Delegates from the world’s richest governments are gathering in
Madrid to decide how much or how little they are prepared to
donate towards the reconstruction of a shattered Iraq. Clearly,
more than six months after US President George W Bush declared
major hostilities in Iraq to be over, there is still a huge job
to be done – the situation for many of the country’s poorest
people has become worse rather than better over the period.
Violence and instability still plague the country, with daily
reports of military and civilian casualties. This very
insecurity has meant that implementation of the much boasted,
and hoped for, reconstruction plans has barely begun.
Hospitals still lack medicines and basic equipment, clean
drinking water is not available in many areas, and raw sewage
can be seen on the streets of many towns. Christian Aid works
with local organisations in many parts of Iraq and the message
from them is clear.
‘In general, almost everyone involved in the reconstruction of
Iraq has not been effective – despite the passing of six months
and the expenditure of large sums of money,’ says the director
of one of Christian Aid’s partner agencies, working in the south
of the country.
So, with the humanitarian situation still critical, there are
plenty of immediate needs on which money from international
donors can be spent. As this report demonstrates, the widespread
assumption that reconstruction could be paid for entirely by
Iraqi oil money is a false one. Due, not least, to continuing
insecurity, Iraq just does not produce enough oil to pay for
even immediate needs and is unlikely to do so in the near
Billions of dollars have disappeared
What this report most shockingly reveals, however, is that the
billions of dollars of oil money that has already been
transferred to the US-controlled Coalition Provisional Authority
(CPA) has effectively disappeared into a financial black hole.
For all the talk of freedom and democracy for the Iraqi people –
before, during and after the war which toppled Saddam Hussein –
there is no way of knowing how the vast majority of this money
has been spent.
This situation is in direct violation of the UN resolution that
allowed Iraqi assets to be transferred to the CPA. Indeed, the
body that is supposed to oversee how Iraq’s assets are used has
not even been set up yet.
Just as disturbingly, if this lack of transparency is
perpetuated it could well hold the seeds for future disaster in
Iraq. The very oil revenues that are potentially the country’s
greatest asset could, on all available evidence, prove to be a
In May, Christian Aid published a major report that revealed how
oil revenues can fuel poverty, war and corruption in developing
countries. The toppling of Saddam Hussein’s regime, it was
suggested, was a unique opportunity to show that this did not
have to be the future for Iraq.
Initial indications, however, are not optimistic – with billions
of dollars of unaccounted for money now in the hands of
unelected foreign officials. This combination of pre-war oil
sales, post-war oil sales and seized invested assets from Saddam
Hussein’s regime already tops US$5 billion, of which only around
US$1 billion can be accounted for. By the end of this year, that
total figure will top US$9 billion.
Action needs to be taken now to ensure that the CPA reveals
where this money has gone. The structure agreed at the UN must
be implemented urgently, so that this Iraqi money is used in the
best interests of Iraq’s people and with their cooperation and
involvement. Oil revenues should benefit those who need help
most – the country’s poor, not just those with power and
Christian Aid is calling on the international community, and
particularly the UK
government as a leading member of the coalition, to take swift
and forceful action to ensure that the situation immediately
improves. Prime Minister Tony Blair has repeatedly said that
there should be transparency in the handling of oil revenues: he
needs to demonstrate that this is something he truly believes.
‘The oil revenues, which people falsely claim the US and UK
should be put in a trust fund for the Iraqi people, administered
through the UN.’
Tony Blair, speaking during the pre-war debate in Parliament, 18
‘I firmly believe that this initiative can make a significant
contribution to ensuring
that the proceeds from mining and energy industries are used for
We can draw on it in Iraq and elsewhere, and it provides an
example for others
Tony Blair at the Conference on the Extractive Industries
Transparency Initiative, 17 June 2003.
‘We have absolutely no idea how the money [from Iraqi oil
revenues] has been spent. We know that more than US$1 billion
has already been transferred from the UN escrow Oil-for-Food
account and we don’t know how this money has been spent, and
this is Iraqi money… I wish I knew, but we just don’t know. We
have absolutely no idea….’
Senior diplomat working at UN headquarters in an interview with
Christian Aid, October 2003.
Establishing peace and security in Iraq is a top priority for
the international community, as well as for Iraqis themselves,
and a precondition to the reconstruction of this shattered
country. Unprecedented financial resources are being mobilised
to this end.
