By Dr. Saman Shali
Many people wonder why Iraqi funds from oil sales are deposited in the U.S. Federal Central Bank and why they control them. The U.S. Central Bank's control over Iraq funds caused it to lose political and economic sovereignty. This Executive Order cripples the Iraqi Government's agenda to make economic growth.
After the first Gulf War in 1990 and Iraq's intrusion into Kuwait, a few international companies sued the Iraqi government, claiming harm as a result of the war within the international court. In any case, the Iraqi government did not go to these courts, so the International Court took the last decisions against the Iraqi government. These harms sum billions of dollars with interest over the past 21 years. Paying off these companies will take a long time for the Iraqi government to repay these obligations.
Oil for food: Resolution 986: On April 14, 1995, acting under Chapter VII of the United Nations Charter, the Security Council adopted resolution 986, establishing the "oil-for-food" programme, providing Iraq with another opportunity to sell oil to finance the purchase of humanitarian goods, and various mandated United Nations activities concerning Iraq. The programme, as established by the Security Council, is intended to be a "temporary measure to provide for the humanitarian needs of the Iraqi people, until the fulfillment by Iraq of the relevant Security Council resolutions, including notably resolution 687 (1991) of April 3, 1991". This program continues until 2003.
In 1977, the president of the U.S. was given full authority to defend and protect U.S. national security. Based on this authority, President George W. Bush issued Executive Order 13303 on May 22, 2003, which protects the Development Fund for Iraq and other property in which Iraq is interested. These funds are now fully protected from international court orders like U.S. funds due to Executive Order 13303. This executive order aims to ensure the stability and reconstruction of Iraq post-invasion by protecting these funds and property from legal attachments and claims.
The order states that any seizure, judgment, decree, or other judicial proceeding against the Development Fund for Iraq or Iraqi oil and petroleum products and the proceeds and obligations relating to their sale or marketing shall be null and void. The Executive Order prohibits all U.S. citizens and residents of the United States and any entity organized under U.S. laws from filing lawsuits against Iraqi funds. According to the U.S. National Emergency Law, failure to renew the executive order within 90 days from the previous renewal date means that it will become invalid.
In 2010, the Development Fund for Iraq was canceled due to an international decision; therefore, these companies' judgments on Iraq became due for payments. The U.S. did open a new account for the Central Bank of Iraq with the U.S. Federal Bank to put all the oil income into this account. This move protected Iraqi money from the judgments of these companies. Since the Americans have guardianship over Iraq, the Executive Order also declares a national emergency to deal with the threat to the peaceful reconstruction of Iraq. Suppose this executive order is not renewed within 90 days. In that case, it will be considered invalid, and the companies will be entitled to all their dues and attachments. Therefore, American presidents have renewed it every year since then, the last of which was May 2024.
Here are the key reasons for these protections:
- Stabilizing Iraq's Economy: The decree was intended to protect Iraq's economic resources from depletion through legal claims and ensure that these resources could be used to rebuild and stabilize Iraq. The decree was deemed crucial to the country's recovery and development after the fall of Saddam Hussein's regime.
- Supporting Reconstruction Efforts: The arrangement guarantees that reserves and resources aimed at Iraq's remaking and helpful needs are defended by giving immunity from legal procedures. This assurance makes a difference and ensures that these resources are not redirected from their reason.
- Legal and Financial Security: Protecting Iraq's assets provides financial and legal security for entities involved in the reconstruction efforts. This legal security encourages international investment and participation in rebuilding Iraq, as investors and contractors can be more confident that external claims will not jeopardize their work and investments.
- U.S. National Security Interests: The stability of Iraq is considered vital to U.S. national security interests in the region. By protecting Iraq's funds, the order supports the broader goals of promoting stability, peace, and security in the Middle East.
- Compliance with International Obligations: The executive order aligns with international efforts and resolutions, particularly those of the United Nations, to support Iraq's transition and recovery. It ensures the U.S. adheres to its international commitments to support Iraq during this critical period.
- Corruption: Since 2003, corruption has been widespread in all the institutions in Iraq and has undermined governance, hindered economic development, and eroded public confidence in government. Corruption often hampers the implementation of government programs by draining funds, distorting priorities, and undermining accountability mechanisms. The government's inability to hold the significant corrupt accountable increases corruption, and the protection of the corrupt by the big corrupt reduces the effectiveness of the government in fighting corruption. Therefore, this law remains in effect to protect Iraqi funds from corrupt people.
- Economic Challenges: Iraq faces economic challenges, including dependence on oil revenues, high unemployment, and infrastructure deficits. Economic constraints can limit the government's ability to fund and implement its programs effectively. While oil revenues have increased in the past few years, the deficit is increasing, which indicates the failure of fiscal policy and the increase in corruption in the state. The government failed to plan to diversify the economy to reduce its dependence on oil revenue and invest in agriculture, industry, and tourism; this will increase new job opportunities and reduce unemployment.
- Trusting Banks: The failure of the Iraqi government to monitor Iraqi banks, which complain of a lack of confidence in them nationally and internationally due to their suspicious dealings with banned countries and failure to comply with international money laundering laws. Therefore, we see that the American Federal Bank has banned the use of software and is dealing with these banks globally to protect Iraqi funds. This suspicion reduces the confidence of foreign investors in Iraqi banks and investment in Iraq, delaying the government program.
Executive Order 13303 was designed to protect Iraq's financial and economic resources from legal actions that could hinder the country's recovery and reconstruction efforts, thereby supporting broader U.S. strategic and humanitarian goals in the region.
This executive order has become a pressure card in Washington's hands to control Iraq's money and sovereignty, and this explains why Iraq cannot go about establishing the Silk, which was signed by Mr. Adel Abdul Mahdi and resulted in overthrowing his government at a time the American encouraged the new Levant project between (Jordan - Egypt - Iraq), which was signed by Mr. Mustafa Al-Kadhimi, and this project will benefit America's allies. The new Development Road agreement signed by Mohammed Shia' Al Sudani between (the Emirates - Qatar - Iraq - Turkey) is estimated to be more than 13 billion dollars. It is awaiting final U.S. approvals to finance the project from its account with the U.S. Federal Bank.
Ending U.S. custodianship of Iraqi funds will require a bold political decision by all parties in the political process to rationalize Iraqi spending at all levels, just as was done to repay the Kuwaiti debt. These debts can be paid off by hiring international law firms to negotiate with these companies and reduce and restructure the debt until all debts are paid off. This agreement will take years, and Iraq will then be able to break free from this hegemony and regain full financial sovereignty. The end of oversight of Iraqi funds will not happen unless the government has a solid vision and financial plan to reduce expenses, end corruption, and restore confidence in Iraqi banks internationally.
Saman Shali has a Ph.D. in Science (1981) from the University of Sussex. Dr. Shali worked as an Assistant Researcher and Assistant Professor at the University of Sussex, King Saud University, and Pennsylvania State University. He is also a senior fellow at the Mediterranean Institute for Regional Studies.