Volume 1 - Iraq Watch

OverviewFinancing Iraq’s IllicitProcurementIraq developed four major mechanisms for raisingillicit funds outside the legitimate UN OFF program.These included the sale of Iraqi oil to neighboring andregional states via trade Protocols, the imposition ofsurcharges on oil sold through the UN OFF program,and the receipt of kickbacks on UN-approvedcontracts for goods purchased under the UN OFFprogram, and so-called “cash-sales” or smuggling.• From 1996 through 2000 a combination of the UNOFF Program, bilateral trade, and illicit oil profiteeringallowed the Iraqi economy to recover fromthe post-1990 depression. This recovery ended thethreat of economically induced Regime instabilityand provided Saddam with sufficient resources topursue costly procurement programs.• After the economic recovery waned in 2000, Saddam’srevenues continued to amass via increasinglyefficient kickback schemes and illicit oil sales. ISGestimates Saddam generated $10.9 billion in hardcurrency through illicit means from 1990 to 2003(see Figure 5).The 1996-2003 UN OFF Program opened manyopportunities for Saddam’s Regime:• It provided $31 billion in needed goods for thepeople of Iraq, relieving the economic pressure onRegime stability.• Saddam was able to subvert the UN OFF programto generate an estimated $1.7 billion in revenueoutside of UN control from 1997-2003 (see Figure6).• The UN OFF oil voucher program providedSaddam with a useful method of rewarding countries,organizations and individuals willing to cooperatewith Iraq to subvert UN sanctions.Iraqi Economy’s Role in Illicit ProcurementDuring Saddam’s rule, Iraq adopted the SovietUnion’s centrally planned economic model. Saddamsought to centrally plan all facets of the state economyand utilized “Five Year Plans” to optimize theuse of national resources. Viewing the Iraqi economyfrom Saddam’s perspective, we assess it underwentdistinct phases from 1980 through OIF: “ambition,”“decline,” “recovery,” “transition,” and “miscalculation.”Readers may find it useful to refer to the Timelinesummary chart at the end of the chapter.Economic Ambition (1980-91)Given Iraq’s large oil revenues of the 1970s and early1980s, Saddam was able to ambitiously pursue astate-controlled economy without having to choosebetween solvency and other priorities, such as healthand welfare programs, infrastructure developmentand development of his armed forces (see Annex D:Iraq Economic Data (1989-2003). Iraq’s oil wealthallowed Saddam to overcome the inefficiencies of theeconomy until the war with Iran. Even with the war,his cash reserves and borrowed money from friendlyArab states allowed Saddam to continue his ambitiouspolicies into the mid-1980s.The Iran-Iraq war, however, exhausted and crippledthe Iraqi economy:• Iraq had been free of foreign debt and accumulated$35 billion in foreign reserves by 1980. Thesereserves, however, could not bear more than theopening salvos of the war with Iran, which over 9years cost an estimated $54.7 billion in arms purchasesalone.• Following the war, Iraq was under pressure to payoff high-interest, short-term debts to Western creditorsestimated between $35-45 billion. Saddam,however, never paid off this debt [see Annex D: IraqEconomic Data (1989-2003)].The economic burdens resulting from the Iran-Iraq war led Saddam to abandon Ba’ath-socialisteconomic policies that dominated in the 1960s and1970s. In 1987, Saddam attempted to turn the Iraqieconomy around with abrupt economic reforms,Regime Financeand Procurement19