The Madrid conference is a key part of this process.
Many commentators believe that it will be a long time, perhaps
years, before peace and security are achieved. Before the war
many people assumed that Iraqi reconstruction would be financed
by Iraqi oil revenues. After all, Iraq has the second biggest
oil reserves in the world.1
However, Iraqi oil revenues cannot begin to cover the costs of
reconstruction, which have been estimated at US$55 billion over
the next four years.2 Oil revenues since the war have only
amounted to around US$1.5 billion,3 with sabotage and insecurity
slowing the industry’s rehabilitation. At least another US$1
billion of pre-war oil revenues, deposited with the Oil-for-Food
programme, has now been earmarked for reconstruction.
An additional US$2.5 billion is expected to become available
when the Oil-for-Food programme ends in November.
Yet, incredibly, these billions of dollars of Iraqi oil revenues
have never been publicly accounted for. Christian Aid has
discovered a black hole into which these funds have disappeared.
The black hole is presided over not by an Iraqi government, but
by the CPA, the de facto ruling authority established by the
forces occupying Iraq. The US dominates the CPA. The British
government is second in command.
In round figures, and conservative estimates, Iraqi funds
controlled by the coalition
Post-war oil revenues US$1.5 billion
Pre-war oil revenues transferred from UN escrow accounts US$1
Iraqi government funds vested overseas, and seized funds US$2.5
Iraqi government funds under CPA control (mid-October) US$5
The great majority of these funds are reported as spent or
allocated.5 Yet the CPA has accounted for only around US$1
billion of the total, leaving at least US$4 billion unaccounted
The coalition has promised Iraqis freedom and democracy. Yet it
continues to make vital decisions affecting the running of the
country and the lives of Iraqis in secret. Such practices would
not be tolerated in the countries that make up the coalition.
Christian Aid is calling on the US and British governments to
say what has happened to the missing billions. Prime Minister
Tony Blair has committed himself to transparency in the handling
of oil revenues. He must demonstrate that he means what he says
in Iraq, where the British government has a direct role in
running the country.
Christian Aid’s concerns
In this document Christian Aid sets out why questions of
openness, transparency and accountability are of central
importance to the future of Iraq and its long-term development.
Christian Aid has been working in Iraq since 1992. Consequently,
we are in touch with the concerns of Iraqis, especially those of
the partner agencies with which we work.6
Christian Aid’s partners say that they feel almost entirely cut
off from the decision-making processes governing their lives.
‘The CPA are isolated and not meeting Iraqis. They only have
contact with politicians in Iraq’s Ruling Council, with most of
their members considered to be exiled Iraqis,’7 says Christian
Aid partner REACH.
The CPA, which effectively governs Iraq, is seen as remote and
disconnected, confined to fortified compounds where decisions
are made behind closed doors with little or no Iraqi
involvement. The following comment from one such partner, the
Iraqi Refugee Aid Committee (IRAC), is characteristic:
‘In general almost all the actors in the reconstruction of Iraq
have not been effective
despite the passing of six months and the expenditure of large
sums of money. There are still power cuts, fuel shortages, and a
lack of medicines and equipment at hospitals.
Clean drinking water is not available in many areas and raw
sewage can be seen on the
streets in many towns, including Basra.’8
Like many Iraqis, IRAC links this lack of progress in
reconstruction with the foreign firms contracted to undertake
‘The major contracts for reconstruction, including the
refurbishment of schools, have been given to large foreign
companies who now find themselves unable to implement the
projects due to the security situation. Much more would have
been achieved, and it would have been more cost-effective, if
the reconstruction contracts had been split into smaller
contracts and directly given to local contactors and NGOs.’ 9
Iraqis have lived for decades under the control of a
totalitarian state, and have not been used to openness and
transparency from their rulers. Totalitarianism and its legacy
provide fertile ground for distrust, rumour-mongering,
conspiracy theories and a belief in hidden agendas. Many Iraqis
are convinced that the coalition is motivated by a desire to
control Iraqi oil and want important decisions to be made by
Iraqis. ‘The Iraqi oil revenues should be run by an Iraqi
government completely with monitoring procedures from an
international committee (sic),’ says the coordinator for
Christian Aid partner organisation the Iraq NGO Network (IKNN).
