RECONSTRUCTION: OIL, COMMERCIAL INTERESTS, DEBT RELIEF, ASYLUM AND STABILISATION POLICY

SECTION 10.3

RECONSTRUCTION: OIL, COMMERCIAL INTERESTS, DEBT RELIEF, ASYLUM AND STABILISATION POLICY

Contents
Introduction…………………………………………………………………………………………374
UK policy on Iraq’s oil and oil revenues……………………………………………………………375
Iraq oil reserves, production and export ………………………………………………………..375
UK energy security interests, 2001 to 2002 ……………………………………………………376
Planning and preparing for a post-conflict Iraq ……………………………………………….379
Military planning …………………………………………………………………………………..388
Discussions with the US ………………………………………………………………………..389
The invasion and immediate aftermath ………………………………………………………….403
Negotiations with the US over the control of Iraqi oil revenues …………………………405
Oil policy under the Coalition Provisional Authority …………………………………………417
UK policy under Iraqi Governments ………………………………………………………………436
UK Government support for UK business…………………………………………………….457
UK commercial interests, 2001 to 2002 …………………………………………………………457
Planning and preparing for a post-conflict Iraq ……………………………………………….457
Influencing the Coalition Provisional Authority and the US ……………………………….467
The success of UK companies in securing contracts in Iraq ……………………….486
Responding to renewed commercial interest in Iraq, 2008 ……………………………….487
Debt relief……………………………………………………………………………………………….492
UK policy……………………………………………………………………………………………492
The US push for substantial debt relief, December 2003 …………………………………496
The UK seeks a better deal for the most heavily indebted countries ………………….497
Paris Club agrees debt relief for Iraq, November 2004 ……………………………………499
Returning asylum seekers to Iraq……………………………………………………………….502
Post-conflict reconstruction and stabilisation……………………………………………….507
The Post-Conflict Reconstruction Unit …………………………………………………………..507
The PCRU and Iraq ………………………………………………………………………………514
The Stabilisation Unit ………………………………………………………………………………….515
The Cabinet Office Task Force Review of Stabilisation and Civil Effect ……………..516
The impact of the PCRU and the SU …………………………………………………………….524

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Introduction

1. Section 10 addresses the UK contribution to humanitarian assistance and
reconstruction in Iraq between 2003 and 2009:

• Section 10.1 covers the period between March 2003 and the end of the
Occupation of Iraq in June 2004.

• Section 10.2 continues the story from July 2004 to 2009.

2. Sections 10.1 and 10.2 consider:

• humanitarian assistance;

• the development and implementation of UK reconstruction policy, strategy and
plans;

• the UK’s engagement with the US on reconstruction, including with the US-led
Office of Reconstruction and Humanitarian Assistance (ORHA) and the Coalition
Provisional Authority (CPA); and

• the UK’s engagement with successive Iraqi Governments on reconstruction.

3. Section 10.3 addresses five issues in more detail:

• UK policy on Iraq’s oil and oil revenues;

• the Government’s support for UK business in securing reconstruction contracts;

• debt relief;

• asylum; and

• reform of the Government’s approach to post-conflict reconstruction and
stabilisation.

4. Those issues are addressed separately from the main reconstruction narrative,
in order to provide a clearer account of the development of the UK’s engagement.

5. This Section does not consider:

• planning and preparing to provide humanitarian assistance and reconstruction,
which is addressed in Sections 6.4 and 6.5;

• the financial and human resources available for post-conflict reconstruction,
addressed in Sections 13 and 15 respectively;

• de-Ba’athification and Security Sector Reform, addressed in Sections 11 and
12 respectively; or

• wider UK policy towards Iraq in the post-conflict period, addressed in Section 9.

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UK policy on Iraq’s oil and oil revenues – Iraq oil reserves, production and export

6. A January 2002 Ministry of Defence (MOD) Defence Intelligence Service (DIS) report
on Iraq’s infrastructure stated that Iraq held the second largest proven oil reserves in the
world at approximately 115bn barrels, equating to 11 percent of total world oil reserves.1
It also held two percent of total world gas reserves. There were potentially larger
reserves as many areas were underdeveloped.

7. The report estimated that crude oil production was approximately 2.8m barrels per
day (bpd). Of that, Iraq exported approximately 2.4m bpd under the Oil-for-Food (OFF)
programme.

8. The report also stated that Iraq’s oil and gas infrastructure was in a generally poor
state of repair.

9. A November 2002 Trade Partners UK (TPUK) paper advised that: “… exploration in Iraq is relatively immature and yet-to-find (YTF) reserves have been estimated at between 50[bn] and 200bn barrels of oil. This magnitude of YTF reserves is unmatched anywhere in the world.…
“Based on these reserves Iraq has the potential to be an extremely important future
player in the supply of oil and gas to world markets …
“Despite the vast sums required to develop Iraq’s reserves, there is a great deal of
interest from International Oil Companies to become involved in this [investment in
Iraq’s oil infrastructure]. This is based on the fact that, although modern technologies
will be required to undertake the work, Iraq’s reserves are considered amongst the
cheapest in the world to develop, driven by having large, onshore fields with simple
geological structure.”2

10. Iraqi oil production and revenues from oil exports for selected years between 1989
and 2009 are set out in Table 1, later in this Section.

 

Footnotes
1 Paper DIS, 18 January 2002, ‘Infrastructure Briefing Memorandum: Iraq’.
2 Paper TPUK, 29 November 2002, ‘Note for Sir David Manning on UK Oil Company Interests in Iraq’.

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The Oil-for-Food (OFF) Programme

The OFF programme was established by resolution 986 in April 1995.3 Implementation
began in May 1996 after the signing of a Memorandum of Understanding between the
UN and the Iraqi Government.
The programme allowed for:

• the export of Iraqi oil;

• the deposit of oil revenues into a UN-controlled account; and

• the use of those revenues to procure food, medicine and other goods approved by
the UN.
Under the UN sanctions regime, the OFF programme was the only legal way to export
Iraqi oil.
In the period running up to the invasion of Iraq, the UK assessed that 60 percent of Iraqi
people relied on supplies distributed under the OFF programme.4
UK energy security interests, 2001 to 2002

11. Sections 1.1 and 1.2 describe the increasing challenges from 1999 to the US/UK
policy for the containment of Iraq.

12. In January 2001, the Foreign and Commonwealth Office’s (FCO’s) Middle East
Department drew up an internal paper for a meeting of the FCO Policy Board, which
reassessed the UK’s “fundamental interests” in relation to Iraq and recommended a new
approach to promoting them.5 The UK’s interests were identified as:

• regional stability, including through the non-proliferation of Weapons of Mass
Destruction (WMD);

• energy security: the region accounted for 33 percent of the world’s oil production
and 66 percent of world oil reserves;

• a “level playing field” for UK companies: at its peak, UK trade with Iraq was
US$500m a year;

• preserving the credibility and authority of the UN Security Council;

• maintaining the coherence of UK policy, including on human rights, adherence
to UN Security Council resolutions, and non-proliferation;

• improving the humanitarian and human rights situation in Iraq;

• avoiding a US/UK split; and

• reducing the UK’s isolation in the European Union (EU).

 

Footnotes
3 Office of the Iraq Programme: Oil-for-Food website, [undated], About the programme.
4 Letter Short to Blair, 14 February 2003, ‘Iraq: Humanitarian Planning and the Role of the UN’.
5 Paper FCO, January 2001, ‘Iraq: A Fresh Look at UK Interests’.

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13. Sections 3.1 and 3.2 describe how, following the attacks on the US by Al Qaida on
11 September 2001, the US moved away from pursuing a policy of containment and
towards a policy of taking direct action against Iraq, and the UK’s response to that shift.

14. In February 2002, No.10 commissioned a “large number of papers” for the meeting
between President Bush and Mr Blair at Crawford, Texas, which was scheduled to be
held in early April.6

15. Those papers included:

“• Iraq … the options, the state of play on the UN Resolutions, the legal base and
the internal dimension – the state of the opposition groups etc.…

• Oil and energy … who are the producers, which states are Europe and the US
most dependent on, the state of play in developing countries with oil reserves,
pipelines …”7

16. The Cabinet Office’s ‘Iraq: Options Paper’, which is described in detail in
Section 3.2, identified two broad policy options:

• toughen the existing containment policy, or

• seek regime change.8

17. The paper defined the current objectives of UK policy towards Iraq, and set them
within the context of the broader UK objectives of “preserving peace and stability in the
Gulf and ensuring energy security”.

18. Apart from that reference to energy security, the paper did not consider oil or energy
security.

19. The FCO’s Forward Strategy Unit (FSU) produced a paper on the security of global
oil supply which considered a number of risks to the supply of oil, including a “sustained
Allied attack on Iraq”.9 The paper concluded:

“• Any step increase in price likely to be unsustainable.

• Sufficient production and substantial spare capacity in other oil producing
countries to meet demand.”

20. The Options Paper and the FSU paper were submitted to Mr Blair on 8 March 2002
alongside seven other “background briefs that you asked for”, for the meeting with
President Bush.10

 

Footnotes
6 Public hearing, 19 January 2011, page 34.
7 Minute McKane to Manning, 19 February 2002, ‘Papers for the Prime Minister’.
8 Paper Cabinet Office, 8 March 2002, ‘Iraq: Options Paper’.
9 Paper FSU, March 2002, ‘Paper on Security of Supply of Oil’.
10 Minute Manning to Prime Minister, 8 March 2002, ‘Briefing for the US’.

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21. Mr Blair sent a minute to Mr Jonathan Powell, his Chief of Staff, on 17 March setting
out three points in response to the briefing papers that he had received: “(1) In all my papers I do not have a proper worked-out strategy on how we would do it. The US do not either, but before I go [to Crawford], I need to be able to provide them with a far more intelligent and detailed analysis of a game plan … (2) The persuasion job on this seems very tough … (3) Oil prices. This is my big domestic worry. We must concert with the US to get action from others to push the price back down. Higher petrol prices really might
put the public off.”11
A copy of the minute was sent to Sir David Manning, Mr Blair’s Foreign Policy Adviser
and Head of the Overseas and Defence Secretariat (OD Sec) in the Cabinet Office.

22. Asked to clarify what “it” was that required a proper worked-out strategy, Mr Blair
told the Inquiry: “How we would either get Saddam to cease being a threat peacefully
or to get him out by force.”12

23. Mr Michael Arthur, FCO Economic Director, sent Sir David a paper on the economic
effects of military action against Iraq on 26 March.13 Mr Arthur assessed that: “Iraq produces c2.5m bpd, a bit over 3 percent of world supply. Military action may well lead to a reduction or cut-off in its exports either directly or by way of Iraqi retaliation.
“There is likely to be an immediate spike in oil prices … provided the conflict does
not spill over into the Gulf and threaten the flow of supplies through the Straits of
Hormuz – the spike could be very short-lived.”

24. A protracted, regional conflict would pose a more serious threat to oil prices and
the world economy.

25. The paper also highlighted the economic consequences for Iraq’s neighbours,
particularly Jordan.

26. Mr John Scarlett, the Chairman of the Joint Intelligence Committee (JIC), responded
to a request from Sir David for an update on Iraq’s oil production, the importance of oil
revenue to the Iraqi regime, and the effect of a halt in Iraqi oil exports on the world oil
market, on 4 April.14

 

Footnotes
11 Minute Prime Minister to Powell, 17 March 2002, ‘Iraq’.
12 Public hearing, 21 January 2011, page 43.
13 Letter Arthur to Manning, 26 March 2002, ‘Iraq: Back Pocket Economics’.
14 Minute Scarlett to Manning, 4 April 2002, ‘Iraq: Oil’.

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27. Mr Scarlett advised that:

• Iraq exported considerable quantities of oil – perhaps as much as 400,000 bpd
in 2001 – illegally.

• Saddam Hussein’s regime gained some illegal revenue by applying surcharges
to OFF programme trade. It also controlled the distribution of goods purchased
under the OFF programme, adding to its ability to offer patronage.

• While a sudden cut in Iraqi oil exports would cause a temporary spike in the oil
price, the price rise would be “moderate” (less than US$5 a barrel).

• The duration of the spike would be determined by market expectations which
were already influenced by “jitters over the Middle East and talk of war with
Iraq”.

28. Sir David passed Mr Scarlett’s note to Mr Blair the following day.15

29. Mr Matthew Rycroft, Mr Blair’s Private Secretary for Foreign Affairs, sent Mr Blair
an updated briefing pack for the meetings at Crawford on 4 April.16 For Iraq, that included “further background papers on ensuring the security of energy supply”.

30. Those further background papers are likely to have been the papers provided by
Mr Arthur and Mr Scarlett.

31. Section 3.2 describes the discussions between President Bush and Mr Blair at
Crawford from 5 to 7 April.

32. Mr Blair told the Inquiry that there had been “a general discussion of the possibility
of going down the military route but obviously, we were arguing for that to be if the UN
route failed”.17

33. The Inquiry has seen no indications that issues relating to energy security or oil
were discussed at the meetings.

Planning and preparing for a post-conflict Iraq

34. In mid-June 2002, the MOD’s Strategic Planning Group issued a paper on UK
military strategic thinking on Iraq to a limited number of senior MOD addressees.18

35. The paper stated that with significant potential oil revenues, Iraq’s reconstruction
should be “self-sufficient”.

 

Footnotes
15 Manuscript comment Manning to Blair on Minute Scarlett to Manning, 4 April 2002, ‘Iraq: Oil’.
16 Minute Rycroft to Prime Minister, 4 April 2002, ‘Texas’.
17 Public hearing, 29 January 2010, page 59.
18 Minute Driver to PSO/CDS, 13 June 2002, ‘Supporting Paper for COS Strategic Think Tank on Iraq –
18 June’ attaching Paper MOD, 12 June 2002, [untitled].

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36. The paper listed likely immediate, medium-term and long-term military post-conflict
tasks. The immediate (up to six months) tasks included:

“• assist in restoration of key infrastructure elements;

• secure oilfields and oil distribution/refining infrastructure.”

37. The medium-term (six months to two years) tasks included:

“• begin transfer [of] security of oilfields and production facilities to Iraqi forces.”

38. The paper was revised five times between June and December 2002.
The December 2002 version of the paper replaced the tasks listed above with a
single “Military Line of Operation” for infrastructure security, which extended into
the long term.19

39. At his request, Mr Blair received a pack of reading material on Iraq at the beginning
of August 2002.

40. The reading pack included a January 2002 DIS report on Iraq’s infrastructure.20
The report had been produced in response to the ongoing requirement on DIS to
maintain and update information to support possible future military operations.

41. The DIS report stated that Iraq’s oil and gas industry had suffered substantial
damage during the Iran/Iraq and Gulf wars, and recovery had been slow. A “recent
UN report” had assessed that the general state of the Iraqi oil industry had declined
seriously over the previous 18 months and that urgent measures were needed to avoid
further deterioration of oil wells and the petroleum infrastructure. Of the 12 oil refineries
in Iraq, only three were operational.

42. An FCO Economic Adviser produced an assessment of short- and long-term
economic consequences of military action for the region and for Iraq on 29 August.21
The assessment identified a number of potential short-term consequences of military
action including a rise in oil prices and the disruption of the OFF programme.

43. Copies of the assessment were sent to FCO officials and, separately, to TPUK.
The Inquiry has seen no indication that copies were sent to other departments.

44. A Treasury official sent Mr Gordon Brown, the Chancellor of the Exchequer, a paper
on the global, regional and local (Iraqi) economic impact of war in Iraq on 6 September.22

 

Footnotes
19 Paper [SPG], 13 December 2002, ‘UK Military Strategic Thinking on Iraq’.
20 Paper DIS, 18 January 2002, ‘Infrastructure Briefing Memorandum: Iraq’.
21 Minute FCO [junior official] to Gray, 29 August 2002, ‘Iraq: Economic Issues Raised by Military Action and Regime Change’ attaching Paper, [undated], ‘Regional Economic Consequences of Military Action against Iraq’.
22 Email Treasury [junior official] to Bowman, 6 September 2002, ‘What would be the economic impact of a war in Iraq?’ attaching Paper Treasury, September 2002, ‘What would be the economic impact of war in Iraq?’.

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45. The Treasury paper stated that Iraq’s economy was distinguished by the dominance
of oil and gas revenues. Iraq currently produced around 2.5m bpd, though this
“fluctuated wildly” as Iraq used oil production as a bargaining tool in negotiations with
the UN over the operation of the OFF programme. Around 2.25m bpd were exported.
Oil revenues represented 60 percent of Iraq’s GDP and 95 percent of its foreign
currency earnings.

46. Oil markets already thought that war with Iraq was probable, driving up prices
to around US$27 per barrel. Globally, a conflict could lead to a rise in the oil price of
US$10 a barrel and a consequent reduction in global growth by 0.5 percentage points
and a rise in inflation by between 0.4 and 0.8 percentage points.

47. The Treasury paper did not address the impact of a conflict on the UK economy.

48. The Treasury advised that recent experience suggested that the cost of “putting a
country back on its feet” could be high. The Federal Republic of Yugoslavia had already
received US$10bn in support. Iraq could be “even more expensive”, given:

• the possibility that a conflict could cause significant damage, and the existing
poor state of Iraq’s infrastructure;

• the need to stabilise the economy, including by addressing Iraq’s huge external
debt;

• the need for a large peace-keeping force “to keep a lid on the ethnic and
religious tensions that Saddam’s dictatorship has hidden for so long”; and

• the pressure for a “generous [reconstruction] package, given the perception
in the region that invading Iraq is of dubious legality and worth”.

49. On who would pay for that generous package, the Treasury assessed that: “… the US might expect Iraq to pick up the bill after a short ‘bridging’ period, especially as – with investment – oil revenues could quickly exceed US$20 billion per year.
“But it is more likely that strong pressure will come to bear on the US and its allies
to pay the lion’s share, given their role in the war …”

50. The Treasury paper did not consider more specifically what the UK’s contribution to
meeting post-war costs might be.

51. The Inquiry has seen no evidence that Mr Brown responded to this analysis, or that
it was circulated outside the Treasury.

52. In September 2002, the Energy Infrastructure Planning Group was established
within the US Department of Defense (DoD) to plan for the rapid restoration of Iraq’s oil

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sector, in order to maximise oil revenues to finance reconstruction.23 Formal meetings
began in November. In parallel, the US National Security Council (NSC) developed a
longer-term plan to transfer control of Iraq’s oil infrastructure back to the Iraqi authorities.

That plan was approved by President Bush in January 2003.

53. The Inquiry has seen no indications that the UK Government was aware of those
processes until late January 2003.

54. From 20 September 2002, the Cabinet Office-led Ad Hoc Group on Iraq (AHGI)
co-ordinated all non-military cross-government work on post-conflict issues (see Section
6.4). The focus of the AHGI’s work during autumn 2002 was a series of analytical papers
by the FCO and other departments on the post-conflict administration and reconstruction
of Iraq, and the possible consequences of conflict for the UK.

55. The AHGI held its first meeting on 20 September.24 Mr Jim Drummond, Assistant
Head (Foreign Affairs) of Cabinet Office OD Sec, wrote to Mr Desmond Bowen, Deputy
Head of Cabinet Office OD Sec, the day before, suggesting issues for discussion
and proposing departmental responsibilities for those issues. The issues identified by
Mr Drummond included:

“• Impact on world growth and trade, and on the UK economy (Treasury to write
a note if they haven’t already).

• Securing oil supplies and effect of regime change on world oil markets
(DTI [Department of Trade and Industry]).”

56. The record of the 20 September meeting of the AHGI stated that:
“Most [departments] have begun considering implications of military action.
These include Treasury on the macro economic impact, DTI on oil markets …”25

57. The record also stated that work should remain “as internal thinking within
departments” for the next few weeks.

58. On 26 September, the FCO sent a paper on post-Saddam government in Iraq,
entitled ‘Scenarios for the Future of Iraq after Saddam’, to Sir David Manning.26
It was circulated separately to members of the AHGI.

59. The paper defined scenarios under which Saddam Hussein might lose power,
the UK’s four “overarching priorities” for Iraq (termination of Iraq’s WMD programme,
more inclusive and effective Iraqi government, a viable Iraq which was not a threat

 

Footnotes
23 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
24 Minute Drummond to Bowen, 19 September 2002, ‘Ad Hoc Group on Iraq (AHGI)’.
25 Minute Drummond to Manning, 23 September 2002, ‘Ad Hoc Group on Iraq’.
26 Letter McDonald to Manning, 26 September 2002, ‘Scenarios for the Future of Iraq after Saddam’ attaching Paper FCO, [undated], ‘Scenarios for the Future of Iraq after Saddam’.

