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THE MIDDLE EAST MEDIA RESEARCH INSTITUTE
Inquiry and Analysis Series - No. 129
March 27, 2003 No.129
Egyptian Economist: Economic Interests Guide the French, Germans, and Russians Toward Baghdad

Egyptian economist Khalil Al-'Anani discussed the economic underpinnings of France, Germany, and Russia in their opposition to the war in Iraq, analyzing the positions of each of the countries. The following is a summary of Al-'Anani's report which appeared on Al Jazeera's website (1):

The French Economy

France's opposition to the war in Iraq, rather than being based on political considerations, its historical ties with the Arab world, or an attempt to challenge America's role as superpower, is motivated by pure economic interests. Despite France's attempts to portray its stance against the war as a political one, it is difficult not to imagine the economic benefits to France if the war had not occurred. The consequences of war on the weak French economy will be palpable primarily in the oil and commercial sectors.

Oil Losses

Ten years ago, the French oil company Total/Fina/Elf signed an agreement with Iraq to share oil production in the "Majnoon" and "bin Omar" oil fields upon the termination of the sanctions on Iraq. The Majnoon oil field is located near the Iranian border and is estimated to contain 30 billion barrels of oil. This field alone could meet French consumption needs for 30 years.

The bin Omar oil field may contain 6 billion barrels which could produce 440,000 barrels per day (b/d), conceivably rising rapidly to 500,000 b/d. The investments in both fields were estimated at $3.4 billion and the cost of production will be $2 per barrel (which will be one of the cheapest in the world, perhaps second only to Saudi Arabia).

Commercial Losses

French exports to Iraq have increased sharply in recent years. They were valued at $330 million in 2000, doubled in 2001, and went over $1 billion in 2002. In the most recent international fair held in Baghdad in late 2002, 150 French companies took part. War in Iraq could mean:

* A spike in oil prices at a time of economic slow-down in the world economy.
* That the post-Saddam regime may not honor its predecessor's agreements with France, particularly those relating to oil exploration and production.

France is also concerned that, after a war in Iraq, it will fare no better than after the Gulf War in 1991, which brought only a few contracts to France.

The German Economy


The German economy is going through difficult times with a GDP growth in 2002 of 0.2% and unemployment of 11.3% which translates into 4.06 million unemployed workers. The reduction in taxes collected, coupled with rising unemployment benefits, could drive German deficits above the 3% ceiling established by the European Union, which would invite punitive measures. The war in Iraq could result in two immediate negative consequences for the German economy: first, a decline in German exports which is the main engine for German economic growth; and second, higher oil prices could intensify the German economic slow-down.

The Russian Economy

Not unlike the case of France, it is difficult to overlook the extent and depth of the economic relations between Russia and Iraq which extend over 40 years. Here, again, economic considerations drive the Russian position vis--vis the war on Iraq.

Oil Losses

Russia produces 7.3 million b/d, which is 9.7% of world production, but it exports only a half of its production. Its reserves are estimated at 48.6 billion b/d, or 4.6% of world reserves (oil reserve figures are considered a state secret in Russia and have never been confirmed). The cost of production is $12 per barrel compared with less than $2 for the Iraqi oil. It is not surprising that Russia covets Iraqi oil only. In addition, there are currently 300 Russian companies which manage the export of Iraqi oil under the "Oil for Food" program. Russia has signed as many as 900 oil contracts with Iraq since 1996.

The Russian oil company Lukoil (14% of which is owned by the Russian government) signed an agreement with Iraq for exploration in the western Qurna oil field which may contain as much as 100 billion barrels of oil and is capable of producing 450,000-500,000 b/d. Iraq has also signed a $3.4 billion agreement with Stroitransgaz to develop the gas fields in the western desert.

However, unlike France and Germany, Russia is concerned that the rapid increase in oil production by Iraq could bring down the oil prices in the international market, which would have a serious impact on government revenues which rely heavily on oil.

Commercial Losses

The war in Iraq will have considerable effects on the Russian commercial interests:

* The loss of business with one of Russia's leading trading partners in the Middle East, particularly in the fields of oil and petrochemical industries.
* The loss of $8 billion of Iraqi debt to the former Soviet Union, which a new regime might not acknowledge.
* The loss of multi-billion dollar contracts with military and commercial suppliers to Iraq.

Endnote:
(1) Carried by Al Jazeera, www.al-jazeera-net/cases_analysis/2003/3/3-22-1htm.


 
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