Coalition secrecy over the use of oil revenues only increases
that conviction, and makes a transition to openness and
democracy appear ever more remote.
‘How can the United States advise Iraqis on how to structure
their industry and the use of oil revenues to make the
government accountable with no moral high ground from having no
transparency themselves from how they managed the oil revenues?’
Oil on troubled waters
Although there is agreement about the need for reconstruction,
rehabilitation and reform in Iraq, there is less agreement on
how this should proceed. There is, for instance, a strong moral
argument that a country that has been battered by two wars and
more than a decade of international sanctions should not have to
pay for its own reconstruction with its own resources. But it
has already been generally accepted that oil will be a major
engine of Iraq’s recovery. What is of paramount concern is that
countries in which oil is the major source of revenue have a
very poor record in adopting policies that genuinely benefit
In May 2003, Christian Aid published a major report, Fuelling
Poverty – Oil, War and Corruption, which highlighted the dangers
of assuming that Iraq’s oil would be the answer to its
Fuelling Poverty focused on Angola, Sudan and Kazakhstan, but
the options and
dilemmas facing Iraq were highlighted in the introduction, which
‘How the Iraqi people benefit from oil revenue will depend,
according to our
evidence, on how open, transparent and justly distributed the
spoils of oil
exploitation are in the future. If the crimes and misdemeanours
of the past –
where vast revenues funded a corrupt and totalitarian regime –
are not to be
repeated, Iraq’s people must be allowed to scrutinise the
spending of oil money.’
This observation has proved prescient. The US government has a
reputation for openness and allowing access to information. This
has not, however, translated to the military authorities running
Iraq. In particular, Iraqis have limited involvement in many
decisions regarding the reconstruction of their country, with
serious consequences for the effectiveness and credibility of
the resulting policies and actions. It is essential that other
coalition members, particularly the UK government, use their
influence to promote a rapid change in these attitudes.
Key decisions about how the Iraqi oil industry will be run and
managed in the future have yet to be made. Both Iraqi
politicians and the major oil companies recognise that
fundamental policy decisions cannot precede the establishment of
a legitimate government, and an improvement in the security
situation. The more radical schemes for privatisation favoured
by some American policymakers are on hold, probably
indefinitely, since it is unlikely that any incoming Iraqi
government could implement them and remain electable.11
Iraq’s oilfields and oil wells are set to stay in government
hands. The privatisation of the ‘downstream’ components of the
industry, from pipelines to petrol stations, is more likely, and
less controversial or politically problematic.
The challenge for the CPA, and subsequently the Iraqi
government, is whether oil revenues can be mobilised for
investment and development that will be of widespread
benefit, or whether these funds will go primarily to the oil
companies and to a new hyperwealthy Iraqi elite. This holds true
whether the funds go directly to the government through
state-owned companies, or are derived from taxes and levies on
international oil companies. Unfortunately, the CPA has not made
a promising start, despite some potentially favourable
The sanctions regime imposed on Iraq, though increasingly
flouted, attempted to control oil production and to ensure that
oil revenues were used for humanitarian purposes.
From 1996 this process was institutionalised under the
Oil-for-Food programme (OFF), which in less than seven years
spent US$13 billion in oil revenues on importing and
distributing food. This programme was subjected to distortion
and mismanagement by the Baathist regime, and contributed to
Iraqi disenchantment with the UN, under whose auspices it
operated. The programme also generated economic distortions, and
undoubtedly helped to hasten the decline of Iraqi agriculture.
However, the OFF programme met growing humanitarian needs, in a
period in which Iraqis suffered increasing impoverishment.
Since the war the OFF programme has continued to operate under
UN patronage, though oil production and revenues have declined
sharply. The CPA established a Development Fund for Iraq (DFI),
into which approximately US$1 billion in oil revenue from escrow
accounts held by the UN and OFF was quickly transferred. The
establishment of the DFI was ratified in UN Security Council
Resolution 1483 in May 2003. We have calculated that the DFI
will have received at least US$9 billion by the end of 2003, of
which more than two-thirds will have derived from pre- and
post-war oil revenues.12
Iraq’s immediate problems are enormous, perhaps overwhelming.