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to its neighbours, and an end to Iraqi support for international terrorism), and how those
priorities might be achieved.

60. The paper stated that the UK had a “fundamental interest in a stable region
providing secure supplies of oil to world markets”, but did not otherwise consider energy
security or oil.

61. The Cabinet Office circulated the final version of the DTI’s Emergency Plan to deal
with international oil supply disruption resulting from military action in Iraq to members
of the AHGI on 17 October.27

62. The DTI assessed that:

• the return of weapons inspectors and limited UN-sanctioned strikes against Iraq
would have very little impact on UK fuel supplies;

• a UN-sanctioned invasion of Iraq could result in some disruption to international
oil supply, possibly leading to a “token” release of oil stocks by the International
Energy Agency (IEA), but there would be no impact on UK fuel supplies beyond
some price volatility; and

• some worst-case scenarios, including a unilateral US invasion, could have a
serious impact on oil markets leading to significant increases in UK fuel prices.

63. The DTI stated that it would monitor any potential or actual oil supply disruption.

64. On 22 October, Mr Jon Cunliffe, Treasury Managing Director for Macroeconomic
Policy and International Finance, sent Mr Brown a paper on the impact on the Treasury’s
objectives of a war in Iraq.28

65. The Treasury paper identified nine risks to the Treasury’s objectives and assessed
the likelihood and impact of each in four scenarios: no war; a short war; a protracted
war; and a war involving WMD. The nine risks were:

• substantial rise in public spending;

• lower growth, higher inflation and unemployment;

• negative productivity shock;

• public finances less sound;

• inflation deviates from target;

• loss of insurance capacity/risk of insurance failures;

• more International Monetary Fund (IMF) lending leading to higher UK gross
debt;

• revival of popular pressure for lower fuel taxes; and

 

Footnotes
27 Minute Dodd to Members of the Ad Hoc Group on Iraq, 17 October 2002, [untitled], attaching Paper DTI, October 2002, ‘International Oil Supply disruption – Emergency Plan’.
28 Minute Cunliffe to Chancellor, 22 October 2002, ‘Iraqi War: Risks to Treasury Objectives’ attaching Paper Treasury, [undated], ‘Impact of a War on Treasury Business’.

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• developing countries knocked by oil prices, leading to lower growth.

66. In his covering minute, Mr Cunliffe advised that the Treasury’s main concern related
to its “ability to maintain sound public finances, especially in the more pessimistic
cases”. There would be some risk to the “Golden Rule” in all three war scenarios; the
risk would be much greater if a war involved WMD. Mr Cunliffe concluded by suggesting
that Mr Brown might want to warn colleagues about the risk to public finances.

67. The Inquiry has seen no evidence that Mr Brown took any action as a result of
Mr Cunliffe’s advice.

68. In his evidence to the Inquiry, Sir Jon Cunliffe described the oil market as the
“main transmission mechanism” from a conflict in Iraq to the world economy:
“There are general confidence effects [on markets]; markets don’t like wars, they
don’t like political situations they can’t read, but … the more concrete transmission
channel through which a crisis … would impact the global economy, we thought
would be oil and oil price shock …
“We modelled that quite closely …”29

69. The Inquiry asked Sir Jon whether the Treasury had done any work on the benefits
of a conflict in Iraq to UK energy supply or to the UK oil industry. He told the Inquiry: “No, the only thing that I think comes close is that, in the fiscal impacts of a crisis,
a high oil price benefits the UK, because we are an oil producer and we have tax
and licence revenues, so we took that upside. That’s one of the reasons why the
impact on the UK economy is not straightforward. So we took into account what
would happen with an oil price spike. It would actually mean damage to the UK
economy, but more revenue coming in, but we weren’t trying to do an exercise about
the economic pros and cons of the war. That was not the object of the exercise.”30

70. Sir Jon told the Inquiry that the DTI was also engaged on modelling the impact of
conflict on oil prices.31

71. Mr Drummond sent a paper on models for Iraq after Saddam Hussein to Sir David
Manning on 1 November.32 In his covering minute, Mr Drummond advised that it was
a synthesis of some of the work undertaken by departments under the auspices of the
AHGI, and that it would be used as the steering brief for the FCO/MOD/Department for
International Development (DFID)/Cabinet Office delegation to the forthcoming talks on
post-conflict issues with the US and Australia in Washington. Mr Drummond advised that
the ideas in the paper would not be presented as UK policy.

 

Footnotes
29 Public hearing, 9 July 2010, pages 8 and 9.
30 Public hearing, 9 July 2010, pages 10 and 11.
31 Public hearing, 9 July 2010, page 9.
32 Minute Drummond to Manning, 1 November 2002, ‘Iraq: Post-Saddam’ attaching Paper ‘Iraq: Models and some questions for post-Saddam government’.

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72. The paper stated that there were many possible permutations of the “stable united
and law abiding [Iraqi] state … providing effective and representative government”
sought by the UK, but focused on two:

• “Iraq under a new, more amenable strongman”, after Saddam Hussein had been
toppled prior to or in the early stages of any military campaign; and

• “a more representative and democratic Iraq” after Saddam Hussein’s regime had
collapsed following a military campaign.

73. In the second scenario, the UK’s “preferred model” comprised three phases:

• A transitional military administration (which could last up to six months).
Priorities would include maintaining a version of the OFF programme and
planning for the revival of Iraq’s economy.

• A UN administration (which might administer Iraq for approximately three years,
while a Constitution was agreed). Priorities would be to repair “war damage”
to Iraq’s oil industry and introduce new investment. Some way would have to
be found to reconcile payment of Iraq’s huge external debt and compensation
claims with its reconstruction and development needs.

• A sovereign Iraqi Government.

74. The paper did not address what role, if any, the UK might have in pursuing those
priorities.

75. A Treasury paper on the impact of conflict on the global economy and the UK was
circulated to the AHGI on 7 November.33 The Treasury’s assessment of the impact on
the global economy remained unchanged from 6 September.

76. Mr Edward Chaplin, FCO Director Middle East and North Africa, led the UK
delegation to the first round of talks on post-conflict issues with a US inter-agency team
and an Australian delegation in Washington on 6 November.34

77. Mr Drummond, a member of the UK delegation, reported to Sir David Manning on
8 November that the US wanted to establish a trust fund for Iraqi oil revenues, under
Coalition control, which would be transparent and enable resources to be used for the
benefit of the Iraqi people.35

78. There are no indications that the UK engaged with the US on that issue until the
second round of US/UK/Australia talks, in late January 2003.

 

Footnotes
33 Letter Dodd to Ad Hoc Group on Iraq, 7 November 2002, ‘Ad Hoc Group on Iraq’ attaching Paper Treasury, October 2002, ‘Economic Impact of a War in Iraq’.
34 Telegram 1456 Washington to FCO London, 7 November 2002, ‘Iraq: UK/US Consultations on Day After Issues: 6 November 2002’.
35 Minute Drummond to Manning, 8 November 2002, ‘Iraq: Day After’.

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79. Mr Blair and Mr Jack Straw, the Foreign Secretary, held an off-the-record seminar
on Iraq with six academics on 19 November.

80. Mr Rycroft advised Mr Blair that No.10 had issued a set of eight questions as an
agenda for the seminar, including:

“Post-Saddam, how quickly would the Iraqi economy revive? Who would control
the oil etc?”36

81. Mr Rycroft annotated that question in his advice to Mr Blair: “BP and others are fretting that they will lose out in the carve-up of contracts after any military action, as the UK did after the Gulf war … We don’t need to get into the detail of this, but we need to know what the main economic constraints would be in rebuilding Iraq and how economic issues would drive the model of governance chosen.”

82. The concerns of UK oil companies and their discussions with the UK Government
are described later in this Section.

83. Not all the questions posed by No.10 were addressed at the seminar.37 Mr Rycroft’s
record of the seminar reported the view that changing Iraq substantively would mean
tackling the political economy of oil, which led to a highly centralised bureaucracy and
the power of patronage.

84. Mr Arnab Banerji, an adviser in No.10, sent Mr Blair a detailed assessment of the
economic impact on the UK of war in Iraq on 19 December.38 Mr Banerji concluded:
“A short successful war with Iraq is likely to pose little strain on the UK economy.
Following such a conflict a combination of lower oil prices and increased business
confidence should provide a boost to the world economy. This in turn would feed into
higher UK growth in both 2003 and 2004.
“An extended or inconclusive conflict would have negative consequences for the
world economy and damage the UK. If oil prices remain in the US$30 – US$45 [per
barrel] range for a year then UK growth rates are expected to be about 1.0 percent
lower than anticipated for both 2003 and 2004.”
That price range compared with a UK forecast of US$20 to US$25 per barrel by the end
of 2003.

 

Footnotes
36 Minute Rycroft to Prime Minister, 18 November 2002, ‘Iraq: Seminar with Academics, Tuesday’.
37 Letter Rycroft to Sinclair, 20 November 2002, ‘Iraq: Prime Minister’s Seminar with Academics, 19 November’.
38 Minute Banerji to Prime Minister, 19 December 2002, ‘Economic Impact on UK of War with Iraq’.

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85. Mr Tony Brenton, Deputy Head of Mission at the British Embassy Washington,
reported US State Department (but not yet agreed US Government) views by telegram
on 23 December.39 The main policy points included:

• Provided the war was short, the US State Department did not anticipate
a dramatic impact on oil prices. They were ready to intervene in the market
as necessary.

• Control of the oil sector should be put back into Iraqi hands as soon as possible.
As far as possible, any major decisions should be postponed until control was
handed back.

• In the interim there should be a clear international role to maximise transparency
and minimise charges that the US went to war for oil.

• The US would “respect the concerns of those countries with existing contracts”.

86. A No.10 official wrote to Sir David Manning on 8 January 2003, to express his
concern about the US plan to set up a US-administered trust fund for Iraqi oil revenues.40
The official argued that: “… we should be working hard to persuade the US that, whilst a trust fund to ensure the Iraqi people benefit from oil export revenues is a good idea, it is very much in the US’s (and by extension the UK’s) political interests to get this done through a UN forum … If control was handed to the UN, it would be much more difficult to maintain the argument that this is about oil.”

87. The 10 January 2003 meeting of the AHGI considered a joint Cabinet Office/
Department for Environment, Food and Rural Affairs (DEFRA) paper on environmental
contingency planning.41

88. DEFRA assessed that the environmental consequences of large-scale damage
to Iraqi oil fields would be “significant and dramatic but in most cases short term”.42
Most of the impacts would be confined to Iraq. The US would have an important role
in responding to environmental contamination, though the extent of its contingency
planning was unclear. The UK had the capacity to provide “limited assistance” to:

• treat oil pollution;

• monitor air pollution; and

• help decontaminate water supplies.

89. DEFRA stated that any UK assistance would require funding.

 

Footnotes
39 Telegram 1690 Washington to FCO London, 23 December 2002, ‘Iraq: the Day After: Oil and Reconstruction’.
40 Minute No.10 [junior official] to Manning, 8 January 2003, ‘What We Do with Iraqi Oil’.
41 Minute Dodd to Manning, 13 January 2003, ‘Ad Hoc Group on Iraq’.
42 Paper Cabinet Office/DEFRA, [undated], ‘Iraq: Environmental Contingency Planning’.

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90. The AHGI agreed that the DEFRA paper should be passed to the US, and a
finalised version sent to Ministers.

MILITARY PLANNING

91. Sections 6.1 and 6.2 describe how, by the beginning of January 2003, uncertainty
about Turkey’s agreement to the deployment of Coalition ground forces in its territory
had reached a critical point, and the UK’s decision to deploy large-scale ground forces
to the south, rather than the north, of Iraq.

92. The MOD’s Strategic Planning Group advised the Chiefs of Staff on 7 January that
adopting a southern option had the potential to: “Provide UK with leading role in key areas of Iraq (free of Kurdish political risks) in Aftermath, and thus provide leverage in Aftermath Planning efforts, especially related to:

• Humanitarian effort

• Reconstruction of key infrastructure

• Future control and distribution of Iraqi oil.”43

93. Lieutenant General John Reith, Chief of Joint Operations (CJO), attended a US
Central Command (CENTCOM) commanders’ conference in Tampa, Florida on 15 and
16 January.44 The conference was described by General Tommy Franks, Commander
in Chief CENTCOM, as “likely to be the last chance for such a gathering to take place.
It therefore had to be conclusive.”

94. Lt Gen Reith reported to Admiral Sir Michael Boyce, Chief of the Defence Staff,
that the US had “a zillion dollar project to modernise and properly exploit the southern
oilfields”.45

95. Gen Reith told the Inquiry that, in the margins of the conference, he had told
Gen Franks that he was unhappy with the way planning was going: “… they were going into shock and awe, and we … the British … had been very much the custodians of ‘Let’s worry about Phase IV’.46 So we got on to Phase IV in our discussion and I made the point … that the oilfields were absolutely essential for Phase IV, to provide revenue for Iraq for its reconstruction and therefore, we needed to secure the oilfields rather than have them destroyed. I also made the point to him that the more china that we broke, the more we would have to replace afterwards.”47

 

Footnotes
43 Paper SPG, 7 January 2003, ‘Operation TELIC – Military Strategic Analysis of Pros/Cons of Adopting a Southern Land Force Option’.
44 Minute Wilson to MA/CJO, 17 January 2003, ‘CENTCOM Component Commanders’ Conference: 15‑16 Jan 03’.
45 Minute Reith to PSO/CDS, 17 January 2003, ‘Discussion with General Franks – 16 Jan 03’.
46 Phase IV was the military term for the post-conflict phase of military operations.
47 Private hearing, 15 January 2010, pages 42-43.

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96. Mr Geoff Hoon, the Defence Secretary, sent Mr Blair formal advice on the UK
contribution to land operations in Iraq on 16 January.48 Mr Hoon stated that the US
had asked the UK to provide a ground force to take on a key role in southern Iraq.
He described the proposed UK Area of Responsibility in the south as “a coherent one”,
which included: “… economic infrastructure critical to Iraq’s future, including much of its oil reserves, critical communications nodes, a city (Basra) of 1.3 million people and a port (Umm Qasr) about the size of Southampton. Although the establishment of UK control over this area will require careful presentation to rebut any allegations of selfish motives,
we will be playing a vital role in shaping a better future for Iraq and its people.”

97. Mr Straw wrote to Mr Blair the following day in response to Mr Hoon’s letter, setting
out three concerns, including: “… much greater clarity is required about US thinking and plans for the aftermath … We need in particular far greater clarity on US thinking on management of the oilfields.”49

98. Mr Hoon’s recommendations were endorsed by Mr Blair on 17 January,50 and the
deployment of a UK land package was announced to Parliament on 20 January.51

DISCUSSIONS WITH THE US

99. Mr Peter Ricketts, FCO Political Director, visited Washington on 13 January.52

100. At the first FCO Iraq Morning Meeting after his return from Washington, Mr Ricketts
reported that: “… the US show no sign of accepting our arguments on transitional administrations. They are wedded to the idea of a prolonged US Occupation, and opposed to any substantial role for the UN. We are likely to find the 22 January day after talks hard
going in this respect.”53

101. Mr Chaplin led the UK delegation to Washington for a second round of talks on
post-conflict planning with a US inter-agency team and an Australian delegation on
22 January.

102. Mr Dominick Chilcott, FCO Middle East Department, sent an “Annotated Agenda/
overarching paper” for the meeting to Mr Straw on 17 January.54 The paper listed a large

 

Footnotes
48 Letter Hoon to Blair, 16 January 2003, ‘Iraq: UK Land Contribution’.
49 Minute Straw to Prime Minister, 17 January 2003, ‘Iraq: UK Land Contribution’.
50 Letter Manning to Watkins, 17 January 2003, ‘Iraq: UK Land Contribution’.
51 House of Commons, Official Report, 20 January 2003, column 34.
52 Minute Ricketts to Private Secretary [FCO], 14 January 2003, ‘Iraq: The Mood in Washington’.
53 Minute Tanfield to PS/PUS [FCO], 15 January 2003, ‘Iraq Morning Meeting: Key Points’.
54 Minute Chilcott to Private Secretary [FCO] and Chaplin, 17 January 2003, ‘Iraq: Day-After Issues’.

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number of issues still to be resolved, organised under five headings: security; relief and
reconstruction; political; economic; and environmental.

103. Under the relief and reconstruction heading, the paper stated that the UK would
like the OFF programme, funded by Iraqi oil revenues, to continue to meet humanitarian
needs in the post-conflict period. Its ability to do so would depend on the extent of
the disruption caused by any conflict. Looking further ahead, the OFF programme
was not designed to support reconstruction. The extent of external funding required
for reconstruction would depend on Iraqi oil revenues, UN compensation claims and
external debt obligations. The UK would be able to provide only a limited contribution
to “total costs”. There might be scope for Iraq to borrow against future oil revenues to
finance reconstruction.

104. Under the economic heading, the paper stated that a key task would be to
maximise Iraq oil revenues, consistent with the effect on the global market. The Coalition
would need to consider whether that was best achieved by returning control of Iraqi oil
exports from an international civilian administration to an Iraqi administration rapidly or
in slower time. The Coalition would also need to consider how the competing calls on
oil revenues of debt repayment and reconstruction should be balanced.

105. Under the environmental heading, the paper asked whether there was an
environmental clean-up plan.

106. On 20 January, President Bush issued National Security Presidential Directive 24,
consolidating all post-conflict activity in the new DoD-owned Office of Reconstruction
and Humanitarian Assistance (ORHA).55 President Bush had decided in principle to
place the DoD in charge of all post-conflict activity in December 2002.

107. Lieutenant General (retired) Jay Garner was appointed to lead ORHA.56

108. The British Embassy Washington reported on the outcome of the 22 January talks
on post-conflict planning: “Overall, US Day After planning is still lagging far behind military planning. But they have agreed to two working groups: on the UN dimension; and on economic reconstruction issues ……
“The US were clear that the OFF [programme] would have to be maintained.
There would need to be debt rescheduling. There were many questions to be
resolved on oil production and revenues. The US fully accepted the need for

 

Footnotes
55 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
56 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.

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391

maximum transparency in this area. They readily agreed to set up a joint working
group to examine these issues.”57

109. Mr Chaplin advised Mr Straw that: “Given that military action could start within a
few weeks, we agreed to have the first meetings of these [working] groups next week,
if possible.”58

110. Reports from the British Embassy Washington in late January highlighted the
question of who would manage the oil sector in the post-conflict period.

111. A joint MOD/Permanent Joint Headquarters (PJHQ) delegation attended a
Phase IV planning conference at CENTCOM from 23 to 24 January.59 The conference
considered Phase IV planning in more detail than the 22 January talks.

112. The British Embassy Washington reported on the discussions on Phase IV
issues.60 The “Energy and Infrastructure Planning Group” based in DoD was
co-ordinating work on the oil sector. A comprehensive plan had been presented to
President Bush. A specialised contractor had been identified to carry out emergency
repairs. It had still not been decided “who or what” would be in overall charge of the
oil sector, although President Bush had agreed that a “CEO” would be needed.

113. The Embassy reported that the “underlying” US objective was to get “operations
back in the hands of the local workforce as soon as possible”. The US Administration
recognised the need to restore oil production and exports to generate revenue; the
aim was to “quickly achieve” 2.1m bpd, and to be prepared to increase production
to 3.1m bpd.

114. A BP team briefed UK Government officials on prospects for the Iraq energy sector
on 23 January.61 The briefing identified “two opposing views current in Washington”,
which it characterised as “hawkish” (espoused by the DoD, the NSC and others)
and “doveish” (espoused by the US State Department). The hawkish view sought a
significant increase in Iraqi oil production to push down oil prices, privatisation within
the oil sector, and external engagement led by the US (and possibly the UK) rather than
the UN.

115. The BP team estimated that Iraqi oil production could rise from around 2.8m bpd
currently to around 3.5m bpd within two years and 4m bpd within five years. Significant
investment was required. UK officials pressed the BP team on whether this “fairly slow”
increase could be accelerated.

 

Footnotes
57 Telegram 89 Washington to FCO London, 23 January 2003, ‘Iraq: US/UK/Australia Consultations on Day After Issues: 22 January 2003’.
58 Minute Chaplin to Secretary of State, 22 January 2003, ‘Iraq: ‘Day-After’ Issues’.
59 Minute DOMA AD(ME) and Sec(0)4 to MA/DCDS(C), 27 January 2003, ‘US Iraq Reconstruction Conference – Tampa 23-24 Jan 03’.
60 Teleletter FCO [junior official] to Chilcott, 25 January 2003, ‘US/Iraq: CENTCOM Meeting on Day After Reconstruction Issues, 23 January 2003’.
61 Record, 23 January 2003, ‘Iraqi Energy Sector: Issues and Prospects’.

