent fungibility of money) to rebuild his military
capabilities, the necessity of removing the Iraqi dictator and his ruling clique from power will be
all the more compelling.

¹See the Casey Institute’s Perspective
entitled, The French and Russians Certainly ‘Don’t Get
It’ on Iran — The Question Is: Does the Clinton-Gore Team? ( href=”index.jsp?section=papers&code=97-C_148″>No. 97-C 148, 2 October
1997).

²Fortunately, the Senate Banking Committee — at the time chaired
by Sen. Alfonse D’Amato (R-NY) — strongly disagreed with Secretary of State Albright’s
pollyannish assessment. On 30
October 1997, the Committee held hearings to examine Gazprom’s malign role in this transaction.
As Sen. D’Amato stated at the time, “This morning, the Committee will examine whether foreign
companies engaged in activities that are in violation of U.S. law and policy against terrorism and
nuclear proliferation should receive financial support from U.S. government entities like the
Export-Import Bank and enjoy the privilege of raising private capital on our debt and equity
markets.”

This hearing had the salutary effect of derailing Gazprom’s plan at the time to issue a $3
billion
bond offering in the U.S. market. For a detailed account of the Gazprom bond precedent and the
national security implications of increased economic cooperation in Iran and Iraq, please see the
Casey Perspective entitled: Tilt: Heritage Panel, Casey
Institute’s Robinson Warned Last
Month of Unsustainability Of IMF’s Russia Rescue Effort ( href=”index.jsp?section=papers&code=98-R_146″>No. 98-R 146, 14 August 1998)
and Sen. D’Amato’s Committee Serves Notice on Those Who Aid And Abet U.S.
Adversaries:
No Fund-Raising On American Markets (No.
97-C 161, 30 October 1997).

³In a prudent effort to halt the evisceration of the ILSA legislation
and unilateral U.S. economic
sanctions as a policy tool, Rep. Benjamin Gilman (R-NY), Chairman of the House International
Relations Committee, sent a letter to Secretary of State Madeline Albright requesting a prompt
review of the ELF-ENI contract, stating that it “constitutes a sanctionable activity under the
Iran-Libya Sanctions Act.”

⁴According to a Financial Times report of 26 February,
proponents of increased humanitarian
assistance have launched an offensive to increase the ceiling from oil-for-food and have called for
intentional efforts to restore Iraq’s oil industry infrastructure to help facilitate expanded oil sales.