Christian Aid’s fear, however, is that if proper systems of
accountability are not urgently established, the country could
spiral into a classic version of the ‘oil curse’ explained by
Christian Aid in Fuelling Poverty. In this standard scenario,
oil revenues go to bolster the profits of oil companies and are
siphoned off by corrupt local elites, bypassing the great
majority of the country’s citizens, who typically remain
impoverished – as well as unconsulted.
Iraq is not in this predicament yet – the country’s post-war oil
revenues are, at least on paper, largely earmarked for
reconstruction and development. It is, therefore, vitally
important that this commitment becomes the accepted practice, so
that a proportion of oil revenues is permanently used for the
long-term development of the country and the benefit of its
A major recommendation of this report is that the international
community, and in particular the US and British governments,
should use their influence over developments in Iraq to promote
options that guarantee priority is given to ensuring oil
revenues are used primarily for the overall development of the
country on a permanent basis.13
Unfortunately however, developments thus far have been
discouraging. It is impossible to tell exactly how these
revenues have been spent – though it is clear that a limited
number of US corporations have benefited considerably, and that
more cost-effective options with Iraqi companies (that could
reduce the cost of reconstruction) have been given very limited
consideration.14 However, it is not too late for the CPA, and in
due course for Iraqi politicians, to opt for policies that will
genuinely benefit the Iraqi people.
An essential first step on that road is the urgent introduction
of a transparent and accountable framework for the management of
The British government, in particular, has championed the
transparency of oil revenues globally under the Extractive
Industries Transparency Initiative (EITI). ‘A lack of
transparency,’ said Tony Blair at the EITI conference in June
this year, ‘undermines public confidence in the legitimacy of
the state…. We need to use transparency in revenue and financial
management to allow people to hold government to account and
build public trust.’15 The British government needs to use its
position and influence within the CPA to ensure absolute clarity
and transparency over the use of Iraqi oil revenues.
The principal mechanisms through which the coalition uses these
funds are set out below. It should be noted that in all of the
bodies involved in the allocation and monitoring of the use of
Iraqi money, there is an extremely limited amount of Iraqi
representation or participation at decision-making levels.
Christian Aid feels this fundamentally undermines the chances of
Iraqi funds being used in the best interests of the Iraqi
The Development Fund for
The account in which oil revenues and other funds for
Iraqi reconstruction are held 17
The Development Fund for Iraq (DFI) was set up under UN Security
Council Resolution 1483 in May 2003, to meet the humanitarian
needs of the Iraqi people and to finance the reconstruction of
Iraq’s infrastructure. The money held in the fund comes from
Iraq’s oil sales, seized assets of the Saddam regime, transfers
of frozen assets from abroad (including those removed overseas
by Saddam Hussein, his family and officials), and outstanding or
surplus funds from the UN Oil-for-Food programme, which in turn
derive from pre-war oil revenues.18
The terms establishing the DFI required it to be ‘managed in a
transparent manner for and on behalf of the Iraqi people.’19
Provisions in Resolution 1483 hold the DFI to high standards of
transparency and accountability, and these clauses are reflected
in the DFI’s founding regulations set out by the CPA. The fund
is maintained on the books of the Central Bank of Iraq, but held
by the US Federal Reserve Bank of New York. It receives 95 per
cent of the proceeds of the sale of Iraqi oil and natural gas,
with five per cent going to the UN’s Gulf War Compensation Fund.
The bodies responsible for approving spending and monitoring the
use of the DFI are the Programme Review Board (PRB) and the
International Advisory and Monitoring Board (IAMB). A third
body, the Council for International Coordination (CIC) advises
Programme Review Board
Responsible for allocating DFI funds
The Programme Review Board (PRB) recommends which projects
should receive funding from the DFI for approval by the CPA
administrator. The 21-member board works within the CPA’s Office
of Management and Budget and reports directly to administrator
Paul Bremer through his appointed PRB chair. Of 11 voting
members, seven are American, one British, one Australian and one
Iraqi (the Minister of Finance).
The eleventh member is the chair of the CIC, another expatriate.
It does not appear that the Minister of Finance attended PRB
meetings until some time after he was appointed in early
Of the ten non-voting members, six are American CPA officials;
the other four represent the World Bank, the International
Monetary Fund (IMF), the Special
Representative of the UN Secretary General for Iraq, and the
International Advisory and Monitoring Board. Following PRB
approval, funds are disbursed through the Ministry of Finance,
which is then responsible for distributing money to all other
According to the PRB’s founding regulations, it must operate
transparently and is required both to publish and disseminate
funding plans in Arabic, and to publish the minutes of all its
formal sessions. Neither of these requirements has been met.