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116. On 31 January, in advance of the first meeting of the US/UK/Australia Working
Group on Day After Economic on 5 February, a junior official in the British Embassy
Washington advised the FCO that, on oil, “at present, the [US] Administration are
sharing little with us”.62 Much of the post-conflict planning relating to oil was being done
within the DoD. The official US line was that UK concerns about transparency and the
need for a level commercial playing field had been taken on board.

117. The official reported that Mr Colin Powell, the US Secretary of State, had said
publicly that oil would be held “in trust” for the Iraqi people and that the underlying
US objective was to get operations back into the hands of the “local workforce”, but that
view might not be held in other (unspecified) parts of the US Administration.

118. The official also reported that rumours persisted that contracts had already been
let for the initial clean-up phase (which could last anything from two to 18 months).

119. The official concluded that key questions remained, including who would be in
overall charge of the oil sector after the initial clean-up.

120. Mr Blair met President Bush and Dr Condoleezza Rice, President Bush’s National
Security Advisor, in Washington on 31 January to discuss post-conflict planning.

121. A FCO briefing for Mr Blair included in its list of objectives for the meeting:
“To convince President Bush … the US needs to pay much more attention, quickly,
to planning on ‘day after’ issues; and that the UN needs to be central to it.”63
Key messages included:

• The UN could bring “significant advantages” after the conflict, including taking
on responsibility for oil revenues “to avoid accusations that aim of military action
was to get control of oil”.

• Restoring oil production would be “an immediate challenge”. The oil sector
would need “some technology and a lot of capital”. The US and UK should
“encourage an open investment regime and a level playing field for foreign
companies”.

122. A short Cabinet Office paper offered Mr Blair a “few OD Sec points, just in case
they slip through the briefing”.64 Those included:

• the importance of the transparent use of oil revenues; and

• the need to argue for a level playing field for UK companies on new oil
exploration contracts.

 

Footnotes
62 Letter FCO [junior official] to FCO [junior official], 31 January 2003, ‘Iraq ‘Day After’; Economic Working Group’.
63 Paper FCO, 30 January 2003, ‘Prime Minister’s Visit to Camp David, 31 January: Iraq’.
64 Minute Drummond to Rycroft, 28 January 2003, ‘Iraq: US Visit’.

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123. At the meeting with President Bush, Mr Blair suggested that a UN badge was
needed for what the US and UK wanted to do, and would help with the humanitarian
problems.65

124. The record of the meeting between President Bush and Mr Blair does not show
any discussion of oil issues.

125. The first meeting of the US/UK/Australia Working Group on Day After Economic
Issues took place in Washington on 5 February.66

126. The British Embassy Washington reported that the DoD had detailed contingency
plans to protect and restore the oil sector. The DoD was well aware of the importance
of the oil sector for reconstruction. In the best case (minimal damage, current levels of
outputs restored after two to three months), the DoD estimated that the sector could
make a net contribution of US$12bn in the first year after any conflict; in the worst case
it could impose a net cost of US$8bn.

127. The Working Group agreed to co-operate on defining practical economic steps to
be taken in the first three to six months of military occupation.

128. The FCO member of the UK delegation, the Economic Adviser for the Middle East
and North Africa, reported separately to Mr Drummond that: “DoD are ploughing ahead with detailed contingency planning for the oil sector in the initial military administration phase. But … there was a conspicuous disconnect between this and civilian planning for economic management and policy development within Iraq …”67

129. Mr Marc Grossman, US Under Secretary of State for Political Affairs, and
Mr Douglas Feith, US Under Secretary of Defense for Policy, gave evidence on US
post‑conflict plans to the Senate Foreign Relations Committee on 11 February.68

130. The British Embassy Washington reported that Mr Grossman’s and Mr Feith’s
message to the Foreign Relations Committee was “liberation not occupation”, with
an assurance that the US did not want to control Iraq’s economic resources.

 

Footnotes
65 Letter Manning to McDonald, 31 January 2003, ‘Iraq: Prime Minister’s Conversation with President Bush on 31 January’.
66 Telegram 169 Washington to FCO London, 6 February 2003, ‘Iraq: Meeting of Trilateral Working Group on ‘Day After’ Economic Issues: Short Term Reconstruction’.
67 Teleletter FCO [junior official] to Drummond, 6 February 2003, ‘Iraq: Meeting of US/UK/Australian Working Group on ‘Day After’ Economic Issues: Assessment and Follow Up’.
68 Telegram 196, Washington to FCO, 12 February 2003, ‘Iraq ‘Day After’: US Makes Initial Planning Public’.

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131. The final paragraph of the Embassy’s report highlighted the degree of uncertainty
surrounding US plans: “In the ensuing discussion, Feith said that military occupation could last two years. Both admitted to ‘enormous uncertainties’. They said that they did not know how the Iraqi oil industry would be managed, who would cover the costs of oil installation reconstruction, or how the detailed transition to a democratic Iraq would operate. The committee’s response was one of incredulity, with encouragement to plan for
the worst, as well as the best, case.”

132. Sir David Manning commented to Mr Bowen and No.10 officials:
“Last para[graph] shows scale of problem post-Saddam. We must keep pushing
for this work to be done.”69

133. Mr Tom Dodd, Cabinet Office OD Sec, reported on 11 February on a US briefing
on the oil sector arranged by the Assessments Staff.70 The briefing assessed that
Iraq’s oil infrastructure was “generally in terrible condition”. CENTCOM believed that
oil production could be increased to 6m bpd within three years, given massive new
investment. US officials believed that reaching that level of production would take
at least six years, “given benign political and security factors”.

134. Mr Hoon discussed post-conflict issues with Mr Donald Rumsfeld, the US
Secretary of Defense, in Washington on 12 February.

135. A briefing prepared by the MOD Iraq Secretariat for Mr Hoon listed eight
“Key Gaps/US-UK policy differences”, one of which was oil.71

136. The MOD advised that the US plan for the insertion of a task force of US oil
experts and subsequent management of Iraqi oilfields “had to be handled carefully to
avoid accusations of theft”. The UK would press for transparency of oil management,
for greater UN involvement than was envisaged, and for the early transfer of control
of oilfields back to the Iraqis.

137. The “task force” was probably a reference to Task Force Restore Iraq Oil (RIO),
established by the US Army Corps of Engineers.72 An advance team from Task Force
RIO deployed to Iraq in February.

 

Footnotes
69 Manuscript comment Manning on Telegram 196 Washington to FCO, 12 February 2003, ‘Iraq ‘Day After’: US Makes Initial Planning Public’.
70 Minute Dodd to Drummond, 11 February 2003, ‘Iraq: Oil’.
71 Minute Johnson to PS/Secretary of State [MOD], 10 February 2003, ‘Secretary of State’s Visit to Washington: Iraq’.
72 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.

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138. Separately, Mr Drummond sent Mr Ian Lee, MOD Director General Operational
Policy, a final version of the UK’s “key messages” on post-conflict Iraq, for Mr Hoon to
draw on in his meeting with Secretary Rumsfeld.73 The final two key messages were:
“Oil. Agree need to resume oil production and export as soon as possible.
Welcome your plans to deal with any immediate environmental damage, and
commitment to use oil revenues for the benefit of the Iraqi people e.g. … by adapting
[the] Oil-For-Food programme. Essential that oil revenues managed transparently
and accountably. Perception of US/UK oil grab would rapidly increase hostility to
the Coalition. The UN could help us avoid this.
“Level playing field: Big contracts to rebuild Iraq. Putting UK lives on line. Expect
level playing field for UK business in oil and other areas.”

139. The British Embassy Washington reported on 13 February that Mr Hoon had
raised the issue of financing reconstruction with Secretary Rumsfeld, including using the
proceeds from oil sales.74 Secretary Rumsfeld had agreed that oil revenues were key to
financing reconstruction and should not be misinterpreted as a reason for the conflict.
The DoD would make it clear that Iraqi oil proceeds should go to Iraq’s people. The OFF
programme was a good basis on which to work.

140. Following the 5 February meeting of the US/UK/Australia Working Group on Day
After Economic Issues, on 14 February an FCO official sent the US State Department a
paper setting out the UK’s thoughts on the steps to be taken in the first 30 and 60 days
after any conflict.75 The official advised that the paper reflected FCO, Treasury and DFID
views, and was: “… very much work in progress, not completely co-ordinated here [in London], and at this stage reflects largely the views of economic and relief specialists here: it is not fully cleared politically.”

141. The paper set out strategic and specific operational objectives for six issues,
including oil. The key strategic objective for oil was: “Maximum continuity in oil
production and exports.” The specific operational objectives for oil in the first 30 days
included:

“• secure National Oil Company infrastructure (offices and staff as well as technical
infrastructure) ……

 

Footnotes
73 Letter Drummond to Lee, 11 February 2003, ‘Iraq Post Conflict: Key Messages’ attaching Paper Cabinet Office, 11 February 2003, ‘Iraq Post Conflict: Key Messages’.
74 Telegram 203 Washington to FCO London, 13 February 2003, ‘Iraq: Defence Secretary’s Visit to Washington’.
75 Letter FCO [junior official] to US State Department official, 14 February 2003, ‘Iraq Day After: Trilateral Economic Discussions – Follow-up’ attaching Paper, 14 February 2003, ‘Iraq Day After: Preliminary UK Views on Economic Actions in First 30/60 Days’.

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• work with NOC management to ensure continued physical operation of
non‑damaged facilities and continued exports …;

• work with NOC management to ensure administrative integrity, including staff
retention and payment of salaries;…

• initial quick assessment of oil sector spending needs …”

142. The specific operational objectives for oil in the first 60 days were to:

• prepare an emergency budget for the oil sector;

• arrange for “urgent work” on oil infrastructure; and

• assess recent oil exports outside the OFF programme.

143. The same version of the paper was sent to Mr Blair on 7 March.

144. A Treasury official invited Mr Brown’s comments on officials’ “first thoughts”
on Treasury policies in a post-Saddam Iraq on 11 February (see Section 13.1).76
The Treasury assessed that the cost of ensuring Iraq’s prosperity and stability was
difficult to predict but “potentially massive”. Iraq was potentially a rich country and the
“obvious answer” was that Iraq should pay “the lion’s share” of its reconstruction from
its oil revenues. However, there were several reasons why that might not cover all –
or even the majority – of the cost of reconstruction:

• Iraq’s oil infrastructure could be damaged in any conflict, or sabotaged.

• The price of oil could fall.

• There would be pressure for Coalition countries to pay for reconstruction.

• The OFF programme provided up to US$10bn a year for Iraq. That was enough
to keep Iraq “ticking over”, but it was not clear whether it was enough to pay for
reconstruction.

• A post-conflict Iraq might have to pay war reparations and service the country’s
huge debt.

145. The official proposed that an “emerging policy position” would include maximising
the Iraqi contribution to the cost of reconstruction, initially by maintaining the OFF
programme.

146. The Treasury told the Inquiry that Mr Brown did not comment.77

147. Mr John Grainger, an FCO Legal Counsellor, sent the Iraq Planning Unit (IPU)
an outline of the legal position on occupying forces’ rights to deal with oil reserves

 

Footnotes
76 Minute Treasury [junior official] to Chancellor, 11 February 2003, ‘HMT Policy on Post-Saddam Iraq’ attaching Paper Treasury, 11 February 2003, ‘Post-War Iraq: International Financing Policy’.
77 Email Treasury [junior official] to Iraq Inquiry [junior official], 26 February 2010, [untitled].

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in occupied territory on 14 February.78 Mr Grainger advised that, under the Hague
Regulations: “… the Occupying Power acquires a temporary right of administration, but not sovereignty. He does not acquire the right to dispose of property in that territory
except according to the strict rules laid down in those regulations. So occupation
is by no means a licence for unregulated economic exploitation.”

148. Mr Grainger also advised that:

• the reasonable operation of oil wells was likely to be permitted, at least up to
the rate at which they were previously operated, but there would be no right
to develop new wells; and

• the current OFF programme regime assumed a degree of Iraqi Government
involvement. In the event of there being “no Government in active control of
Iraq”, it was likely that significant changes to the regime would be required.

149. On 19 February, at the request of the Cabinet Office, the Joint Intelligence
Committee (JIC) produced the Assessment, ‘Southern Iraq: What’s in Store’.79

150. The JIC concluded that: “The establishment of popular support for any
post‑Saddam administration cannot be taken for granted.” Support could be
undermined by several factors, including a failure to be seen to run the oil industry in
the interests of the Iraqi people.

151. The JIC also recalled its earlier judgement that Saddam Hussein might seek to
pursue a scorched earth policy, including the destruction of oil wells.

152. Mr Chilcott sent Mr Straw’s Private Office a paper on oil policy on 28 February.80
Mr Chilcott advised that the paper, entitled ‘Iraq Day After – Oil Policy’, set out
“preliminary, official-level thinking”. It had been circulated “fairly widely” across
departments and incorporated comments from “various” departments. The IPU planned
to share the paper with the US “in due course”, after some careful editing.
153. The paper stated that the UK’s economic objectives should be the rapid relief of
humanitarian needs and the restoration of public services, and beyond that “to win the
peace economically”. Oil revenues would have a key part to play in achieving those
objectives. Provided exports were not interrupted, Iraq could finance a “substantial part”
of the humanitarian, reconstruction and longer-term rebuilding effort.

 

Footnotes
78 Minute Grainger to IPU [junior official], 14 February 2003, ‘Occupation Rights: Iraqi Oil’.
79 JIC Assessment, 19 February 2003, ‘Southern Iraq: What’s in Store?’
80 Minute Chilcott to Private Secretary [FCO], 28 February 2003, ‘Iraq Day After – Oil Policy’ attaching Paper IPU, 27 February 2003, ‘Iraq Day After – Oil’.

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154. In the immediate aftermath of any conflict, the military administration’s priorities
should be to:

• cap any oil well fires and prevent damage to oil infrastructure; and

• restore production by repairing existing oil production facilities.

155. The “interim administration” that followed would lead on the rehabilitation and
longer-term development of Iraq’s oilfields, including tendering contracts for the
exploration and exploitation of new areas. Deferring such work until a new Iraqi
Government was in place would “seriously delay the maximisation of Iraq’s oil revenue
and increase the cost to the international community of its reconstruction”. It would be
important to ensure that:

“• any such moves were clearly in the interests of the Iraqi economy and people;

• the interim administration had an appropriate UN mandate;

• everything was done in as transparent a manner as possible; and

• production was not pushed beyond OPEC-type depletion rates, even though
that could be in the interests of the Iraqi people.”

156. The paper stated that the OFF programme would need to be adjusted so that it
could operate effectively after any conflict. That could only be done through the Security
Council. The paper cautioned against seeking to use OFF programme funds to cover the
cost of military occupation, as some in the US were suggesting, as this would “inevitably
raise accusations that the military action was motivated by oil”.

157. The paper concluded that in the aftermath of any conflict, the “international
administration” should seek to ensure that:

• Iraqi oil revenues were available to be used for the benefit of Iraq; and

• all Iraqi oil industry business was handled in as transparent a manner as
possible, “to rebut allegations about oil motivations”.

158. The paper identified a number of next steps for the UK, including:

• to convene a meeting with UK oil companies to explore the UK’s ideas and tap
into their expertise;

• to start preliminary work to ensure that UK firms were well placed to pick up
contracts. That work was already in hand;

• to factor rapid assistance for oilfield installations into UK military planning; and

• to start thinking about appropriate wording for UN resolutions. That was also
already in hand.

159. Mr Straw commented: “V[ery] good paper.”81

 

Footnotes
81 Manuscript comment Straw, 2 March 2003, on Minute Chilcott to Private Secretary [FCO], 28 February 2003, ‘Iraq Day After – Oil Policy’.

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160. The paper was one of several passed to Mr Blair on 7 March, after his 6 March
ministerial meeting on post-conflict issues.82

161. A revised version of the paper was passed to the US by 13 March.83

162. Mr Blair chaired a meeting on post-conflict issues on 6 March with Mr Brown,
Mr Hoon, Ms Clare Short (International Development Secretary), Baroness Symons
(joint FCO/DTI Minister of State for International Trade and Investment), Sir Michael Jay
(FCO Permanent Under Secretary) and other officials.84 The meeting is described in
detail in Section 6.5.

163. Mr Brown received a number of papers from Treasury officials before the meeting,
including a draft “DFID paper rewritten by the Treasury” on humanitarian relief and
reconstruction costs.85 The draft paper stated that it was a “first attempt at charting the
likely costs of the first three years of the Iraqi reconstruction”.

164. The draft paper stated that, while cost estimates would remain “very rough” until
the International Financial Institutions (IFIs) had completed a full needs assessment:

• In year 1, humanitarian costs could be between US$2bn and US$12bn,
depending on the scale of the humanitarian crisis and the extent to which oil
exports and the OFF programme were disrupted.

• In years 2 and 3, total reconstruction costs (before Iraq’s oil revenues were
taken into account) would be between US$2bn and US$15bn per year.
Oil revenues might allow Iraq to pay for most of this – if production levels and
prices were favourable, Iraq did not have to repay its debts, and rehabilitation
of Iraq’s oil infrastructure was cheap.

165. The draft paper stated that sources of financing for relief and reconstruction
remained uncertain. The current US/UK approach was to maintain and expand the OFF
programme as the central source of financing.

166. At the meeting, Mr Brown said that the burden of reconstruction should not
be borne by the US and UK alone; other countries and Iraqi oil revenues should be
tapped.86 In the longer term, Iraqi oil should fund the country’s reconstruction.

167. Mr Blair concluded that Mr Brown should draw up “a funding plan, including
securing funding from wider international sources, in particular the IFIs”. The Treasury
sent that plan to No.10 on 14 March.

 

Footnotes
82 Minute Rycroft to Prime Minister, 7 March 2003, ‘Iraq: Weekend Papers’.
83 Letter Gooderham to Chilcott, 13 March 2003, Iraq: Day After: The Oil Sector’.
84 Letter Cannon to Owen, 7 March 2003, ‘Iraq: Post-Conflict Issues’.
85 Email Dodds to Private Office [Treasury], 4 March 2003, ‘Iraq: Ministerial Meeting on Thursday Morning’ attaching Paper DFID [draft], March 2003, ‘Iraq Relief and Reconstruction Costs: an Overview’.
86 Letter Cannon to Owen, 7 March 2003, ‘Iraq: Post-Conflict Issues’.

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168. On 8 March, the US Army Corps of Engineers (USACE) awarded a contract for the
repair of Iraq’s oil infrastructure, worth up to US$7bn, to the US engineering company
Kellogg, Brown and Root (KBR).87 Hard Lessons reported that the contract was the
single largest reconstruction contract in Iraq and the largest known sole-source contract
in US history.

169. Mr Mike O’Brien, FCO Minister of State, visited Washington on 13 March to
discuss post-conflict issues with US interlocutors.88

170. A senior official from the NSC briefed Mr O’Brien on US plans for the oil sector.89
The British Embassy Washington reported that the NSC was expecting Saddam Hussein
to inflict “massive damage” on Iraq’s oil infrastructure; contracts had been let to US
companies to control the damage.

171. The NSC official advised that a small, US, senior management team for the
oil sector had been assembled. Its first task would be to assess reconstruction and
investment needs. The team would need to be headed by an Iraqi.

172. The official said that the NSC agreed on the need for a UN role in ensuring
transparency, but thought that the UN was not able to run the oil sector. That would be
a job for the oil sector management team, “reporting first and foremost to the Coalition”.

173. The official also advised that the NSC agreed with much of the UK’s oil policy
paper, but identified three points of disagreement:

• The US did not think it was sensible to commit to restoring pre-invasion levels of
production, when the Coalition could not know what damage would be inflicted
on the oil infrastructure.

• The US foresaw legal problems in either the Coalition or the interim Iraqi
administration letting new oil development contracts (which would be long-term
commitments) during the “transitional phase”. Depending on the situation on
the ground, it might make more sense to suspend the existing six or seven oil
development contracts, with a view to them being renegotiated in due course by
a sovereign Iraqi Government.

• The US thought it was unrealistic to envisage private finance emerging early on.

174. The Inquiry has not seen the version of the oil policy paper passed to the US.

175. Dr Rice gave Sir David Manning an account of White House thinking on the
handling of Iraqi oil on 13 March.90 The OFF programme should be left in place,
and phased out when there was an Iraqi entity ready to take control of oil revenues.

