Chapter 1

Oil-for-Dollars-for-Food

Shortly after the cessation of major combat operations in 2003, the reality of the war-torn country under occupation dawned upon the leaders in Washington. When it became clear to the American leadership that their ninety-day handover plan would be insufficient to manage a stable transition, economic reconstruction became CPA Administrator Paul Bremer’s “top priority.” After kickstarting Iraq’s oil production, the CPA created the Development Fund for Iraq (“DFI”), an escrow account at the New York Federal Reserve to safely hold Iraq’s revenue from petroleum sales. Ministry of Finance advisor Musab al-Kateeb explained that the plan for Iraq’s new economy was simple: “sell the oil, put it in the piggy bank, and then distribute.”

This chapter situates the American reconstruction effort within the broader historical context of the disintegration of Iraqi institutions under sanctions and subsequent Oil-for-Food Programme (“OFFP”). In doing so, I demonstrate how the establishment of the Development Fund for Iraq serves to intensify, rather than replace, the dysfunctional economic model that emerged while Iraq was subject to under the OFFP. The new model, which I recharacterize as Oil-for-Dollars-for-Food, supplies petrodollars through the Iraqi government without addressing the system of corruption that it supports.

First and foremost, it should be noted that the financial structure of the Development Fund for Iraq is unprecedented. Unlike the nearly 250 central banks, governments, and international official institutions who hold an account with the NY Fed, no other country in the world has ever held the overwhelming majority of its assets in the vaults of a foreign nation. As retired JPMorgan executive director Jo Morrison made explicit, the “DFI is the treasury of Iraq.” Locating Iraq’s wealth nearly ten thousand kilometers away from its capital also requires an unusual workaround to ensure funds are available to the Iraqi government. Each week, more than ten billion dollars in DFI cash in the form of massive shrink-wrapped bundles of $100 bills are flown by US military aircraft to Baghdad. These cash infusions provided the CPA the capital they needed to begin operations and have remained as the Iraq’s primary source of funding since.

This measure marks the one key departure from the Oil-for-Food Programme system. Under the prior system, the United Nations had tasked the French bank BNP Paribas with the responsibility and power to regulate Iraq’s oil revenue. That arrangement changed when UNSC Resolution 1483 placed authority over Iraq’s oil revenues squarely in the hands of the United States federal government. This shift placed the United States in an undeniable position of power over the Iraqi government. With all of its money sitting in American vaults, Iraq utterly depends on those weekly flights of currency from the US to fund its government and feeds its people. However, in every other way, the restructuring of the financial system via the Development Fund of Iraq did not significantly alter the system put in place by the Oil-For-Food Programme. For starters, the DFI quite literally absorbed the OFFP by transferring its assets from BNP Paribas to the NY Federal Reserve. In addition, central source of funding for the escrow account is still petrodollars. Despite the fact that sanctions relief allows Iraq to now export gold, tropical fruit, and other mineral resources, crude oil still comprises ninety-nine percent of the country’s exports.