Christian Aid has written to the Chair of the PRB and the CPA
press office requesting an overview of DFI finances, but has
received no response in either case.
The International Advisory and Monitoring BoardResponsible for overseeing the use of DFI moneyUnited
Nations Security Council Resolution 1483 that authorised how the
DFI would beset up, also outlined the
framework within which the International Advisory andMonitoring Board (IAMB) would oversee the use of DFI
money so that it could hold theCPA to
account and observe its activities on behalf of the UN Security
Council. It wasintended to guarantee
the transparency of the DFI and to ensure that DFI funds wereproperly used, monitored and audited.
The IAMB was to be an independent body, with four voting
representatives, from the UN, IMF, World Bank and Arab Fund for
However, despite the framework set out in Resolution 1483, the
CPA and the intended representatives of the IAMB could not agree
on what power and responsibility the board would have. According
to a UN diplomat involved in the negotiations, the CPA was
trying to limit the authority of the IAMB to that of simply
monitoring auditors chosen by the CPA without the power to more
closely examine how funds were being used or accounted for.
Despite a major compromise proposed at the end of August by the
four international bodies of the IAMB, by mid-October the
impasse remained, with suggestions that the CPA was even less
inclined to allow the IAMB significant autonomy or independence.
In the meantime, the CPA has been using Iraqi funds through the
DFI without accounting for the money being used. It has
effectively been operating outside its mandate.
The Council for International Coordination
Representing coalition countries
The Council for International Coordination (CIC) advises the PRB
on how the international community should assist Iraq’s recovery
and the development of its economy.
The CIC is made up of representatives from CPA countries along
with other individuals appointed by the CPA administrator,
Ambassador Paul Bremer.21
It is the main CPA body charged with organising the Madrid
Donor’s Conference for Iraq.
The CIC is responsible for reviewing and coordinating proposals
from different Iraqi ministry budgets, the UN, the World Bank
and NGOs.22 CIC activities include raising funds from the
international community, proposing specific projects for funding
consideration, and, if requested by the PRB, making
recommendations on disbursements from the DFI. If the UN
establishes a trust fund for international donations for Iraq,
it is expected that the CIC will try to coordinate spending
between the UN trust fund and the DFI. It does not however have
the overview function allocated to the IAMB.
Coalition use of Iraqi funds Where has all the money
The CPA, through the DFI, receives and disburses billions of
dollars of Iraqi funds,largely
derived from pre- and post-war oil revenues.
A list of projects that have been allocated funds by the DFI
totalling almost US$1 billion can now be found on the CPA
website, and in late September the PRB posted partial minutes of
eight of its twice-weekly meetings, to which another four have
been recently added. However, it remains quite impossible to
obtain an overview of DFI finances. This is true not only for an
agency like Christian Aid, whose research is dependent on the
goodwill or commitment to transparency of those we interview or
to whom we write, but for senior diplomats trying to establish
parameters for the policies of their governments.
Frustration and dissatisfaction with the DFI’s operation is
A diplomat working at the UN interviewed by Christian Aid in
early October said: ‘We have absolutely no idea how the money
has been spent. We know that more than US$1 billion has already
been transferred from the UN escrow Oil-for-Food account and we
don’t know how this money has been spent, and this is Iraqi
Such total lack of transparency of funds does not encourage
international donors to put more money into reconstruction. ‘As
long as there is no transparency mechanism – [and] the IAMB is a
priority in this context – it is unlikely that there will be
broad financial support from the international community,
because we need to know how the money is spent,’ said the
diplomat. ‘Contributions could be put in an independent fund,
but everything is interlinked, so [in order] to know whether it
is worth contributing to projects [we have to know about the
Development Fund of Iraq].’23
As already reported, UNSC resolution 1483 of May 2003 approved
the transfer of
US$1 billion of OFF funds to the DFI. Sources close to the
coalition have told us that by mid-September Iraqi funds
deposited overseas and expropriated for CPA use amounted to
US$1,724 million of vested funds, plus seized funds of US$809
million. These funds had already been spent or committed, these
sources reported, though more could be expected. A similar
source told us that a
further US$2.5 billion of OFF funds should become available for
transfer to the DFI when the OFF ceases operations on 22
November. The DFI was said to have a credit balance of US$2,363
million as of 17 September, of which 51 per cent had been
allocated for disbursement. The remaining 49 per cent was said
to be the only uncommitted source of funds at that time and was
expected to be drawn down rapidly.