 

Footnotes
87 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
88 Telegram 341 Washington to FCO London, 13 March 2003, ‘Iraq Day After: Mr O’Brien’s Visit’.
89 Letter Gooderham to Chilcott, 13 March 2003, Iraq: Day After: The Oil Sector’.
90 Minute Cannon to Owen, 14 March 2003, ‘Iraq: Iraqi Oil Post-Conflict’.

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The US also wanted to make clear that military operations would not be paid for out of
Iraqi oil money.

176. Ms Patricia Hewitt, the Trade and Industry Secretary, wrote to Mr Blair on
13 March seeking confirmation that she could, if necessary, signal the UK’s agreement
to the release of a modest amount of the IEA’s oil stocks, to reassure oil markets.91
She described the oil markets as “extremely nervous”.

177. No.10 replied the following day, confirming that while Mr Blair agreed the broad
approach proposed, he would like to be consulted before any final decision was taken.92

178. On 14 March, the FCO instructed the UK Permanent Mission to the UN in New
York to start discussions with the US delegation on a possible resolution to modify the
OFF programme and sanctions regime in the event of military action and the absence of
an “effective Iraqi Government”.93 The FCO believed that that resolution might best be
tabled immediately after the start of military operations.

179. The UK wanted the OFF programme to continue “for some time”, to enable Iraq to
export oil and import and distribute humanitarian goods until new government structures
existed that could take on those functions.

180. The FCO proposed that to enable the OFF programme to continue, the UN
Secretary-General should fulfil a number of functions that were currently reserved for the
Iraqi Government, including the authority to spend OFF programme funds.

181. The UK position was summarised in the FCO background papers for the Azores
Summit, sent to No.10 on 15 March: “If the Iraqi regime falls, new arrangements will need to be put in place to enable the OFF to keep functioning. Our current plan is to table a resolution soon after conflict starts, transferring authority for ordering and distributing goods to the UN Secretary‑General … [W]e would hope that the Secretary-General would be able to transfer full control over oil revenues to a properly representative Iraqi
Government as soon as possible (not as the US have suggested, an Iraqi ‘entity’,
which could, particularly if US appointed, fuel suggestions that the Coalition was
seeking to control Iraqi oil).”94

 

Footnotes
91 Minute Hewitt to Blair, 13 March 2003, ‘Iraq and the oil market’.
92 Letter Jones to Zimmer, 14 March 2003, ‘Iraq and the oil market’.
93 Telegram 149 FCO London to UKMIS New York, 14 March 2003, Iraq – Military Action – Sanctions and Oil for Food – Strategy Paper.
94 Letter Owen to Rycroft, 15 March 2003, ‘Azores Summit’ attaching Paper FCO, ‘Iraq – Oil for Food Programme (OFF) and Sanctions’.

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182. On 14 March, in response to Mr Blair’s 6 March request, Mr Mark Bowman,
Mr Brown’s Principal Private Secretary, sent No.10 a Treasury paper on financing Iraq’s
reconstruction.95

183. The Treasury estimated that the total cost of Iraq’s reconstruction could be up
to US$45bn for the first three years (US$15bn a year) and warned that, without UN
authorisation of arrangements for a transitional administration, Iraqi oil might pay for
only a fraction of that.

184. The Treasury advised that the best way to pay for reconstruction would be to
spread the burden as widely as possible, drawing in contributions from non-combatants,
IFIs and Iraq itself, and ensuring Iraqi revenues were not diverted into debt or
compensation payments. By far the most significant factor in making that happen would
be political legitimacy conferred by the UN.

185. The Treasury stated that the OFF programme provided “an obvious way to pay for
immediate humanitarian needs”, using the approximately US$4bn unspent in the OFF
account and by restarting oil exports. That depended on oil production facilities surviving
the conflict relatively intact. In the most benign circumstances, with rapidly increasing
production and high oil prices, oil revenues “could make a very significant contribution”
to ongoing relief and reconstruction. The securitisation of future oil revenues was
another possible source of funds, but Iraq had already accumulated “massive and
probably unsustainable debts” that way.

186. President Bush, Mr José María Aznar, the Prime Minister of Spain, and Mr Blair
discussed Iraq at the Azores Summit on 16 March.96

187. The FCO background papers sent to No.10 in advance of the Summit included a
revised version of the UK’s ‘A Vision for Iraq and the Iraqi People’ (see Section 6.5).97
The UK intended that the document, which would be launched at the Summit, would
reassure Iraqis and wider audiences of the Coalition’s intentions for Iraq after Saddam
Hussein’s departure.

188. The revised version included a number of changes from the version produced
the previous month, including the addition of a reference to Iraq’s oil industry being
managed “fairly and transparently”.

189. The statement issued by President Bush, Prime Minister Aznar and Mr Blair at the
Summit on 16 March shared much of the substance of the revised version of the UK’s

 

Footnotes
95 Letter Bowman to Cannon, 14 March 2003, [untitled] attaching Paper Treasury, March 2003, ‘Financing Iraqi Reconstruction’.
96 Letter Manning to McDonald, 16 March 2003, ‘Iraq: Summit Meeting in the Azores: 16 March’.
97 Minute Bristow to Private Secretary [FCO], 14 March 2003, ‘A Vision for Iraq and the Iraqi People’.

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‘A Vision for Iraq and the Iraqi People’.98 Key differences included the omission of any
explicit reference to oil. On post-conflict reconstruction, the three leaders declared:
“We will work to prevent and repair damage by Saddam Hussein’s regime to the
natural resources of Iraq and pledge to protect them as a national asset of and
for the Iraqi people. All Iraqis should share the wealth generated by their national
economy …
“… We will also propose that the [UN] Secretary-General be given authority, on an
interim basis, to ensure that the humanitarian needs of the Iraqi people continue to
be met through the Oil-for-Food program.”

190. A specially convened Cabinet, the last before the invasion, was held at 1600 on
17 March.99 Mr Blair told Cabinet that the US had confirmed that it “would seek a UN
mandate for the post-conflict reconstruction of Iraq”. Oil revenues would be administered
under the UN’s authority.

191. Mr Peter Gooderham, Counsellor at the British Embassy Washington, reported
to IPU on the same day on a further meeting with a senior NSC official.100 The official
had advised that, while the NSC fully understood the UK’s “desire for maximum UN
legitimacy and transparency in running the oil sector … other equities in the [US]
Administration continued to see no need for this”.

192. In his speech in the House of Commons on 18 March, Mr Blair stated that:
“There should be a new United Nations resolution following any conflict providing not
only for humanitarian help, but for the administration and governance of Iraq …
“And this point is also important: that the oil revenues, which people falsely claim
that we want to seize, should be put in a trust fund for the Iraqi people administered
through the UN.”101

The invasion and immediate aftermath

193. The invasion of Iraq began on the night of 19-20 March 2003. Military operations
during the invasion are described in Section 8.

194. Official exports of Iraqi oil ceased on 22 March.102
195. Between 18 March and 22 April, updates on key events relating to Iraq produced by COBR, the UK Government’s crisis management and co-ordination facility, were

 

Footnotes
98 Statement of the Atlantic Summit, 16 March 2003, A Vision for Iraq and the Iraqi People.
99 Cabinet Conclusions, 17 March 2003.
100 Letter Gooderham to Chilcott, 17 March 2003, ‘Iraq Day After: Oil Sector’.
101 House of Commons, Official Report, 18 March 2003, column 771.
102 Paper IPU, 22 April 2003, ‘Oil/Energy Policy for Iraq’.

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circulated to senior officials and departments twice a day.103 The evening updates
included a report on the state of the oil market, and on changes to UK retail petrol and
diesel prices.

196. The price of oil quickly stabilised.

197. The COBR evening update for 18 March reported that prices for Brent crude had
fallen to around US$27 a barrel, following heavy selling in expectation of a short war.104
The IEA was monitoring the market, and stood ready to release stocks if necessary.

198. The MOD informed No.10 on 23 March, in its first report to No.10 on the progress
of the military campaign, that all the southern oilfields were now “secure and under
Coalition control”.105

199. The MOD informed No.10 on 25 March that “Iraqi attempted sabotage [of the
southern oilfields] has been unsuccessful”.106

200. The Cabinet discussed the humanitarian situation in Iraq on 27 March.107 Mr Hoon said that securing Iraq’s essential economic infrastructure had been achieved through
seizing the southern oilfields almost intact. The sooner the oil could flow again, the
sooner the profits could be used for the Iraqi people.

201. COBR reported on 10 April that oil prices continued to fluctuate around US$25 a
barrel.108 Market attention was turning away from day-to-day developments in Iraq and
towards “underlying fundamentals”. The IEA estimated that despite disruption to Iraqi
and Nigerian oil supplies, global oil production had increased by 1 percent between
February and March.

202. The COBR evening update for 12 April reported that the Kirkuk oilfields had been
seized “almost entirely intact”.109

203. The final meeting of the COBR (Iraq) Group was held on 23 April.110 Mr Drummond
reported that the impression from that meeting was of “returning normality”, including
with the stabilisation of the oil price at around US$25 a barrel and UK fuel prices starting
to come down.

 

Footnotes
103 Minute Cabinet Office [junior official] to Manning, ‘Iraq: COBR Round Up of Key Events – 18 March’; Minute Cabinet Office [junior official] to Manning, ‘Iraq: COBR Round Up of Key Events – 22 April’.
104 Minute Cabinet Office [junior official] to Manning, 18 March 2003, ‘Iraq: COBR Round Up of Key Events – 18 March’.
105 Letter Watkins to Manning, 23 March 2003, ‘Iraq: Progress of Military Campaign’ attaching Report, [undated], ‘Iraq: Progress of Military Campaign’.
106 Letter Watkins to Rycroft, 25 March 2003, ‘Iraq: Military Campaign’ attaching Report, [undated], ‘Iraq: Campaign Achievements (as at 25 March 2003)’.
107 Cabinet Conclusions, 27 March 2003.
108 Minute Cabinet Office [junior official] to Manning, 10 April 2003, ‘Iraq: COBR Round Up of Key Events – 10 April’.
109 Minute Dodd to Manning, 12 April 2003, ‘Iraq: COBR Round Up of Key Events – 12 April’.
110 Minute Drummond to Manning, 24 April 2003, ‘COBR(Iraq)’.

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204. Oil production fell sharply during military operations, before recovering. The oil
sector was severely disrupted by looting.

205. Hard Lessons recorded that during and immediately after the invasion there
was no “serious” sabotage of the northern or southern oilfields, with only nine fires
reported.111

206. In contrast, the effect of looting and the developing insurgency was more severe
than the US had expected: “In the south, where US troops bypassed the oil infrastructure on the way to Baghdad, vandals and thieves stripped facilities of anything of value. Oil advisers had identified key installations that needed to be protected, but ‘[the military] said they didn’t have enough people to do that’ …”

207. The Ministry of Oil in Baghdad was also looted.

208. The June 2003 Economist Intelligence Unit (EIU) Country Report for Iraq,
citing figures from the IEA, assessed that Iraqi crude oil output fell from 2.5m bpd in
February to 1.4m bpd in March, and then to “a paltry” 170,000 bpd in April.112 Following
the cessation of major hostilities, output increased. Iraqi officials suggested that by
early June approximately 525,000 bpd were being produced in the north and around
300,000 bpd in the south of Iraq. Domestic demand was estimated to be 600,000 bpd.

209. The Cabinet Office advised Ministers in mid-August 2003 that oil production had
been severely disrupted by looters and saboteurs in the initial months after the conflict.113
All the major oilfields had been affected. That disruption had cost US$3bn in lost oil
export revenue over the 100 days following the end of the conflict.
Negotiations with the US over the control of Iraqi oil revenues

210. Planning for post-conflict Iraq continued after the beginning of military operations.

211. UK policy towards post-conflict Iraq continued to be based on the assumption
that after a short period of US-led, UN-authorised military Occupation, the UN would
administer and provide a framework for the reconstruction of post-conflict Iraq (see
Section 6.5).

212. In the context of negotiations with the US on what would become resolution 1483
(2003), the UK argued that the Coalition should not have sole control over Iraqi oil revenues.

 

Footnotes
111 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
112 Economist Intelligence Unit, June 2003, Country Report for Iraq.
113 Letter Drummond to Owen, ‘Iraq: Update for Ministers’ attaching Paper Cabinet Office, 14 August 2003, ‘Iraq: Update for Ministers, 14 August 2003’.

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213. Ms Kara Owen, Mr Straw’s Private Secretary, wrote to Sir David Manning on
20 March, advising that the US envisaged that control of the OFF programme would
pass from the UN Secretary-General to “authorities in Iraq” within 90 days.114 Ms Owen
advised that that short time-scale suggested that the US was thinking that control
over the OFF programme should be handed over to either Coalition Forces or a
non‑representative interim administration established by the US rather than, as the UK
wanted, a credible representative Iraqi Government. The US proposal was likely to run
into major objections in the Security Council, and would be likely to be perceived as an
attempt to “grab Iraqi oil”.

214. Ms Owen suggested that Sir David might need to discuss the issue soon with
Dr Rice.

215. Mr Bowen circulated draft ‘British Post-Conflict Objectives’ to senior officials in the
FCO, the MOD and DFID on 25 March.115 The text incorporated earlier comments from
some departments.

216. The draft stated:
“With others, we will help revive the Iraqi economy and assist reform by:

• working with the UN to manage Iraq’s oil revenues in order to achieve the
maximum benefit for the Iraqi people in an accountable and transparent
manner …”

217. There is no indication whether the objectives were ever adopted formally.

218. Resolution 1472 (2003) was adopted unanimously by the UN Security Council
on 28 March.116 The resolution gave the UN Secretary-General authority to purchase
medical supplies and Iraqi goods and services under the OFF programme, for a period
of 45 days (until 10 May). The resolution did not give the UN Secretary-General authority
to sell Iraqi oil.

219. The UK Government’s view was that until sanctions on Iraq were lifted or the
Security Council agreed a further resolution amending the OFF programme, the
Coalition did not have the power to export Iraqi oil.117

220. Section 9.1 describes the UK’s efforts to develop a resolution which would further
extend the OFF programme and authorise the UN Secretary-General to sell Iraqi oil and
buy the full range of humanitarian supplies.

 

Footnotes
114 Letter Owen to Manning, 20 March 2003, ‘Iraq – Oil for Food’.
115 Letter Bowen to Chaplin, 25 March 2003, ‘Iraq: Post Conflict Objectives’ attaching Paper [draft], 25 March 2003, ‘Iraq: British Post-Conflict Objectives’.
116 UN Security Council Resolution 1472 (2003).
117 Paper IPU, 22 April 2003, ‘Oil/Energy policy for Iraq’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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221. Mr Blair and President Bush discussed post-conflict issues at Camp David on
26 and 27 March.118

222. In advance of the meeting, Mr Straw’s Private Office sent Mr Rycroft a negotiating
brief for what was to become resolution 1483, the resolution defining the roles of the UN
and the Coalition in post-conflict Iraq.119

223. The negotiating brief, prepared by the IPU, identified five “key issues” on which US
and UK positions differed, including the arrangements for dealing with Iraqi oil revenues:
“Some in the US are … tempted to arrogate to themselves charge of the direction
of a Trust Fund for Iraqi oil and other revenues, which will be used for meeting the
costs of their administration of Iraq as well as for reconstruction … this will open
them (and by association us) to criticism that they are reneging on their promise
to devote the oil revenues exclusively to the Iraqis.”

224. Such a proposition had “nil chance” of approval by the Security Council: “Either the UN or the Iraqis themselves (perhaps with World Bank/IMF help) must be seen to be in control of Iraqi revenues – certainly not the Coalition.”

225. The brief concluded that, overall, the US approach amounted to: “… asking the UNSC [Security Council] to endorse Coalition military control over Iraq’s transitional administration, its representative institutions and its revenues until such time as a fully-fledged Iraqi government is ready to take over.”

226. The brief set out a number of “propositions” which the IPU hoped Mr Blair and
President Bush would agree, including: “The UN or the Iraqis, not the Coalition, should manage oil revenues.”

227. Also as briefing for the meeting, Mr Straw sent Mr Blair an FCO paper on Phase IV
issues.120

228. The FCO advised that, on oil sector management, the US and UK agreed that the
“overarching principles” were:

• disruption to the flow of Iraqi oil should be minimised;

• Iraq’s oil wealth should be used for the benefit of the Iraqi people; and

 

Footnotes
118 Letter Manning to McDonald, 28 March 2003, Prime Minister’s Meeting with President Bush at Camp David: Dinner on 26 March’.
119 Letter Owen to Rycroft, 25 March 2003, ‘Prime Minister’s Visit to Washington: Iraq: UN Security Council Resolution on Phase IV’ attaching Paper Iraq Planning Unit, 25 March 2003, ‘Iraq: Phase IV: Authorising UNSCR’.
120 Letter Straw to Prime Minister, 25 March 2003, ‘Camp David: Post-Iraq Policies’ attaching Paper FCO, 25 March 2003, ‘Iraq: Phase IV Issues’.

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408

• Iraqi oil business should be handled in as transparent and even-handed a
manner as possible.

229. The US and UK also agreed that all decisions on the development of the Iraqi oil
industry (such as privatisation and the exploration of new fields) should be deferred until
a new Iraqi Government was in place.

230. The FCO advised that the US was considering setting up a trust fund for oil and
other revenues. Whatever the arrangement: “… the key point is that decisions on using the funds should not be taken by the Coalition. Until the Iraqi interim authority has the capacity to operate a budget, the UN Secretary-General (or the UN Special Co-ordinator) should continue to decide on spending priorities, as he will do under the amended OFF arrangements.”

231. The FCO also advised that Iraq’s oil revenues would not cover the cost of
reconstruction, particularly in the short term. The cost of reconstruction needed to be
shared with other countries.

232. The UK Treasury received a paper from the US Treasury on 26 March, proposing
the creation of two Trust Funds:

• one to hold donor funds, to be administered by the World Bank; and

• one – the Iraqi Economic Recovery Fund (IERF) – to hold oil revenues and
unfrozen Iraqi assets. The IMF would manage and invest the IERF’s assets, but
the “CPA/IIA” [Coalition Provisional Authority/Iraq Interim Authority] would have
sole authority over how IERF funds were spent.121

233. Mr Blair and President Bush met at Camp David on 26 and 27 March.122 At dinner
on the first evening, Mr Blair told President Bush that he did not want his visit to Camp
David to focus primarily on a resolution to deal with post-conflict Iraq. The question
about what sort of resolution was needed for the administration and reconstruction of
Iraq should be parked.

234. Mr Rycroft sent Mr Blair a UK Treasury paper considering the US Treasury’s
proposal to establish two Trust Funds on 31 March.123

 

Footnotes
121 Paper Treasury, 28 March 2003, ‘International Oversight of Iraqi Reconstruction’ attaching Fax US official to Cunliffe, 26 March 2003, [untitled].
122 Letter Manning to McDonald, 28 March 2003, Prime Minister’s Meeting with President Bush at Camp David: Dinner on 26 March’.
123 Minute Rycroft to Blair, 31 March 2003, ‘Iraq: Reconstruction’ attaching Paper Treasury, 28 March 2003, ‘International Oversight of Iraqi Reconstruction’.

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235. The UK Treasury advised that the main problem with the US proposal was that it
assumed a certain interim governance arrangement for post-conflict Iraq which had not
yet been endorsed internationally. The “best outcome” for the UK would be: “… a UN-authorised Transitional Administration or Iraqi Government, accompanied
by a ‘Consultative Group’ of donors … chaired by the World Bank.
“Initially oil funds might continue to be managed under the Oil-for-Food programme.
Gradually, and as sanctions are lifted, the UN-backed Iraqi authority would take
control of domestic resources under suitable safeguards, e.g. over transparency
of fiscal actions, contracts etc.”

236. Mr Rycroft commented: “We need to get the US back to what they said at Camp David was their policy: returning Iraqi sovereignty to Iraqi people.”

237. Mr Blair spoke to President Bush later that day.124 Mr Blair stated that a clearer
picture was needed of the shape of a post-Saddam Iraq to “sketch out a political and
economic future and dispel the myth that we were out to grab Iraq’s oil”.

238. After the discussion, Mr Blair sent President Bush two Notes, one on
communications and one entitled ‘Reconstruction’.125

239. The Note on reconstruction set out the UK’s response to the two funds proposed
by the US. It stated that using the World Bank and the IMF to administer the funds was
sensible but would run into problems:

• Channelling oil revenues through IFIs rather than straight to the IIA could “easily
be misrepresented”, and the proposal would need to be included in the next
resolution.

• Without UN agreement, the IFIs were unlikely to agree to administer the funds.

• The UK, Japan and others could only unblock assets with UN authority.