Based on this information, we can assume that Iraqi funds
accruing to the DFI by the end of 2003 will be in the region of:
Seized and vested funds US$2.5 billion
OFF funds (from pre-war oil revenues) US$3.5 billion
Post-war oil revenues US$3 billion
Total: US$9 billion
It is of the utmost importance for the credibility of the
coalition, and for the promotion of an open and democratic
society in Iraq, that these funds are managed transparently and
are properly accounted for.
US government funds earmarked for relief and reconstruction
activities are easier to track, and have included the Iraqi
Relief and Reconstruction Fund (US$2,475 million) the Iraqi
Freedom Fund (US$101million) and the Natural Resources Risk
Remediation Fund (US$502 million). Virtually all of these
amounts had been committed as of mid-September.
The principal recipient
The principal recipient of Iraqi Relief and Reconstruction Fund
has been the US Agency for International Development (USAID),
which received US$1,823 million.
Most USAID contracts, which included a US$1,033 million contract
with Bechtel, a US$30 million contract with Bearing Point and a
US$60m contract with RTI, were awarded on the basis of limited
competition procedures, out of Washington. Such procedures have
meant that not only is there no competitive process to ensure
lowest cost for the job, but Iraqi companies are denied the
opportunity to benefit from contracts to reconstruct their own
country. Christian Aid partner IRAC expresses a view held by
many in Iraq. ‘Priority for reconstruction contracts should be
given to Iraqi companies. Such companies are available in areas
of construction, refurbishment of schools and hospitals, road
building, and water and sanitation.…’
development funds being used?
Tenders and contracts
Many commentators have expressed concern over the handling of
the contracts under which funds from the DFI have been
disbursed. In addition to this, US government funds have been
used to award contracts for reconstruction that have attracted
widespread comment, particularly when it comes to the close
relationship between the relevant US firms, such as Halliburton
and Bechtel, and the US administration.
This is a concern to many Iraqis who are desperate for
employment and the opportunity to contribute to reconstruction
and benefit from the billions of dollars going towards
development, much of which comes from their own country’s oil
revenues. ‘The size of proposed investment for reconstruction in
Iraq should in principle produce a dramatic increase in
employment opportunity for ordinary Iraqis and go a long way
towards stabilising security in the country. This will not
happen unless there is control and limitation of the profits
remitted by foreign companies.’24
Increasing concern has been expressed by both US congressmen and
experts25 that handing reconstruction contracts to US firms at a
higher cost hits both donors (in some cases the US or UK
taxpayer) and Iraqis. In an open letter to the
Director of the Office of Management and Budget, US congressman
Henry Waxman pointed out that: ‘When inordinately expensive
reconstruction projects are awarded to high-cost federal
contractors with close political ties to the White House, the
Administration can create a lose-lose situation: not only do US
taxpayers vastly overpay
for reconstruction services, but Iraqis are denied urgently
needed employment opportunities.’26
Principal concerns include:
extremely short tendering processes, which reduce the
opportunities for genuine competition
consequent disadvantages for Iraqi contractors, and contractors
from non-coalition countries
the drawing up of contracts which permit multinational
corporations to import expatriate staff, notably from south
Asia, when suitably qualified Iraqis remain unemployed.
The allocation of contracts using US government funds has
received considerable publicity, but this is because a great
deal of information about these contracts is in the public
domain. When it comes to the even more worrying question of
where Iraqi money has gone, there has been very little publicity
because the information is virtually inaccessible.
Oil-for-Food – so oil for what?