• “Our posture should be for the IIA to take on responsibility as soon as possible,
i.e. Iraq for the Iraqis, not us or the UN.”

240. The Note stated that an amended proposal had been submitted by the UK
Treasury, which envisaged some oil revenues going into a gradually declining OFF
programme and the remainder (plus unfrozen assets) going into “the reconstruction
account”, which would be administered jointly by the IMF and World Bank. Funds from
the account would be “directed to the IIA”.

 

Footnotes
124 Letter Cannon to McDonald, 31 March 2003, ‘Iraq: Prime Minister’s Conversation with Bush, 31 March’.
125 Letter Manning to Rice, 31 March 2003, [untitled] attaching Notes [Blair to Bush], [undated], ‘Reconstruction’ and ‘Communications’.

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241. The Note concluded that any proposal would need to be tailored in a way that
could secure UN endorsement.

242. In preparation for the 8 April meeting between President Bush and Mr Blair at
Hillsborough, Mr Rycroft chaired talks between US and UK officials on 4 April.126

243. The IPU provided Mr Rycroft with an annotated version of the agenda for the talks
and a commentary on the latest US draft resolution on 3 April.127

244. The commentary described the UK’s problems with the US draft, including that
it specified that Iraqi oil revenues would be spent at the direction of the Coalition.
That would be unacceptable to the Security Council.

245. The annotated agenda set out the UK position on that issue:
“We believe that, like the wider political process, this management [of oil revenues]
has to be legitimised by the UN; and that it will only be acceptable to the UNSC
[Security Council] if it involves some form of effective international oversight –
about whose details we do not as yet have a firm view – until a representative Iraqi
Government is ready to take over.”

246. The annotated agenda also stated that: “Any decisions concerning the management of Iraq’s oil reserves should be taken either by the UN or by the new Iraqi institutions. The Coalition’s effort should focus on rehabilitating Iraq’s existing infrastructure …”

247. Mr Brenton reported by telegram on 4 April, to clarify US views on post-conflict
Iraq.128 While discussions had been “disproportionately dominated by hard-line DoD
positions”, the reality was that “NSC rule” and it was close to the UK position on most
of the post-conflict agenda. There was considerable common ground between the US
(including DoD) and the UK, including on the need for oil revenues to be “in the hands of
the Iraqis, with international oversight, and spent by the Coalition only for tasks agreed
by the UNSCR [resolution]”.

248. Mr Nicholas Cannon, Mr Blair’s Assistant Private Secretary for Foreign Affairs,
wrote to Mr Simon McDonald, Principal Private Secretary to the Foreign Secretary, on
4 April, reporting the talks between US and UK officials.129

249. Mr Cannon reported that the US delegation had proposed that the bulk of Iraqi
oil revenues should go into a fund under Coalition supervision, “if necessary with a

 

Footnotes
126 Minute Rycroft to Blair, 4 April 2003, ‘Future of Iraq’.
127 Letter Chilcott to Rycroft, 3 April 2003, ‘Iraq: Phase IV: Meeting with US Officials’ attaching Paper IPU, [undated], ‘Comments on US Draft Post Conflict Iraq Resolution’.
128 Telegram 448 Washington to FCO London, 4 April 2003, ‘Iraq: Post Conflict’.
129 Letter Cannon to McDonald, 4 April 2003, ‘Iraq, Post-Conflict Administration: US/UK Talks, 4 March [sic]’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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double‑signature arrangement with the IIA, but initially ORHA only”. US Treasury officials in the US delegation said that whoever controlled oil revenues controlled the direction of reconstruction; it was not acceptable that the UN should handle Iraq’s budget.

250. Mr Cannon did not report any UK response to those arguments.

251. Mr Straw’s office sent Mr Rycroft an IPU brief on 7 April, for Mr Blair to use at the
Hillsborough meeting.130 The IPU advised: “We agree that, as Condi [Dr Rice] said at Camp David, future oil arrangements should be put into the hands of Iraqis, with international oversight, as soon as possible. But it is unrealistic to think that the UN Security Council, which controls Iraq’s oil revenues, will agree to give directional power over them to the Coalition. It will need a new UNSCR to take control over the revenues from the UN and give it to someone else. We don’t think that IIA should have unfettered
power over spending. We need to design a system where the IFIs have sufficient
oversight of the IIA’s activities for us to have confidence. We won’t get UNSCR
agreement to Jay Garner’s signature – in any circs.”

252. Section 9.1 describes the discussions at Hillsborough between Mr Blair and
President Bush on 7 and 8 April, which focused on the role of the UN in post-conflict
Iraq.

253. During the meeting, Dr Rice said that the US and UK needed to divide what
had to be done by the Occupying Power, from what could be left to a future Iraqi
Government.131 On oil, short-term tasks for the Coalition should include: repairing the
oilfields; getting Iraqis back to work; and starting to pump oil. The long-term issues
would include future contracts.

254. Mr Straw said that a UN role would be needed to regularise the sale of Iraqi oil.

255. General Franks issued his “Freedom Message to the Iraqi People” on 16 April.132
The message referred to the Coalition Provisional Authority (CPA).

256. The creation of the CPA, which subsumed ORHA, signalled a major change in
the US approach to Iraq, from a short military occupation to an extended US-led civil
administration.

257. On 24 April, the Ad Hoc Ministerial Group on Iraq Rehabilitation (AHMGIR)
considered an IPU/FCO paper entitled ‘Oil/Energy Policy for Iraq’.133 The paper stated
that it was a “stock-take” which built on previous work by the IPU.134

 

Footnotes
130 Letter Owen to Rycroft, 7 April 2003, ‘Hillsborough: Iraq’ attaching Paper IPU, 6 April 2003, ‘Iraq: Phase IV: Authorising UNSCR’.
131 Letter Rycroft to McDonald, 8 April 2003, ‘Iraq: Prime Minister’s Meeting with Bush, 7-8 April’.
132 Statement Franks, 16 April 2003, ‘Freedom Message to the Iraqi People’.
133 Minutes, 24 April 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
134 Paper IPU, 22 April 2003, ‘Oil/Energy Policy for Iraq’.

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412

258. The IPU/FCO paper reported that the oil price had fallen by US$8 a barrel
since early March, and had stabilised in the “mid-twenties”. Iraq’s oilfields had been
undamaged by the fighting, although a few wells had been sabotaged. Those fires were
now all extinguished. There had been some looting and damage to pipelines and oil
refineries. There was a growing shortage of gas (for power stations), fuel and cooking
gas, particularly in the South.

259. The IPU/FCO also reported that within the Security Council, oil remained a
contentious issue; Council members had different motivations. The UK and US
were keen to get Iraqi oil flowing again as soon as possible “to meet humanitarian/
reconstruction needs”. France and Russia wanted to protect the interests of their
companies that had existing contracts under the OFF programme.

260. The UK was proposing a three-phase approach to dealing with Iraqi oil and the
OFF programme:

• To extend resolution 1472 to 3 June (the end of the current OFF programme
phase), and possibly extend the OFF programme itself beyond 3 June.
If the OFF programme continued “for any length of time”, the UN Secretary-
General would need enhanced powers to sell Iraqi oil and buy the full range of
humanitarian supplies.

• To pass control of Iraqi oil and gas revenues to a “credible interim
administration” once one had been established, subject to certain checks:
“The checks would be those necessary to assure us (the UK) that oil and oil
revenues were protected against major mismanagement, corruption and national
bias, lack of transparency or other unfairness in the awarding of contracts.”

• Those checks would have to be acceptable to the Security Council. They might
comprise oversight of contracts by a representative of the UN Secretary-General
or a committee of IFI representatives. Oversight by the Coalition would not be
politically acceptable or achievable in the Security Council.

• To hand over full control over oil and oil revenues to a democratically elected
Iraqi Government.

261. The IPU/FCO advised that the UK had stressed to the US its legal concerns on
the limits to the authority of Occupying Powers to export oil outside the OFF programme
while sanctions were in place, and to alter Iraqi oil policy or to carry out any structural
reorganisation of the Iraqi oil industry. The US was “well aware” of the UK’s concerns.

262. The UK and the US agreed that all strategic decisions on the development of
the oil industry should be left to a “representative Iraqi government” and that, in the
meantime, all oil business should be handled in as transparent a manner as possible.
The UK and the US also shared “a general concern” to avoid the centralisation of oil
revenues in the hands of a minority, and to help limit their corrosive effect on political life.

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413

263. Introducing the paper at the AHMGIR, an FCO official said that Iraq’s oil
infrastructure was in a better state than had been feared when the conflict began.135
The UK was clear that the OFF programme was the only legal means for exporting Iraqi
oil, “though some in the US wanted to find ways around this”. The UK’s strategy was to
extend the OFF programme, then transfer control of oil revenues to the IIA “with some
international oversight”, and then transfer full control to a democratically elected Iraqi
Government.

264. Ms Hewitt said that UK companies wanted a future Iraqi Government to establish
a “level playing field” for oil industry contracts.

265. The AHMGIR agreed that the UK should:

• encourage Iraqi oil exports to recommence as soon as possible, but only after
an appropriate resolution had been adopted;

• offer UK oil expertise to ORHA and in the medium term to the IIA; and

• leave future decisions on the shape of the Iraqi oil industry and the management
of oil revenues to the new Iraqi Government, while advising on international best
practice.

266. Mr John Bellinger, NSC, sent a US draft of a post-conflict resolution to Sir David
Manning on 28 April.136 It provided for:

• the creation of an Iraqi Development Fund, which would be audited by
independent accountants and whose operations would be “monitored” by the
UN Special Co-ordinator;

• funds in the Iraqi Development Fund to be disbursed “at the direction of the
Coalition Provisional Authority”;

• the resumption of oil sales at the market price; and

• the transfer of unspent OFF programme funds and oil revenues into the Iraqi
Development Fund.

267. Section 9.1 describes negotiations between the UK and US on the draft resolution,
which increasingly focused on the mandate of the UN Special Co-ordinator and the
extension of the OFF programme.

268. Mr Straw, Sir David Manning, Sir Jeremy Greenstock, UK Permanent
Representative to the UN, and FCO officials discussed the draft by video link with
Secretary Powell and Dr Rice and US officials on 30 April.137

 

Footnotes
135 Minutes, 24 April 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
136 Letter Bellinger to Manning, 28 April 2003, [untitled], attaching Paper, [undated], ‘Resolution on Post‑Conflict Iraq’.
137 Letter Cannon to McDonald, 30 April 2003, ‘Iraq/UN: Video-Conference with Condi Rice and Colin Powell, 30 April’.

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269. Sir Jeremy Greenstock said that the US and UK needed to establish who would
have title to Iraqi oil, and who would control expenditure of oil revenues. Dr Rice
responded that the Coalition, as the Occupying Power, was responsible for administering
Iraq. It followed that control over Iraqi finances could not be transferred elsewhere.
US legal advice was that the Coalition could sell Iraqi oil without UN cover if necessary.
She concluded: “The CPA would be the Government until the IIA took over, and so would write the cheques, even if this was dressed up with UN cover, or monitoring, or an
international board.”

270. Mr Straw noted the presentational sensitivities of the Coalition using Iraq’s money.

271. During the meeting, Mr Rycroft and Mr Bellinger were tasked to go through the
US draft in detail and produce a further version for discussion.138

272. Mr Bellinger sent a revised draft to Mr Rycroft later that day. The revised draft
recorded separate UK and US language on who would control disbursement from
the Iraqi Development Fund, and how it would be administered. The UK language
gave control to “the authorities in Iraq, including the Interim Iraqi Administration when
established”, the US language to the “Occupying Powers/CPA”.

273. Mr Straw, Sir David Manning, Sir Jeremy Greenstock and officials discussed the
latest draft resolution by video link with Dr Rice and US officials on 1 May.139

274. On the Iraqi Development Fund, Sir Jeremy said that the lack of some provision for
oversight or disbursement by the IIA would be a major problem for the Security Council.
Dr Rice responded that the Security Council needed to recognise the facts on the
ground; the Coalition was the Occupying Power and would need to be able to manage
disbursement.

275. The record of the video conference did not indicate that any resolution was
reached on the issue.

276. Mr Bellinger sent through a further US draft of a post-conflict resolution on
4 May.140

277. The draft stated that the Iraqi Assistance Fund should be disbursed “at the
direction of the Authority, in consultation with the Iraqi Interim Authority”.141 The Fund
would be audited by independent accountants, and established “with an international
advisory board”.

 

Footnotes
138 Letter Bellinger to Rycroft, 30 April 2003, attaching Paper [draft], [undated], ‘Resolution on Post-Conflict Iraq’.
139 Letter Cannon to McDonald, 1 May 2003, ‘Iraq/UN: Video-Conference with Condi Rice, 1 May’.
140 Letter Bellinger to Rycroft, 4 May 2003, [untitled] attaching Paper, [undated], ‘Resolution on Post‑Conflict Iraq’.
141 The term “the Authority” referred to the authorities of the Occupying Powers.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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278. Mr Brenton spoke to Mr Bellinger and others about the draft the following day, and
highlighted UK concerns on a number of issues including the move from “monitoring” to
“auditing” the Fund.142

279. The next US draft of a post-conflict resolution was sent to Mr Rycroft and Sir David
Manning on 6 May.143 Text relating to the operation of the Iraqi Assistance Fund was
unchanged.

280. Later that day, Mr Straw chaired a video conference with Dr Rice, Secretary
Powell, Sir Jeremy Greenstock and others to discuss the draft.144

281. During the video conference, it was agreed that the draft should include reference
to monitoring, as well as auditing, oil sales.

282. The Annotated Agenda for the 15 May meeting of the AHMGIR stated that initial
discussions on a draft resolution in the Security Council had been as positive as could
be expected.145 Concerns had focused on a need for clarity in three areas:

• the extent of the UN role;

• the political process, in particular the exact nature of the IIA; and

• arrangements for oversight of oil sales and disbursement of oil revenue, as well
as the fate of existing contracts under the OFF programme.

283. The Annotated Agenda also stated that the US wanted the resolution adopted by
22 May, as this was the date by which they wished to start exporting oil to avoid a lack
of storage capacity affecting production and the local supply of gas and petrol.

284. Mr Blair and President Bush spoke on 16 May.146 Action in the UN seemed to be
going well and Mr Blair proposed two areas (a UN “Special Representative” rather than
“Special Co-ordinator” and greater transparency of oil sales) in which the resolution
might be amended if tactically necessary.

285. Resolution 1483 (2003) was adopted on 22 May.147 The resolution:

• lifted all sanctions on Iraq except those related to arms;

• noted the establishment of the Development Fund for Iraq (DFI), which would
be audited by independent public accountants approved by the International
Advisory and Monitoring Board (IAMB);

 

Footnotes
142 Telegram 589 Washington to FCO London, 5 May 2003, ‘Iraq: Draft UNSCR’.
143 Minute Bellinger to Rycroft and Manning, 6 May 2003, ‘Revised Draft: UNSCR’ attaching Paper, [undated], ‘Resolution on Post-Conflict Iraq’.
144 Letter Cannon to McDonald, 6 May 2003, ‘Iraq/UN: Video-Conference with Condi Rice and Colin Powell, 6 May’.
145 Annotated Agenda, 15 May 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
146 Letter Cannon to McDonald, 16 May 2003, ‘Iraq: Prime Minister’s Conversation with Bush, 16 May’.
147 UN, Press Release SC/7765, 22 May 2003, Security Council lifts sanctions on Iraq, approves UN role, calls for appointment of Secretary-General’s Special Representative.

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416

• looked forward to the early meeting of the IAMB, which would include
representatives of the UN Secretary-General, the IMF, the Arab Fund for Social
and Economic Development, and the World Bank;

• noted that disbursements from the DFI would be “at the direction of the Authority,
in consultation with the interim Iraqi administration”;

• underlined that the DFI would be used “in a transparent manner to meet the
humanitarian needs of the Iraqi people, for the economic reconstruction and
repair of Iraq’s infrastructure, for the continued disarmament of Iraq, and for the
costs of Iraqi civilian administration, and for other purposes benefiting the people
of Iraq”;

• decided that all export sales of Iraqi petroleum, petroleum products and natural
gas should made “consistent with prevailing international market best practices”,
and that 95 percent of the revenue should be deposited into the DFI (with five
percent deposited into the UN Compensation Fund for victims of Saddam
Hussein’s 1990 invasion of Kuwait); and

• requested the UN Secretary-General to continue operation of the OFF
programme for up to six months from 22 May.148

286. Mr Straw told a meeting of Cabinet the same day that: “This Security Council Resolution would put the Coalition’s work in Iraq on a firm basis, including for oil sales.”149

287. Hard Lessons recorded that the resolution cleared the way for the resumption of
oil exports.150 The first sale was made on 22 June.

288. Sir Jon Cunliffe told the Inquiry that the UK’s position in the negotiations
over resolution 1483 had been informed by its concern to maintain legitimacy and
accountability as an Occupying Power: “… there was great suspicion that … the war was designed to get hold of Iraqi oil revenues and was being inspired by the US oil industry … we thought it was very important for the perception in the international community that these [oil] resources were controlled transparently and at arm’s length and in a proper way
we could account for them. We thought it would make a huge difference as to
whether we could get other countries to join us in the reconstruction effort … and
we also thought that it was important for the UK generally to ensure they were used
efficiently on the ground in Iraq.151

 

Footnotes
148 UN Security Council Resolution 1483 (2003).
149 Cabinet Conclusions, 22 May 2003.
150 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
151 Public hearing, 9 July 2010, page 38.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
417

“So our view of how this should be managed, accounted for, was different to the US
view and there was a lot of discussion around the drafting of the resolution, and just
how the resources would feed into the CPA and who would have control over them.”

Oil policy under the Coalition Provisional Authority

289. Ambassador Paul Bremer III arrived in Baghdad on 12 May, to lead the CPA.

290. The names ORHA and CPA continued to be used interchangeably in documents
seen by the Inquiry for some time after the creation of the CPA.

291. From late May, Ministers received reports that the CPA was not consulting the UK
on policy issues in the oil sector.

292. The Annotated Agenda for the 22 May meeting of the AHMGIR stated that the US
was driving decisions on the management of the oil sector.152 The Iraqi Ministry of Oil
was “run by” a US-appointed Interim Management Team, headed by an Iraqi official.
That official was “effectively steered by” an Oil Advisory Board (OAB) chaired by an
American (though the majority of Board members were Iraqis). The OAB planned a
strategic review of the oil sector; the UK hoped that the recent arrival in the CPA of a
DTI oil expert would increase its knowledge of CPA plans for the sector.

293. Ms Hewitt’s briefing for the AHMGIR set out the problem more explicitly.153
The UK had had considerable difficulty in getting hold of the OAB’s terms of reference,
and was not therefore able to establish whether it was legally constituted. A UK national
was being sounded out to sit on the OAB. That could bring a different perspective and
help encourage a transparent oil sector policy, but those advantages needed to be
weighed against the legal uncertainties surrounding the OAB and the presentational
issues of a more visible UK role in managing Iraq’s oil.

294. The Annotated Agenda also stated that TPUK’s ability to promote Iraq to UK oil
companies was constrained by “political sensitivities and lack of ground knowledge”.154
UK oil companies would only deal with a “legally acceptable authority” and remained to
be convinced that one was in place: “But most of this will change if there is a new UN resolution,155 and we are reaching the stage where we and UK companies must engage or lose out. We are therefore beginning to encourage UK companies to become more closely involved in the oil sector in the same way as they are in other areas of rehabilitation.”

 

Footnotes
152 Annotated Agenda, 22 May 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
153 Minute Briggs to PS/Mrs Hewitt, 21 May 2003, ‘Sixth Meeting of Ad Hoc Ministerial Group on Iraq Rehabilitation: 22 May 2003’.
154 Annotated Agenda, 22 May 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
155 A reference to resolution 1483 (2003), which was adopted that day.

The Report of the Iraq Inquiry
418

295. The AHMGIR agreed that the DTI should encourage UK oil companies to “develop
strategies towards the Iraqi oil sector and otherwise help the UK take advantage of oil
opportunities”.156

296. A week later, Ministers were informed that the DTI planned a series of meetings
with the major oil companies, “to begin to discuss more general Iraq oil issues
discreetly”.157

297. Oil production was estimated at between 400,000 and 500,000 bpd; the target was
to reach between 2.5m and 2.8m bpd (described as the pre-conflict level) by the end
of 2003.

298. From early June 2003, and throughout the summer, there were signs that security
in both Baghdad and the South was deteriorating (see Section 9.2).

299. A paper on the management of the DFI was submitted to the 5 June meeting of the
AHMGIR (chaired by Mr Straw).158

300. The paper stated that while resolution 1483 made the UK jointly responsible (with
the US) for disbursements from the DFI, it contained little detail on how the DFI should
be managed. The UK needed to settle that issue quickly with the US; spending decisions
could start being made in the next few weeks. The management arrangements needed
to meet the UK’s objectives in terms of transparency and accountability; in particular, the
arrangements needed to meet the commitments in the resolution to use resources in the
DFI “in a transparent manner” and to ensure that oil sales were “made consistent with
international best practice”.

301. The Annotated Agenda for the meeting stated that the CPA had circulated a draft
regulation which gave the US Administration “sole oversight” over DFI spending.159
Such an arrangement would marginalise UK influence and risk presentational problems,
but was not settled US policy. The UK was lobbying in Washington and Baghdad to
amend the draft regulation.

302. On 9 June, Ms Cathy Adams from the Legal Secretariat to the Law Officers
sent a reply to a letter of 21 May from FCO Legal Advisers seeking advice on
resolution 1483.160

303. Ms Adams advised that the resolution clearly imposed joint US/UK responsibility
for disbursements from the DFI, and that it was therefore important to ensure that the

 

Footnotes
156 Minutes, 22 May 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
157 Paper Cabinet Office, 29 May 2003, ‘Iraq: Update for Ministers’.
158 Annotated Agenda, 5 June 2003, Ad Hoc Group on Iraq Rehabilitation meeting, attaching Paper, [undated], ‘Implications of and Modalities for the Development Fund for Iraq’.
159 Annotated Agenda, 5 June 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
160 Letter Adams to Llewellyn, 9 June 2003, ‘Iraq: Effect of Security Council Resolution 1483 on the Authority of the Occupying Powers’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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US Government did not take actions in relation to the DFI which were incompatible with
the resolution. She continued: “The fact that the resolution imposes joint responsibility gives the UK a locus to argue with the US that we should be fully involved in the decision-taking process. Anything less would be legally risky.”

304. The following day, 10 June, the CPA issued a regulation that gave Ambassador
Bremer, as “Administrator of the CPA”, authority to oversee and control the
establishment, administration and use of the DFI and to direct disbursements from the
DFI “for those purposes he determines to be for the benefit of the Iraqi people”.161

305. The regulation also established a Program Review Board (PRB) to develop funding
plans and make recommendations to Ambassador Bremer on expenditures from the
DFI, “in consultation with the Iraqi interim administration, when established”.

306. The CPA issued a further regulation on 18 June, detailing the operation of the
PRB.162 Voting members of the PRB included representatives of the Iraqi Ministry of
Finance and the UK. Non-voting members included the representatives of the IMF,
World Bank, UN Special Representative of the Secretary-General (SRSG), and IAMB.

307. An IPU update on reconstruction which was sent to No.10 on 20 June advised
that the DFI regulations “met some, but not all of our key requirements”.163

308. The UK’s efforts to scrutinise disbursements from the DFI are considered later in
this Section.

309. Mr Andy Bearpark, a UK national, arrived in Baghdad on 16 June to take up the
post of CPA Director of Operations.164

310. Mr Bearpark told the Inquiry that, shortly after arriving in Baghdad, Ambassador
Bremer asked him to take on responsibility for all the Iraqi infrastructure Ministries with
the exception of the Ministry of Oil.165 At that point, his title had changed to Director of
Operations and Infrastructure.

311. The Inquiry asked Mr Bearpark why he had been excluded from the oil sector.166
He responded: “It was never, ever said to me officially – and it was certainly never, ever put in writing, but every member of my staff … said that it was perfectly obvious that

 

Footnotes
161 Coalition Provisional Authority, Regulation No.2, 10 June 2003, Development Fund for Iraq.
162 Coalition Provisional Authority, Regulation No.3, 18 June 2003, Program Review Board.
163 Letter Owen to Rycroft, 20 June 2003, ‘Iraq: Reconstruction Priorities’ attaching Paper IPU, 20 June 2003, ‘Iraq Reconstruction: 30 Day Priorities, 5 June 2003’.
164 Paper Cabinet Office, 18 June 2003, ‘Update for Ministers’.
165 Public hearing, 6 July 2012, page 5.
166 Public hearing, 6 July 2012, page 71.

The Report of the Iraq Inquiry
420

I couldn’t be put in charge of oil because I really wasn’t American … [and] oil would
remain an American interest.
“So it was a very specific instruction from Bremer that I was not in charge of the Oil
Ministry.”

312. In his evidence to the Inquiry, Sir Jeremy Greenstock identified budgeting and oil
as the two clearest examples of issues on which the UK was not consulted by the CPA:
“We did not see anything whatsoever in the oil sector; they [the CPA] kept that very
closely American, because they wanted to run the oil sector.”167

313. The Inquiry asked Sir Jeremy why the CPA sought to retain control of the oil sector.
He responded: “I think they [the CPA] felt that they understood the oil sector. They brought in American oil executives to advise them on this and to run that part of the CPA.
They knew that management of the oil sector was going to be vital for the supply
of finance into the Iraqi system and they wanted to be responsible for it themselves.
“There might have been a minor angle of thinking that they wanted access to
the contracts that might come out of the oil sector and the Iraqi economy at a
subsequent period, but the Americans were doing 95 percent of the work and putting
in more than 95 percent of the money. I wouldn’t like to say that they were not
justified in taking that approach.”168

314. Sir Jeremy continued: “… the Americans had no intention to take over and own the oil sector. That was always a canard in public criticism terms of what the invasion was about. It was not about oil. I think they just felt it was such an important area that they would run it themselves.”

315. Section 9.2 describes the Government’s broader concerns about the CPA’s failure
to consult with the UK, as a joint Occupying Power.

316. The Annotated Agenda for the 12 June meeting of the AHMGIR stated that the UK
Government had put forward two UK candidates to sit on the OAB.169 It was likely that
a UK candidate would be chosen in the next few weeks.

317. The Annotated Agenda for the 3 July meeting of the AHMGIR stated that the OAB
would not be constituted, having been replaced by a CPA oil sector team.170 The DTI

 

Footnotes
167 Public hearing, 15 December 2009, page 102.
168 Public hearing, 15 December 2009, pages 103-4.
169 Annotated Agenda, 12 June 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
170 Annotated Agenda, 3 July 2003, Ad Hoc Group on Iraq Rehabilitation meeting.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
421

was exploring the possibility of seconding a senior private sector expert to that team,
who would be funded by the UK and act as the UK’s representative on the team.

318. Ms Hewitt’s briefing for the meeting stated that the US had decided that the OAB,
which was to “advise the Oil Ministry”, would not be constituted due to the level of
technical skill within the Ministry and Iraqi suspicions over the OAB’s role.171 The CPA
oil sector team would be “more operational”. It currently consisted of four Americans and
one Australian; the US were “sounding out” one UK oil expert.

319. The CPA’s ‘Vision for Iraq’, which had been drafted by the CPA’s Office of Strategic
Planning, was agreed by senior Pentagon officials on 18 July.172 The underpinning
implementation plan, ‘Achieving the Vision to Restore Full Sovereignty to the Iraqi
People’, was circulated to members of Congress on 23 July.173

320. Neither document considered the development of the oil sector in any detail.
‘Achieving the Vision’ defined a large number of objectives, including:

• establish and train a Facilities Protection Service;

• remove subsidies, including on oil; and

• design an oil trust fund, to be operational by February 2004.174 Work by the CPA
to develop the Iraq Heritage Trust is described later in this Section.

321. There was no objective for increasing oil production.

322. On 24 July, representatives from the Iraqi Ministry of Oil, the CPA, and USACE
approved the Iraq Oil Infrastructure Restoration Plan, which aimed to restore oil
infrastructure to its pre-war production capacity.175 The authors of the Plan described
it as the result of a joint, collective effort by the Ministry of Oil, USACE, KBR staff, the
Iraq Reconstruction and Development Council, and the CPA. The key event within
the planning process was a workshop from 6 to 9 July, which was attended by over
100 participants.

323. The attendance list for the workshop did not include any UK representatives.

324. The Inquiry has seen no indications that the UK Government was aware of that
planning process.

325. USACE issued the Plan to contractors on 1 August.

 

Footnotes
171 Minute DTI [junior official] to PS/Mrs Hewitt, 2 July 2003, ‘Next Meeting of the Ad Hoc Ministerial Group on Iraq Rehabilitation: Thursday 3 July 2003’.
172 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
173 Bremer LP III & McConnell M. My Year in Iraq: The Struggle to Build a Future of Hope. Threshold, 2006.
174 Paper Coalition Provisional Authority, 21 July 2003, ‘Achieving the Vision to Restore Full Sovereignty to the Iraqi People’.
175 Tappan SE. Shock and Awe in Fort Worth. Pourquoi Press, 2004.

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326. Ambassador Bremer signed CPA Order No.39 on 19 September.176 The Order
allowed for 100 percent foreign participation in business entities in Iraq: “… except that foreign direct and indirect ownership of the natural resources sector involving primary extraction and initial processing remains prohibited.”

Study on the Political Economy of Oil

In late July 2003, the London Middle East Institute produced a study on the political
economy of oil and democracy-building in Iraq, which had been commissioned by the
Department for International Development (DFID).177
A junior DFID official circulated the study to DFID and Treasury officials only on 31 July.
He advised that the study evaluated a range of options for the allocation of oil revenues
and the ownership of the oil industry. A central message from the study was that any
arrangement would have long-term political, economic and social implications. There were no “risk-free” options.
The official highlighted a number of the study’s conclusions, including:

• a “cautious, incremental” approach to unbundling upstream production and
downstream distribution systems to create a deconcentrated ownership structure,
which could eventually be incorporated into a graduated privatisation process,
was preferable to “rapid privatisation”; and

• while production-sharing agreements (PSAs) might be economically attractive in
terms of mobilising capital and technology, they were unlikely to have “positive
distributional benefits” and might constrain future political development.

327. By August, the US was focusing its efforts on increasing oil production. The UK
believed there was also a need to develop sector policy and strategy. The US rebuffed
UK attempts to provide an oil policy expert.

328. The DTI provided an update on the oil sector to the 7 August meeting of the
AHMGIR.178

329. The DTI reported that oil production, hampered mainly by sabotage and power
shortages, was between 1m and 1.2m bpd – still less than half pre-conflict levels.
Despite significant imports, refined petroleum products, gasoline, petrol and gas for
cooking and heating remained in short supply.

330. The CPA Oil Team was focused on restoring oil production to pre-conflict levels,
leaving all other issues to the Iraqi authorities. The UK believed that there was a need

 

Footnotes
176 Coalition Provisional Authority, Order No.39, 19 September 2003, Foreign Investment.
177 Minute DFID [junior official] to DFID [junior official], 31 July 2003, ‘Study on the Political Economy of Oil and Democracy Building in Iraq’ attaching Report, 24 July 2003, ‘The Political Economy of Oil and Democracy Building in Iraq’.
178 Annotated Agenda, 7 August 2003, Ad Hoc Group on Iraq Rehabilitation meeting attaching Paper DTI, 6 August 2003, ‘Iraqi Oil Sector Update 07 August 03’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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to develop “longer-term strategies and options”; a well-run oil industry was essential
to Iraq’s recovery and thus to the Coalition’s overall strategy.

331. The UK had selected Mr Terry Adams to join the CPA Oil Team as a technical
expert and Mr Ian Fletcher, Sir Andrew Turnbull’s Principal Private Secretary,179 to join
the CPA Oil Team as an oil policy expert. One of Mr Fletcher’s main tasks would be to
help develop those longer-term strategies. The DTI reported that the CPA had welcomed
Mr Adams’ appointment, but had been “less than enthusiastic” about Mr Fletcher’s,
possibly because of its view that longer-term issues should be left to the Iraqi authorities.

332. The Annotated Agenda for the AHMGIR reported that the current Iraqi Ministry
of Oil target was to increase oil production to pre-conflict levels by April 2004; that
appeared optimistic.180 Uncertainties over oil production levels and the oil price meant
that oil revenues for 2004 remained unpredictable.

333. The Annotated Agenda stated that: “Our major concerns are that the CPA and Iraqi experts are focused on revising production in the short-term and giving insufficient consideration to long-term strategy …
“We are therefore seeking to engage the US Administration and CPA leadership
over oil sector issues in order to gain influence over decisions and policy. We are
inserting two senior people into the CPA Oil Team …”

334. The UK and the US had agreed to establish a “senior bilateral official-level working
group” on “long-term oil sector issues”.

335. The UK was also beginning a debate with the Iraqi Ministry of Oil on ways to
address its skills gap.

336. Mr Bearpark commented in a meeting with DFID officials on 11 August that the UK
did not have much hope of getting senior people into the oil sector, which was “sewn up
by the US”.181 The record of that meeting was copied only within DFID.

337. On 10 and 11 August, Basra experienced severe rioting.

 

Footnotes
179 Minute DTI [junior official] to PS/Mrs Hewitt, 23 July 2003, ‘Next Meeting of the Ad Hoc Ministerial Group on Iraq’.
180 Annotated Agenda, 7 August 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
181 Minute DFID [junior official] to PPS/Baroness Amos, 12 August 2003, ‘Iraq: Meeting with CPA Director of Operations’.

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424

338. Mr David Richmond, the Prime Minister’s Acting Special Representative on Iraq,182
reported to the FCO: “The immediate cause of the disturbances is clear. Supplies of petrol and diesel in Basra’s service stations ran out on 9 August … This was combined with a
major blackout in Basra … There is no doubt that political elements … exploited
the situation. There is also evidence of pre-planning … but without the fuel and
electricity crisis, agitators would not have found much purchase.”183

339. Section 10.1 describes the UK’s response, including the development of the
US$127m Essential Services Plan, which aimed to improve fuel, power and water
infrastructure in Basra, and the redeployment of UK troops to secure fuel facilities.

340. Mr Adams deployed to Iraq in mid-September.184

The Iraq Heritage Trust

In early September, the Coalition Provisional Authority (CPA) prepared a draft Order
expressing the intent to establish an “Iraq Heritage Trust” (IHT), to hold Iraq’s oil and gas
export revenues.185 The UK Government assessed that the draft Order clearly provided
for the IHT to continue to operate after the CPA had transferred power to a sovereign
Iraqi Government.
The UK Government argued that the decision on whether to operate an oil trust fund
should be left to a future Iraqi Government. The priority was to rebuild capacity and embed best practice in the Iraqi Ministries of Finance and Oil; the CPA was working to establish transparency and good governance in the oil sector, with “strong UK input”.
The proposal was “put on hold” after opposition from Washington and London and within
the CPA.

341. From October, the DTI adopted a new approach to pursuing UK objectives in the
oil sector, focused on engaging directly with Iraqi interlocutors rather than with the CPA.

342. Ms Joan MacNaughton, DTI Director General, Energy, wrote to Mr Bowen on
3 October, seeking a discussion on a new framework to guide the DTI’s engagement
on Iraqi oil issues.186

343. Ms MacNaughton advised that communication with the US and CPA on oil issues
remained difficult. Meanwhile, the DTI was receiving increasing numbers of requests for

 

Footnotes
182 Mr Richmond was the Acting Special Representative from July to September 2003, when Sir Jeremy Greenstock arrived in Iraq to take up that post. Mr Richmond became the Deputy Special Representative.
183 Telegram 114 IraqRep to FCO London, 12 August 2003, ‘Situation in Basra’.
184 Minute Adams to Briggs, 15 September 2003, [untitled].
185 Email Treasury [junior official] to Lindsey, 23 January 2004, ‘Iraq: John Snow and Oil Trust Funds’ attaching Paper Treasury, [undated], ‘Iraq Oil Trust Fund’.
186 Letter MacNaughton to Bowen, 3 October 2003, ‘UK Engagement on Iraqi Oil Issues’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
425

information and advice from UK businesses and there was an opportunity to develop
the DTI’s contacts with the Iraqi oil industry.

344. There were a number of issues to which the DTI needed to respond, including
a “worrying” proposal for eight Iraqi citizens and eight “foreigners” to sit on the Iraq
National Oil Company (INOC) Executive Board.

345. Ms MacNaughton proposed five “guiding principles” for the DTI’s engagement
in the oil sector. It should:

• provide objective information and “informed opinion” in response to Iraqi
requests, but not recommend policies;

• where necessary, work directly and build relationships with the Iraqi
management of INOC and the Ministry of Oil;

• continue to seek to increase its sight of US policy and process, including by
continuing to try to deploy an oil policy expert to the CPA; although Mr Fletcher’s
deployment had been “rebuffed repeatedly”, it should remain a priority for the
UK;

• ask the British Embassy Washington to redouble its efforts to engage with the
US; and

• “in extremis”, instruct Sir Jeremy Greenstock (the Prime Minister’s Special
Representative in Iraq) to intervene with the US if CPA policy developments
“contravene our overarching aim of an Iraqi oil industry which is accountable,
transparent, effective and profitable and entirely in the hands of the Iraqis as
soon as this is legally and operationally viable”.

346. In a separate background briefing on oil issues, the DTI characterised this new
approach as: “… dealing directly with the Iraqis … in our belief that the CPA is a transient body and it is the Iraqis who will be running the business in the long run”.187

347. During a video conference with President Bush, Vice President Cheney and
Dr Rice on 7 October, Mr Blair said that the UK would like to work more closely with the
US in the oil sector.188

348. Ms MacNaughton’s framework was discussed by the Iraq Senior Officials Group
(ISOG) later that day.189 A DTI official said that the key issues to resolve were the
composition of INOC’s Executive Board and the distribution of oil revenues. The lack
of a long-term strategy for the oil sector remained a concern. To influence the US, the

 

Footnotes
187 Paper DTI, 30 October 2003, ‘Background Brief on Iraqi Oil Issues’.
188 Letter Cannon to Adams, 7 October 2003, ‘Iraq: Prime Minster’s Video-Conference with President Bush: 7 October 2003’.
189 Minutes, 7 October 2003, Iraq Senior Officials Group meeting.

The Report of the Iraq Inquiry
426

UK needed better access to policy in the CPA (US officials in Washington were “equally
blind”). Mr Blair’s exchange with President Bush might help.

349. ISOG agreed that the DTI should proceed on the basis of principles proposed
by Ms MacNaughton. It also agreed that the UK should lobby again for Mr Fletcher’s
secondment to the CPA Oil Team (which the CPA had blocked so far).

350. The Cabinet Office issued the final version of the UK Iraq Strategy (the UK’s first
cross-Whitehall strategy for Iraq) to members of the AHMGIR on 8 October.190

351. The Strategy was set at a high level, was only broadly consistent with the CPA’s
strategy, and was extremely ambitious. Section 9.2 describes the development of the
Strategy, and Section 10.1 the elements relating to reconstruction.

352. The Strategy stated that the US had far greater resources than the UK, that UK
influence over US policy was limited and the UK’s approach would be “vulnerable to
shifts in US thinking”.

353. The Strategy stated that “to help planning”, Iraq’s recovery should be considered
in three phases: stabilisation, to December 2003; recovery, to December 2004; and
normalisation, from January 2005. The Strategy defined “UK objectives” for each phase
in relation to security, the political process, and reconstruction.

354. The Strategy included UK objectives for oil production:

• In the stabilisation phase (to December 2003), Iraq would reach pre-conflict
levels of “development and order”. Oil production would reach 80 percent of
pre‑conflict levels (2m bpd against 2.5m bpd in the pre-conflict period).

• In the recovery phase, to December 2004, Iraq would exceed pre-conflict levels
of development and order. Oil production would reach 3m bpd, and oil and other
natural resources would be “managed sustainably for the long-term”.

• In the normalisation phase, from January 2005, Iraq would be largely
self‑supporting. The Iraqi authorities would be in full control of oil production,
and operating in a transparent manner.

355. The Strategy did not specify how those oil production targets had been defined, or
the UK’s role in achieving them.

356. The Strategy stated that the UK would continue to be active in a number of areas
but would, as Ministers had directed, focus its engagement on economic management,
security sector reform and oil.

357. The main source of funding for reconstruction would be the DFI. It had provided
US$1.2bn towards the 2003 Iraqi budget and was forecast to provide US$13bn in 2004.

 

Footnotes
190 Minute Dodd to Sheinwald, 8 October 2003, ‘UK Iraq Strategy’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
427

358. TPUK provided an update for Mr Blair on commercial issues on 10 October.191
The update is described in more detail later in this Section.

359. TPUK advised that the UK’s strategy was: “… to position UK firms … through the provision of information about contracts, procurement issues, etc, and to press the US authorities (and the CPA) to ensure a level playing field on which UK companies can compete.”

360. TPUK advised that the US had made it clear that while they welcomed the
participation of UK companies, there was no “special deal”.