What follows on from the OFF when it ends on 21 November remains
concern of Christian Aid and our partners. It raises the
question of what framework will be used to ensure that Iraqi oil
revenue benefits Iraqi people and particularly the poorest and
Many Iraqis see the need for oil revenues to continue supporting
‘Oil revenue needs to be used to improve and develop people’s
household economy. At the moment, people from outside Iraq see
the country as rich! But internally you will see that people’s
household economy is very weak.’27
The legacy of sanctions has left Iraq having to import half of
its current food
requirements. This means that maintenance of adequate food
supplies in Iraq is a particularly pressing responsibility for
the international community, and especially for the occupying
authorities. In the near- to medium-term future, the market
cannot replace the current food-distribution system. Iraq has
long been a net importer of food, and food subsidies pre-dated
the first Gulf war and the imposition of sanctions. The OFF
programme helped to further institutionalise subsidised food
distribution on which people have become extremely dependent,
particularly since this period also witnessed declining
agricultural production and growing impoverishment.
Current plans involve handing over the programme to the Iraqi
Ministry of Trade (MOT) on 21 November, as laid out in UN
Security Council Resolution 1483. Information on what will
happen after the handover is limited. Distribution of food
rations and humanitarian aid will be handled by the MOT, whose
responsibility it was prior to the war. Security concerns have
forced the UN to limit its international staff on the ground and
recent updates from the OFF programme have admitted that the UN
is unable to
produce a comprehensive exit strategy as planned on 21 October
or to ensure a
sufficient number of international staff will be in place in the
northern governates for handover to occur.28 The current lack of
security has meant that it is more important than ever that the
CPA gives enough support to the UN in this handover process.
‘Unless the CPA increases most expeditiously the number of its
personnel involved in the transfer process, the difficulties
faced may become insurmountable, irrespective of the number of
UN personnel in the three northern governates.’29
Future of Oil for Food programme
What happens to the Oil-for-Food programme and the
food-distribution system will be crucial not only to the welfare
of millions of Iraqi households in the short term, but also for
their well-being in the long term. The CPA, in coordination with
the MOT, must publish its plans for the OFF programme to ensure
Iraqis can read and comment on them.
1. The Coalition Provisional Authority must urgently publish
accounts of income and expenditure from Iraqi oil revenues and
Iraq’s seized and vested assets.
2. The International Advisory and Monitoring Board for the
Development Fund for Iraq must be set up immediately, and
sufficient responsibility must be given to the body to ensure
that it is able to hold the Coalition Provisional Authority
accountable for revenues used.
3. The UK government must fulfill its commitment to make Iraq a
case study for the Extractive Industries Transparency
Initiative, which enjoins oil companies and the countries they
deal with to be transparent about the use of oil revenues. The
framework for doing this must be decided by a legitimate Iraqi
government once it is in power, drawing on existing precedents.
These include holding a percentage of revenues in trust for
future generations, earmarking a percentage for regional
development in oil-producing areas, and devoting revenues to
education, health and social services, rural development,
infrastructure and water management.
4. The Coalition Provisional Authority must work with the Iraqi
Governing Council to construct a framework that sets out how the
oil industry will be managed for the benefit of the Iraqi
people. Iraq should adopt policies that ensure that a
significant proportion of future oil revenues is earmarked, on a
permanent basis, for the overall development of the country and
the benefit of all sections of Iraqi society.
5. Iraqi involvement in decision making over, and management of,
Fund for Iraq money should be increased as a matter of urgency.
include additional Iraqi representation on the Programme Review
6. The CPA must ensure a responsible handover of the
Oil-for-Food programme in November, and must publish plans as to
how the programme will continue. These plans must address how
the CPA will use funds from oil revenues in the future in a way
that winds down food distribution while avoiding the widespread
hardship that too sudden an end to the programme would cause.
7. Countries represented at the Madrid donors’ conference should
responsibility of the international community in the plight of
Iraq and the limitations of oil revenues as an engine for
reconstruction. However, donor countries must not divert aid
funds to Iraq that have been earmarked for more underdeveloped
8. In awarding contracts for reconstruction, the CPA must give
preference to Iraqi
businesses where possible, and ensure that Iraqis are employed
appropriate. Reconstruction should be seen and used as a major
addressing Iraq’s huge unemployment problem. Employment
target the most vulnerable sections of the population.
1 The morality of making Iraqis pay for the damage inflicted on
them in two extremely destructive wars has received little
debate. This is an important issue, though not our primary
2 World Bank and UN assessments have determined that Iraq needs
US$36 billion for reconstruction of 14 sectors including health,
education, water and electricity over the next four years. A
separate US assessment has added an additional estimate of US$19
billion for the cost of reconstructing the oil industry and
security. Making the total cost of reconstruction US$55 billion.