361. The TPUK paper considered oil and gas contracts separately from other
reconstruction contracts. TPUK advised that oil and gas contracts were let by the DoD,
whose procedures were “opaque” and not as open to non-US companies as other
US‑funded contracts.

362. TPUK reported that the DTI’s efforts to understand and influence the CPA’s policy
on oil and gas had been “consistently unsuccessful” until Mr Adams’ arrival in the CPA
Oil Team. That had improved the DTI’s understanding to some extent, although they
believed that Mr Adams’ access to information and decision-making meetings had been
restricted by the CPA.

363. The Annotated Agenda for the 16 October meeting of the AHMGIR stated that the
CPA Oil Team exercised a high degree of control over the Iraqi Ministry of Oil and INOC,
and: “… behaved with a degree of secrecy towards the US Administration and Coalition
partners, including the UK; the senior UK oil expert in Baghdad [Mr Adams] is
routinely excluded from some meetings.”192

364. In contrast, the UK was building good relationships with senior Iraqi managers in
the Ministry of Oil and INOC.

365. The main issue confronting the Iraqi oil industry was restructuring. The CPA’s plan
was for the INOC Executive Board to include eight Iraqi nationals and eight non-Iraqi
nationals. The UK believed that non-Iraqi nationals should hold only non-executive or
consultancy roles.

366. The AHMGIR agreed that the UK should press for greater access in Washington
and Baghdad, and for INOC to be controlled by Iraqis and funded in a transparent
manner.193

 

Footnotes
191 Letter Zimmer to Rycroft, 10 October 2003, ‘Iraq: Update on Commercial Issues’ attaching Paper TPUK, 10 October 2003, ‘Iraq: Update on Commercial Issues’.
192 Annotated Agenda, 14 October 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
193 Minutes, 16 October 2003, Ad Hoc Group on Iraq Rehabilitation meeting.

The Report of the Iraq Inquiry
428

367. At the 17 October meeting of ISOG, Sir Jeremy Greenstock commented that the
DTI had intervened too early with the US and CPA on oil strategy.194 The CPA Oil Team’s
focus was on reviving production.

368. The 21 November meeting of ISOG was advised that Mr David Richmond, the
Prime Minister’s Deputy Special Representative on Iraq, had “again tried to sell a UK oil
policy secondee” to the US, to replace Mr Adams on the CPA Oil Team.195 He had not
been successful.

369. ISOG agreed that the UK should now “abandon this initiative”. ISOG asked the DTI
to consider what more it could do to foster long-term relations with the Iraqi oil industry,
given the CPA’s planned dissolution in summer 2004.

370. The IAMB was formally established on 24 October.196 It would not hold its first
meeting until early December.197

371. On 6 November, the US Congress approved the CPA’s request for additional funds,
allocating US$18.4bn to the Iraq Relief and Reconstruction Fund (IRRF2).198 The funds
were available for two years. Of that, US$1.7bn was allocated for oil infrastructure.199

372. On 15 November, the Iraqi Governing Council unveiled a timetable for the transfer
of sovereignty to a transitional administration (‘the transition’) by 30 June 2004, at which
point the CPA would dissolve.200

373. The OFF programme closed on 21 November, in line with the terms of
resolution 1483. The AHMGIR was advised that responsibility for remaining activity
had passed to the CPA and the Iraqi Ministry of Trade.201 It was not expected that there
would be a threat to food supply.

374. UK Trade and Investment (UKTI), in association with the Iraqi Ministry of Oil and
other partners, hosted a conference in London in December 2003 to examine the skills
development needs in the oil and gas sector in Iraq, and to recommend a series of
initiatives to address those needs.202

375. A UK-Iraq Joint Board was established in January 2004 to carry forward the
conference’s recommendations, and more generally to help support the development
of the oil and gas sector in Iraq.

 

Footnotes
194 Minutes, 17 October 2003, Iraq Senior Officials Group meeting.
195 Minutes, 21 November 2003, Iraq Senior Officials Group meeting.
196 IAMB, Press Release, 24 October 2003, Establishment of International Advisory and Monitoring Board.
197 Briefing Treasury, [undated], ‘Meeting with Gary Edson, NSC – Thursday 5th February [2004]’.
198 Emergency Wartime Supplemental Appropriations Act, 2003.
199 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
200 Minute Figgures to CDS, 16 November 2003, ‘SBMR(IRAQ) Report 047 of 16 November 2003’.
201 Annotated Agenda, 27 November 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
202 Briefing UKTI, [undated], ‘UK-Iraq Joint Board’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
429

376. The 6 January 2004 meeting of ISOG was advised that a forthcoming presentation
by the Iraqi Minister for Oil to the Iraqi Governing Council on the future of the oil sector
might not give due weight to “good governance issues”.203 The UK would need to
consider whether it needed to intervene; poor governance would delay investment in the
oil sector and be a breach of resolution 1483.

377. Mr Neil Hirst, Head of the DTI’s Energy Markets Unit, wrote to the Cabinet Office
the following day to set out the issue in more detail.204 He advised that how the oil sector
was handled would have major implications for the future prosperity and stability of
Iraq. The UK Government had launched a major international initiative – the Extractive
Industries Transparency Initiative (EITI), led by DFID – to achieve transparency of
natural resource accounting in the developing world. The principle of transparency of
accounting was also set down in resolution 1483.

378. Mr Hirst identified two key principles that needed to be established:

• a separation of powers between the Iraqi Government as owner and regulator
of energy resources, and the operating company (probably, at least initially,
nationally owned) which developed those resources; and

• full transparency of oil accounts, payments and budgets.

379. It was unclear to what extent the US would be prepared to exert their influence to
help achieve good governance in the oil sector, particularly in the light of their lukewarm
response to the EITI.

380. Section 10.1 describes the development of DFID’s Interim Country Assistance Plan
(I-CAP) for Iraq in December 2003 and January 2004. The I-CAP set priorities for DFID’s
work in Iraq.

381. The I-CAP was agreed at the 22 January 2004 meeting of the AHMGIR.205

382. Before the meeting, a DFID official advised Mr Hilary Benn, the International
Development Secretary, that as a result of consultation within Whitehall, DFID had
agreed to engage in oil sector governance to help ensure transparency in the use of
oil revenues.206

383. The I-CAP defined 10 priorities for 2004, including “establishing transparent
systems to ensure that oil revenues are spent for the benefit of all Iraqi people”.207

384. Ms Hewitt wrote to Mr Straw, copied to Mr Blair and members of the AHMGIR,
on 16 January seeking agreement that the UK should give a high priority, in the period

 

Footnotes
203 Minutes, 6 January 2004, Iraq Senior Officials Group meeting.
204 Letter Hirst to Fergusson, 7 January 2004, ‘Iraq Oil Industry Governance’.
205 Minute Dodd to Buck, 21 January 2004, ‘Iraq: Senior Officials Group’.
206 Minute Drummond to Malik, 21 January 2004, ‘Iraq: Ministerial’.
207 Department for International Development, Iraq: Interim Country Assistance Plan, February 2004.

The Report of the Iraq Inquiry
430

leading up to the transition, to working with the US to establish principles of good
governance in the oil sector.208

385. Ms Hewitt reiterated that decisions on the development of Iraq’s oil resources
would be for the Iraqi people. But that was entirely compatible with trying to establish
principles of good governance before the transition.

386. Mr Adams had played an important role in getting good governance onto the
CPA’s agenda. A study commissioned by the CPA on the modernisation of the oil
industry had identified a number of key governance principles, including:

• properly defined and distinct roles for a national oil company, the Ministry of Oil,
and the Iraqi Government;

• the national oil company to be run on commercial lines with transparent
accounting and auditing; and

• anti-corruption policies.

387. After “considerable effort” by the UK, the US had agreed on the need to establish
those key governance principles.

388. Ms Hewitt also reported Sir Jeremy Greenstock’s advice: that making progress
would not be easy “given the lack of a real constituency for good governance amongst
senior Iraqi figures”.

389. Mr Straw replied on 29 January, agreeing that the UK should give a high priority to
establishing the principles of good governance in the oil sector before the transition.209

390. As the end of Occupation approached, the UK considered how to ensure that oil
revenues would not be mismanaged under an Iraqi Government. Section 10.1 describes
UK planning for the transition.

391. The Annotated Agenda for the 1 March meeting of the AHMGIR advised that
a modified version of the DFI should be retained after the transition, in order to
“ensure accountability and transparency”.210 Otherwise, there was a substantial risk of
mismanagement of oil revenues. The arrangement could also ensure that Iraqi assets
remained immune from claims.

392. The Annotated Agenda reported that the DFI currently held US$8.8bn, and paid
for 95 percent of the Iraqi budget. In addition, “substantial DFI funds had been spent
off‑budget on the approval of the CPA with intermittent Iraqi representation”.

393. The Annotated Agenda did not provide any further details of the “off-budget”
disbursement of DFI funds.

 

Footnotes
208 Letter Hewitt to Straw, 16 January 2004, ‘Governance in the Oil Sector’.
209 Letter Straw to Hewitt, 29 January 2004, ‘Governance in the Oil Sector’.
210 Annotated Agenda, 1 March 2004, Ad Hoc Group on Iraq Rehabilitation meeting.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
431

394. The Annotated Agenda reported that the Treasury proposed:

• a single external account for Iraqi oil and other revenue, managed by the
Iraqi Minister of Finance reporting to a Board of Ministers, operating “within
a framework established by a future UNSCR [resolution] which ensures
transparency and accountability”;

• disbursements solely for the purpose of financing the Iraqi budget; and

• continuing external audit by the IAMB, reporting to the Board of Ministers.

395. Such an arrangement might be seen in Iraq as a constraint on sovereignty, but
conversely many Iraqis might welcome arrangements which enhanced transparency
and restricted the ability of transitional Ministers to mismanage oil revenues. The US
supported the idea of a modified DFI.

396. The AHMGIR agreed that the UK should press for the establishment of transparent
and accountable arrangements for the management of oil and other Iraqi revenues
through the transition period.211

397. Sir Jon Cunliffe told the Inquiry that while the US and the CPA were “very resistant
to external monitoring and external accountability” undertaken by the IAMB: “When the Iraqi Government itself arrived, I think both Occupying Powers decided there was joint interest in having transparency, accountability and control [over oil revenues] and, indeed, I think that the US were with us in pushing for the interim Iraqi Government to take on the DFI with all of its monitoring machinery.”212

398. The 12 March meeting of the Iraq Strategy Group was advised that rising oil prices
meant that Iraq could fund its “recurrent costs”.213

399. The British Embassy Baghdad reported on 14 March that CPA proposals to
improve governance and accounting standards within the Ministry of Oil “faced
resistance”.214 It might be difficult to overcome “vested interests” inside and beyond
the Ministry in the short time left before transition.

400. Mr Benn called on Ambassador Bremer in Baghdad on 22 March.215 Mr Benn
reported to Mr Blair that he had encouraged Ambassador Bremer to promote
transparency in the use of oil revenues after transition.

401. Mr Jim Drummond, DFID Director Iraq, who had accompanied Mr Benn on the
visit, reported to DFID colleagues only that Mr Benn and Ambassador Bremer had
agreed on the principle of transparency, and that Ambassador Bremer had said that

 

Footnotes
211 Minutes, 1 March 2004, Ad Hoc Group on Iraq Rehabilitation meeting.
212 Public hearing, 9 July 2010, pages 38 and 39.
213 Minutes, 12 March 2004, Iraq Strategy Group meeting.
214 Telegram 88 IraqRep to FCO London, 14 March 2004, ‘Iraq Economy: Update’.
215 Letter Benn to Blair, 24 March 2004, [untitled].

The Report of the Iraq Inquiry
432

he did not see how, politically, the Coalition could retain control over Iraq’s oil revenues
after transition.216

402. Section 9.2 describes the further deterioration in the security situation in Iraq from
late March. Attacks on oil infrastructure increased.

403. Mr Rycroft sent 19 “unvarnished accounts” of the situation in Iraq, including
one from Mr Dominic Asquith, Deputy Chief Commissioner in the CPA, on oil sector
development, to Mr Blair on 23 April.217

404. Mr Asquith reported that oil production was rising ahead of schedule, but future
capacity was threatened by an early, mistaken focus on repair rather than modernisation
and development.218 Oil production had reached an average of 2.3m bpd by the end of
2003, against a target of 2.0m bpd.

405. Mr Asquith also reported that discussions between the Ministry of Oil and the CPA
on raising gasoline prices continued, with the Ministry avoiding any commitment on
a politically contentious issue. Discussions on restructuring the oil industry “remained
mired in politics”. There were persistent but unconfirmed allegations of corruption in
both the State Oil and Marketing Organisation and the Ministry. Ambassador Bremer
had recently appointed a new Inspector General to the Ministry, but after transition his
capacity to monitor financial flows would be tested. International oil companies were
watching carefully, but wanted to see greater security and a stable regulatory and
investment environment before investing.

406. On 24 May, Mr Bob Morgan, an adviser to the Iraqi Ministry of Oil employed by the
FCO, and his bodyguard Mr Mark Carman were killed in Baghdad.219

407. The Security Council adopted resolution 1546 (2004) on 8 June.220 Section 9.2
describes the negotiation and content of the resolution. The resolution:

• endorsed the formation of a sovereign Interim Government of Iraq which would
assume full responsibility and authority by 30 June 2004 for governing Iraq,
“while refraining from taking any actions affecting Iraq’s destiny beyond the
limited interim period until an elected Transitional Government of Iraq assumes
office …”

• reaffirmed the right of the Iraqi people freely to determine their own political
future and to exercise full authority and control over their financial and natural
resources; and

 

Footnotes
216 Minute Drummond to DFID [junior official], 24 March 2004, ‘Iraq Visit’.
217 Minute Rycroft to Blair, 23 April 2004, ‘15 Reports on Iraq’.
218 Telegram 183 IraqRep to FCO London, 21 April 2004, ‘Iraq: Oil Sector Development’.
219 Minutes, 25 May 2004, Iraq Senior Officials Group meeting; BBC News, 26 May 2004, Oil Expert Killed in Iraq ‘felt safe’.
220 UN Security Council resolution 1546 (2004).

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
433

• provided for the continued operation of the DFI and the IAMB. DFI funds would
be disbursed in a transparent and equitable manner and through the Iraqi
budget, solely at the discretion of the Iraqi Government. Funds held within the
DFI would continue to be immune from attachment.

408. A junior Treasury official advised Mr Brown that the explicit reference to
transparency and the requirement for DFI funds to be disbursed through the Iraqi budget
had been inserted at the UK’s request.221

409. The British Embassy Washington reported to the IPU on 23 June on US plans in
the oil sector after 30 June.222

410. Senior US interlocutors had told the Embassy that all 12 members of the CPA Oil
Team were expected to leave Iraq by the end of August. They would be succeeded by
a number of oil sector “liaison officers” within the US Iraq Reconstruction Management
Office (IRMO). The liaison officers “would obviously have less influence and leverage”
than the CPA Oil Team. Mr Thamir Ghadban, Iraqi Minister of Oil, “did not need
telling what to do, and would want to distance himself from the US advisers”. The US
understood that Mr Ghadban intended to set up his own Advisory Group.

411. The Embassy assessed that the US remained focused on short-term production
issues, rather than “strategic industry restructuring and governance”.

412. The Embassy also reported that policy responsibility for the oil sector within the US
Administration would transfer from the DoD to the State Department on 30 June.

413. Hard Lessons recorded that, at the end June 2004, Iraq was producing more than
2m bpd of oil, still well below pre-war production of 2.58m bpd.223
Scrutiny of disbursements from the Development Fund for
Iraq (DFI) by the UK Resolution 1483, which was adopted on 22 May 2003, provided that disbursements from the Development Fund for Iraq (DFI) would be “at the direction of the Authority [the US and UK as Occupying Powers], in consultation with the interim Iraqi administration”.224 By that time, the US was committed to a protracted Occupation and it was not clear when an interim Iraqi administration would be established.

 

Footnotes
221 Minute Treasury [junior official] to Chancellor, 10 June 2004, ‘Iraq – UNSCR 1546 and Financial Management Law’.
222 Letter FCO [junior official] to IPU [junior official], 23 June 2004, ‘Iraq Oil: US Plans post 30 June’.
223 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
224 UNSCR 1483 (2003).

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434

The US General Accountability Office (GAO) estimated that almost US$21bn was
deposited into the DFI during the Coalition Provisional Authority (CPA) period, of which
US$14bn was spent.225
On 10 June 2003, the CPA issued a regulation that gave Ambassador Paul Bremer,
as “Administrator of the CPA”, authority to oversee and control the establishment,
administration and use of the DFI and to direct disbursements from the DFI “for those
purposes he determines to be for the benefit of the Iraqi people”.226
The regulation also established a Program Review Board (PRB) to develop funding
plans and make recommendations to Ambassador Bremer on expenditures from the DFI,
“in consultation with the Iraqi interim administration, when established”.
The CPA issued a further regulation on 18 June, detailing the operation of the PRB.227
Voting members of the PRB included representatives of the Iraqi Ministry of Finance and
the UK.
The Inquiry has seen the records of 60 meetings of the PRB (held between 7 June
2003 and 2 June 2004).228 Of those records, 55 list the meeting’s attendees. A UK
representative attended 41 of the 55 meetings. The UK was represented by a junior
official on 36 occasions and by a senior official on five.
In March 2004, after an international competitive bidding process, the International
Advisory and Monitoring Board (IAMB) approved the appointment of KPMG to audit DFI
activities.229 A Treasury briefing stated that the CPA had used that process to re-open
debate on the scope of the IAMB’s mandate under resolution 1483.230
The CPA signed the contract with KPMG to audit the DFI on 5 April 2004 – almost
one year after resolution 1483 and less than three months before the CPA would be
dissolved.231
KPMG delivered its first audit reports, covering oil export sales and DFI operations from
May to December 2003, to the IAMB at the end of June 2004.232
The IAMB’s response to the KPMG reports stated: “KPMG has concluded that all known oil proceeds, reported frozen assets, and transfers from the Oil for Food Program had been properly and transparently accounted for in the DFI. At the same time, based on a review of KPMG reports, the IAMB believes that CPA controls were insufficient to provide reasonable assurance (i) for the completeness of export sales of petroleum and petroleum products for

 

Footnotes
225 US General Accountability Office, Report to Congressional Committees, July 2005, Status of funding and reconstruction efforts.
226 Coalition Provisional Authority, Regulation No.2, 10 June 2003, Development Fund for Iraq.
227 Coalition Provisional Authority, Regulation No.3, 18 June 2003, Program Review Board.
228 Coalition Provisional Authority website, [undated], Program Review Board Minute Archive.
229 International Advisory and Monitoring Board on Iraq website, 24 March 2004, Statement by the International Advisory and Monitoring Board on Iraq.
230 Briefing Treasury, [undated], ‘Meeting with Gary Edson, NSC – Thursday 5th February [2004]’.
231 International Advisory and Monitoring Board on Iraq website, 5 April 2004, Statement by the International Advisory and Monitoring Board on Iraq.
232 Report KPMG, 29 June 2004, ‘Development Fund for Iraq: Statement of Cash Receipts and Payments For the Period from 22 May 2003 to 31 December 2003 (with Independent Auditors’ Report)’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
435

the period from May 22, 2003 to December 31, 2003, and (ii) whether all DFI
disbursements were made for the purposes intended.”233
US Special Inspector General for Iraq Reconstruction (SIGIR) audits published in 2004
and 2005, and summarised in Hard Lessons, found that: “… the CPA failed to exert adequate control of the DFI used to support the Iraqi national ministries or reconstruction projects. An audit of DFI disbursements to Iraqi ministries made through the national budget process concluded that the CPA failed to enforce adequate management, financial, and contractual controls over approximately US$8.8bn of DFI money. SIGIR found that there was ‘no assurance that the funds were used for the purposes mandated by [UN] resolution 1483.’”234
Ambassador Bremer disagreed with SIGIR, arguing that they had failed to account
for the very difficult security environment and the steps taken to improve recognised
management weaknesses. SIGIR acknowledged the danger confronting the CPA, but
found that the CPA’s oversight of Iraqi funds was burdened by severe inefficiencies and
poor management. SIGIR concluded that the chaotic circumstances in Iraq required more
stringent oversight, not less, as the CPA suggested.
Hard Lessons concluded that the CPA appeared to be averse to oversight of the DFI.
Sir Jeremy Greenstock, the Prime Minister’s Special Representative on Iraq from
September 2003 to March 2004, told the Inquiry: “The UK was not allowed sight of any of the figures on the use of money by the CPA … A lot of cash was going round in suitcases to be dispensed to Iraqis, not all of which was accounted for, and I was uncomfortable that I had no sight of this, might be felt by London to be in some respects responsible for this, and had to explain clearly that I was not responsible for this, and London made it quite clear that they didn’t expect me to be responsible for this.235
“But as you have seen from books on this, from the report of the Special Inspectorate
for Iraq in the US [SIGIR], corruption crept into the system and I felt that I couldn’t do
anything about it.”
The Inquiry asked Sir Jeremy whether he was able to discuss his concerns with
Ambassador Bremer. He replied: “We discussed corruption in the Iraqi administration, but when I asked for details of economic spending, it was made clear that non‑Americans would not be given the details.”