UN/World Bank Joint Iraq Needs Assessments p55.
3 As no oil-revenue figures are available, this figure has been
calculated from details of the six-month contracts signed
between SOMO and several international oil companies in July
(See the Independent, 24 July 2003). Under the deal, Iraq would
supply 645,000 barrels a day for export (except in July when
production was at 450,000 barrels per day).
This output was estimated to have been sold at recent world oil
prices of around US$26 to US$28 a barrel.
4 Before the end of 2003, we calculate that a further US$2.5
billion of pre-war oil revenues will have been transferred from
the UN Oil-for-Food escrow accounts, and another US$1.5 billion
will have accrued from oil revenues.
Sources for these figures are given later in the report.
5 The basis and source for this information is given later in
6 Christian Aid is the official relief and development agency of
40 British and Irish churches, working where the need is
greatest in more than 50 countries worldwide, helping poor
communities regardless of religion. Christian Aid is also a key
member of Action by Churches Together, a world alliance of
church-based humanitarian agencies. Before the war this year
Christian Aid’s programme in Iraq was confined to the autonomous
Kurdish region of northern Iraq. Since 1992, Christian Aid has
supported local NGOs there in a range of rehabilitation and
development activities, and continues to do so. Since the war,
Christian Aid has extended its operations to provide
humanitarian support in the central and southern parts of the
country, in fields including emergency relief, water supply and
sanitation, seed banks and nurseries, landmine clearance, and
community-needs assessment. As well as keeping in close touch
Iraqi partners, several Christian Aid staff have visited Iraq
since the war, spending time principally in Baghdad, Karbala,
Basra, Kirkuk and the autonomous Kurdish governorates.
7 Christian Aid partner REACH
8 Christian Aid partner IRAC
9 Christian Aid partner IRAC
10 Dr Valerie Marcel, Senior Research Fellow on Sustainable
Development at the Royal Institute of International
Affairs, specialising in the politics of oil in the Middle East.
Interview with Christian Aid.
11 Interview with Peter Kemp, editor of Oil Intelligence Weekly
12 See analysis in next section, which also sites sources. Much
of this information is not in the public domain.
13 A detailed blueprint for this, which would have to be
negotiated by an incoming Iraqi government, is beyond the scope
of this paper. The Chad-Cameroon pipeline, where investments by
Exxon-Mobil and the World Bank are permanently linked to freeing
up revenues for development, is an encouraging precedent (see
editorial, Financial Times, 8 October 2003). Policies adopted by
a major producer such as Iraq could prove extremely influential.
14 US Congressman Henry Waxman Open letter to Director of Office
for Management and Budget on 26 September.
From Middle East Economic Survey, No 40, 6 October 2003.
15 Keynote speech by Tony Blair at EITI London Conference 17
16 Much of the detailed information here has come from Iraq
Revenue Watch, a project of the Open Society Institute.
We would like to thank Iraq Revenue Watch for its help and
cooperation with our research.
17 Despite written requests to the CPA, it has not been possible
to establish exactly which funds pass through the Development
Fund for Iraq and which may be held elsewhere.
18 In practice, it seems that assets seized in the US have not
been transferred to the DFI, but administered separately.
19 See UN Security Council Resolution 1483,
20 See CPA website, Ministry of Finance section,
http://www.cpa-iraq.org/ministries/finance.html, and CPA
Memorandum 4 on PRB Regulation 3,
21 The following governments are represented on the CIC: Poland,
Australia, Italy, Denmark, the Czech Republic, the US, South
Korea, Japan, Spain, the UK, Singapore, Jordan and Romania as
well as an observer from the United Nations Office of the
Humanitarian Coordinator for Iraq.
22 Paul Bremer, Remarks, Opening of the Council for
International Coordination, 17 August 2003
23 From a conversation between Christian Aid and a UN diplomat.
24 Christian Aid partner IRAC
25 US Congressman Henry A Waxman (D Calif) and Dr Valerie
Marcel, Senior Research Fellow on Sustainable
Development at the Royal Institute of International Relations,
specialising in the politics of oil in the Middle East.
26 US Congressman Henry Waxman. Open letter.
27 Christian Aid partner REACH.
28 UN briefing on the UN OIP 29/09/03
29 UN progress report 17/09/03