 

Footnotes
233 International Advisory and Monitoring Board on Iraq website, 15 July 2004, Statement by the International Advisory and Monitoring Board on Iraq – Release of the KPMG Audit Reports on the Development Fund for Iraq, 15 July 2004.
234 H Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
235 Private hearing, 26 May 2010, pages 50-51.

The Report of the Iraq Inquiry
436

Ms Lindy Cameron, Deputy Head of DFID’s Baghdad Office in 2004, told the Inquiry
that, during the last six months of the CPA, UK officials “helped to do a level of
supervision of how some of the funding was spent that had come from the Iraqi oil
revenues”, but any influence was “more at the tactical level than at the strategic
level”.236
Sir Jon Cunliffe told the Inquiry that the CPA had been “very resistant to external
monitoring and external accountability”.237

UK policy under Iraqi Governments

414. The Occupation of Iraq formally came to an end on 28 June 2004, two days earlier
than had been originally planned.

415. Power was transferred from the CPA and the Governing Council to the Iraqi Interim
Government (IIG) headed by Prime Minister Ayad Allawi.238

416. As set out in resolution 1546 (2004), the IIG took on responsibility for the
disbursement of oil revenues from the US and UK (as Occupying Powers).

417. Although oil production remained below pre-war levels, the UK Government
expected that the high oil price (over US$35 per barrel against the budgeted level of
US$22 per barrel) would result in a significant surplus for the Iraqi budget in 2004.239

418. On 1 July, the AHMGIR commissioned the FCO to co-ordinate an integrated UK
strategy covering the period up to Iraqi elections (in early 2005).240

419. Mr Edward Chaplin arrived in Baghdad on 5 July to take up post as the first UK
Ambassador to Iraq since 1990.241

420. The strategy paper commissioned by the AHMGIR was circulated on 13 July to
members of the Defence and Overseas Policy Committee (DOP), a Sub-Committee of
the Cabinet, on 13 July.242 The paper defined seven objectives, including:

“• reduction of subsidies and an agreed IMF programme leading to a debt
settlement by the end of the year.”

421. The 15 July meeting of DOP agreed those objectives.243 Ministers stated that
the UK needed to continue to work closely with the Iraqi Oil Minister, with a focus on
reducing government subsidies in the oil sector and on technical training.

 

Footnotes
236 Public hearing, 22 June 2010, page 28.
237 Public hearing, 9 July 2010, pages 38-39.
238 Bremer LP III & McConnell M. My Year in Iraq: The Struggle to Build a Future of Hope. Threshold, 2006.
239 Paper, [undated], ‘Iraq – Summer 2004 Economic Overview’.
240 Minutes, 1 July 2004, Ad Hoc Group on Iraq Rehabilitation meeting.
241 Public hearing, 7 December 2009, pages 1-2.
242 Paper FCO, 13 July 2004, ‘Iraq: the Next Six Months’.
243 Minutes, 15 July 2004, DOP meeting.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
437

422. Mr Chaplin made an introductory call on Mr Ghadban on 30 August.244 He reported
that Mr Ghadban’s main priority was maintaining and repairing Iraq’s oil infrastructure.
Attacks were taking place almost daily. Production was around 2.5m bpd; the IIG aimed
to produce 3.25m bpd by the end of 2005.

423. Mr Chaplin reported that Mr Ghadban advocated a gradual and careful reduction
in fuel subsidies (although the IIG as a whole remained reluctant), and the privatisation
of the distribution system. Mr Chaplin had “encouraged” those views.

424. Mr Ghadban stated that encouraging investment was key, for example through
internationally accepted models for production-sharing agreements (PSAs) or joint
ventures. He did not favour privatising upstream245 activities.

425. The IPU circulated a first draft of a UK Energy Strategy for Iraq on 18 August.246

426. A junior official at the British Embassy Baghdad commented on the draft on
25 August, highlighting the need to be realistic about what the IIG could deliver in the
period before the January 2005 elections:
“While Ghadban and others may have every intention of looking longer term and
plotting a strategy for the industry, the day-to-day running of the network/fire-fighting
is taking up the bulk of everyone’s energies just now – and is likely to continue doing
so. The IIG is desperate to show improvements in the supply of electricity and fuel
as soon as possible. That means focusing efforts on ensuring that oil continues to
flow to the power stations and refineries, and stocks are built up.”247

427. The IPU circulated a final version of the UK Energy Strategy for Iraq on
6 September.248 The Strategy identified two UK objectives:

“• the development of an efficient, outward looking and transparent oil and energy
industry, capable of delivering both sustainable export revenues to meet Iraq’s
development needs and meeting domestic needs for energy in an efficient,
equitable and secure manner; and

• Iraq’s energy sector development to be complemented by the increasing
involvement of UK firms, leading to sustained investment over the next five to
10 years and substantial business for the UK.”

428. The Strategy stated that the IIG had established a Supreme Council for Oil and
Gas, which the UK believed would approve strategy and major investments. The IIG was

 

Footnotes
244 Telegram 167 Baghdad to FCO London, 31 August 2004, ‘Iraq: Introductory Call on Thamir Ghadban, Minister of Oil’.
245 Upstream activities are generally understood to be exploration and extraction.
246 Email IPU [junior official] to FCO [junior official], 18 August 2004, ‘UK Energy Strategy for Iraq’ attaching Paper IPU, [undated], ‘Iraq-UK Energy Strategy for Iraq’.
247 Email FCO [junior official] to IPU [junior official], 25 August 2004, ‘UK Energy Strategy for Iraq – Comment’.
248 Email IPU [junior official] to FCO [junior official], 6 September 2004, ‘Energy Strategy for Iraq’.

The Report of the Iraq Inquiry
438

constrained by the Transitional Administrative Law (TAL) in its ability to make decisions
affecting Iraq’s “long-term destiny”. Key strategic decisions were therefore unlikely to be
taken until after January 2005.

429. The Strategy stated that to meet the UK’s objectives, the main challenge for Iraq’s
oil industry would be to institute the structural, fiscal and regulatory reform needed to
attract foreign direct investment (FDI). In the absence of a “very high” oil price, Iraq
would only be able to finance the investment necessary to raise production if it achieved
a very generous debt relief deal and was prepared to cut government spending in other
areas. As the latter was “not realistic”, Iraq would need FDI.

430. Improved governance in the energy sector also remained key to achieving the UK’s
objectives.

431. The Strategy stated that the argument that Iraq’s energy development needs were
best served by FDI would be politically sensitive, both in Iraq (where it would touch
on issues of sovereignty) and internationally. The Iraqi Government was aware of the
scale of funding needed, but “less convinced” of the need for this to come through FDI.
The Strategy concluded: “We will wish to push the message on FDI to the Iraqis in private, but it will require careful handling to avoid the impression that we are trying to push the Iraqis down one particular path.”

432. The Strategy also set out the “key considerations” that shaped it:

• the UK’s objectives on energy security: Iraq had the second or third largest
proven oil reserves in the world, and significant reserves of natural gas;
sustainable increases in Iraqi oil and gas production would contribute to global
energy security;

• the UK’s commercial objectives; and

• Iraq’s need for fiscal stability, in particular given its high level of debt and the
continuing need to finance reconstruction.

433. The Inquiry has seen no indications that the Strategy was seen by Ministers or
senior officials.

434. A junior official at the British Embassy Baghdad reported on 8 September
that Prime Minister Allawi had recently issued ‘Guidelines on Petroleum Policy’

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
439

to the Supreme Oil and Gas Council, to direct their work to develop detailed policy
recommendations.249 The official summarised those guidelines as: “Upstream Policy

• An independent, public, Iraqi National Oil Company (INOC) should be
re‑established … to manage current fields and refineries.

• Foreign investment (combined where possible with domestic private capital)
should finance the development of new fields and refineries. Joint public/private
operations should be avoided except where necessary as an interim measure
before full privatisation.

Downstream policy

• INOC to rehabilitate existing refineries.

• Foreign and domestic private investment to finance major refinery expansions
and new refineries.

Marketing

• Gradual and methodical privatisation of domestic wholesale and retail
marketing.”

435. Prime Minister Allawi met Mr Blair in London on 19 September.250 Prime Minister
Allawi said that he was pursuing a four-part strategy which addressed:

• the political process;

• the economy, including meeting investment needs in the oil sector;

• security (his personal focus); and

• building up the institutions of government.

436. Mr Blair, Prime Minister Allawi and several Iraqi Ministers discussed reconstruction,
the economy and other issues over lunch.251 Prime Minister Allawi stressed the need for
a generous debt reduction package that would encourage foreign investment.

437. In late 2004, the FCO agreed to fund a small consultancy team to assist the
Ministry of Oil to “create a stable petroleum contracts regime and a modern, transparent
and efficiently run Iraqi National Oil Company (INOC)”.252 The project built on the

 

Footnotes
249 Email FCO [junior official] to FCO [junior official], 8 September 2004, ‘PM’s Guidelines on Petroleum Policy – Summary’.
250 Letter Sheinwald to Adams, 19 September 2004, ‘Iraq: Prime Minister’s Meeting with Prime Minister Allawi, Sunday 19 September’.
251 Letter Quarrey to Owen, 19 September 2004, ‘Iraq: Prime Minister’s Lunch with Allawi, 19 September’.
252 Paper FCO, [undated], ‘Terms of Reference: Assistance in creating a stable petroleum contracts regime and a modern, transparent and efficiently run Iraqi National Oil Company (INOC)’.

The Report of the Iraq Inquiry
440

analysis presented in a December 2003 USAID-funded report, Options for Developing
a Long Term Sustainable Iraqi Oil Industry.253

438. The Terms of Reference for the consultancy stated: “The Iraqi Government has given broad endorsement (for example through Prime Minister Allawi’s Guidelines on Petroleum Policy) to PSAs as the best means of facilitating foreign investment in the petroleum sector. It is important the MoO [Ministry of Oil] develop a good understanding of how PSAs work if Iraq is to create a stable contracts regime that effectively serves Iraq’s longer-term developmental needs and the imperative of FDI.”254

439. The planned outputs of the project included model contracts, including for PSAs.

440. Mr Chaplin called on Prime Minister Allawi on 13 December.255 Mr Chaplin reported that he had taken the opportunity to raise “BP and Shell’s interests”. He had also
informed Prime Minister Allawi that the UK Government had agreed to fund Mr Terry
Adams (formerly of the CPA Oil Team) to assist the Ministry of Oil to draft “model
production sharing agreements”.

441. Mr Chaplin reported that Prime Minister Allawi had said that he had made clear to
the Supreme Oil and Gas Council that priority should be given to US and UK companies.
Mr Chaplin commented: “His [Prime Minister Allawi’s] wish to favour UK companies is sincere. But others in the system are not so well-disposed, so patience is required.”

442. A briefing prepared for Sir Nigel Sheinwald, Mr Blair’s Foreign Policy Adviser, on
17 January 2005 stated that: “Ministry of Oil preoccupied with Baghdad fuel crisis and the protection of the oil infrastructure – meaningful engagement with the Ministry will have to wait until after the elections.”256

443. The briefing also stated that a plan to establish an INOC as an independent,
state-run corporation “appears to have been approved”, although it was unlikely to be
implemented before the elections. The briefing described the creation of an independent,
state-run INOC as one of the UK’s main priorities.

 

Footnotes
253 Report, 19 December 2003, Options for Developing a Long Term Sustainable Iraqi Oil Industry.
254 Paper FCO, [undated], ‘Terms of Reference: Assistance in creating a stable petroleum contracts regime and a modern, transparent and efficiently run Iraqi National Oil Company (INOC)’.
255 Telegram 472 Baghdad to FCO London, 13 December 2004, ‘Iraq: Call on Allawi’.
256 Briefing, [undated], ‘Briefing for Nigel Sheinwald’s Meeting with Malcolm Brinded (Shell): 17 January’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
441

444. Elections for the Transitional National Assembly (TNA) and Provincial Assemblies
took place across Iraq on 30 January 2005.257 The election results were announced in
mid-February; the Iraqi Transitional Government would not convene until April.

445. Officials from the British Embassy Baghdad made their first post-election visit
to the Ministry of Oil on 2 February.258 They reported that a senior Iraqi official had
been “scathing” about Prime Minister Allawi’s Guidelines, which he said had “died with
the IIG”.

446. The Cabinet Office co-ordinated the production of a strategy paper, focused on
how to achieve coalition objectives in post-election Iraq, for the 9 February meeting of
the Ad Hoc Ministerial Group on Iraq.259

447. The strategy identified five key “governance and reconstruction” challenges in
2005, including making sustained improvements in the availability of fuel and electricity,
which would require difficult reforms and cracking down on corruption and sabotage.

448. The strategy defined five economic priorities for the UK for 2005, including:
“Promoting an efficient, outward looking and transparent oil and energy industry
and promoting the continuation of a structure for the transparent management of oil
reserves.”

449. The Ad Hoc Ministerial Group on Iraq approved the paper on 9 February.260

450. A senior Iraqi official in the Ministry of Oil told Ms Ann Eggington, DTI Director, on
22 March that the Ministry was in a “caretaker” role, waiting for the formation of the new
Government.261 The silence from the Ministry on the UK’s offer to help develop model
PSAs was due to its inability to take forward any significant project work and long-term
planning until a new Government was confirmed.

451. The Iraqi official commented that the chief task of the new Iraqi Government would
be to agree a Constitution; the Ministry would, in parallel, develop a Petroleum Law.
Model contracts developed by the FCO project would need to be consistent with the
Petroleum Law; there would be differing views on how FDI should be brought in.

452. On 28 April, following lengthy negotiations, Prime Minister Designate Ibrahim
Ja’afari presented the majority of the Cabinet for the new Iraqi Transitional Government
(ITG) to the TNA for ratification. The ITG was established to run Iraq until a government
could be elected according to the new Constitution in December 2005.

 

Footnotes
257 Public hearing Chaplin, 7 December 2009, page 12.
258 Email FCO [junior official] to IPU [junior official], 2 February 2005, ‘Iraq/Oil: Miscellaneous’.
259 Paper Cabinet Office, 7 February 2005, ‘Iraq Strategy for 2005’.
260 Minutes, 9 February 2005, Ad Hoc Ministerial Group on Iraq meeting.
261 Letter DTI [junior official] to FCO [junior official], 23 March 2005, ‘Meeting with Rhadwan Al-Saadi: 22 March 2005’.

The Report of the Iraq Inquiry
442

453. The British Embassy Baghdad reported on 16 May that the new Minister of Oil,
Mr Ibrahim Bahr Al-Ulum, had now taken up his post.262 Mr Al-Ulum had stated that
his priorities were to increase production and tackle corruption. Production averaged
2.1m bpd, consistently below the Ministry’s 2.5m bpd target. Fuel stocks were healthy.

454. The Embassy also reported that insurgent attacks on oil infrastructure had “tailed
off” since the elections, although the effect of attacks could still be dramatic.

455. The IPU provided an update on oil and commercial issues for Mr John Sawers,
FCO Political Director, on 25 May, at his request.263 The IPU advised that:

• The Petroleum Law would be a key piece of legislation, establishing the
regulatory framework for Iraq’s energy sector, including the approach to foreign
investment. Major international oil companies would want to see transparent
rules established.

• The Ministry of Oil would start drafting the Petroleum Law alongside the drafting
of the Constitution. The UK had not been asked for help in drafting the Law,
although the UK did plan to take forward the FCO project to help the Ministry
develop transparent petroleum contracts.

• The UK Government’s view was that a high level of oil company involvement
in drafting the Petroleum Law could be counter productive: “This should be
an Iraqi-drafted law and it will be for them to decide their approach to foreign
investment.” The UK would, however, want to encourage the Iraqi Government
to consult widely in the process, including with oil companies. The UK could
facilitate that exchange.

• There had been no discussions with the Iraqi Government on a UK/Iraq
commercial agreement (which could provide a framework for trade and
investment), but such an agreement might be beneficial.

456. Representatives from Shell advised officials from the British Embassy Washington
on 31 May that Shell wanted to see “a Constitution in place” before making a “serious
investment” in Iraq.264 Most major oil companies were similarly “keeping a low profile”.

457. In June 2005, FCO, DTI and DFID officials developed an Iraq Oil and Gas
Strategy.265

458. The Iraq Oil and Gas Strategy, the UK’s second post-Occupation oil strategy,
shared much of the analysis presented in the September 2004 UK Energy Strategy
for Iraq. It added a third UK objective – promoting Iraq’s role within the international
oil market and the Organization of the Petroleum Exporting Countries (OPEC).

 

Footnotes
262 Telegram 4635/05 Baghdad to FCO London, 16 May 2005, ‘Iraq: Oil and Electricity: New Government, Old Problems’.
263 Minute IPU [junior official] to Sawers, 25 May 2005, ‘BP: Iraq’.
264 Minute FCO [junior official] to Braithwaite, 3 June 2005, ‘Note of a Meeting with Shell, 31st May 2005’.
265 Paper, [undated], ‘Iraq: Oil and Gas Strategy’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
443

459. The Strategy defined three UK objectives:

“• The development of an efficient, outward-looking and transparent oil and
gas industry, capable of delivering sustainable export revenues to meet the
development needs of the people of Iraq and meeting domestic needs for
energy in an efficient, equitable and secure manner.

• Increasing involvement of the private sector, leading to sustained investment
over the next five to 10 years and substantial business for UK companies …

• To promote Iraq’s role in international oil and gas markets and as a constructive
influence within OPEC.”

460. The Strategy stated that, in the absence of an “extremely high” oil price, only
the international oil companies could provide the funding necessary to achieve rapid
rehabilitation or significant new development.

461. The Strategy set out four considerations that shaped it:

• Energy security. The UK was expected to be a net importer of oil by 2010.
Against a backdrop of volatile prices and limited spare global production
capacity, sustainable increases in Iraqi production would make a large
contribution to global energy security.

• The UK’s commercial and international development goals, including Iraq’s fiscal
stability given the need to finance reconstruction. The idea that Iraq’s energy
development needs were best served through FDI would be politically sensitive,
both in Iraq and internationally. The UK would “promote the message on FDI to
the Iraqis in private, but it will require careful handling to avoid the impression
that we are trying to push the Iraqis down one particular path”.

• The need for energy price reform, required under the IMF programme.

• Oil development and the Constitution.

462. Mr Straw sent the Strategy to Mr Blair on 12 July.266 In his covering letter, Mr Straw
wrote: “Oil and gas will inevitably form the economic foundation for Iraq’s future and
remains important for the UK commercially and in terms of energy security.
Foreign investment is badly needed and we need to continue to support Iraq to
create the right framework for investment, while also supporting UK companies to
engage. And we should continue working with the Iraqi Government to ensure the oil
sector develops transparently and along lines of international best practice.”

463. Mr David Quarrey, Mr Blair’s Private Secretary, sent the Strategy to Sir Nigel
Sheinwald with the comment: “I do not intend to put in the box! Looks OK.”267

 

Footnotes
266 Letter Straw to Blair, 12 July 2005, ‘Iraq: Oil and Gas Strategy’.
267 Manuscript comment Quarrey to Sheinwald, 13 July 2005, on Letter Straw to Blair, 12 July 2005, ‘Iraq: Oil and Gas Strategy’.

The Report of the Iraq Inquiry
444

464. Sir Nigel agreed.268

465. Mr Straw wrote to Mr Blair on 5 July with an update on the constitutional
process.269 Section 9.4 describes the development of the Iraqi Constitution from June
2005 to its adoption in October 2005.

466. Mr Straw attached a paper produced by the FCO Research Analysts which set out
the substantive issues that the Constitutional Committee needed to address, and the
UK’s view on those issues. He advised Mr Blair that the paper would serve as the UK’s
“reference point” during the negotiations on the Constitution.

467. The paper recognised the importance of control over natural resources in the
debate on federalism.270 The Kurdish authorities were expected to champion the
devolution of oil revenues and the ability to manage their own economic development.
Shia Arabs were increasingly calling for some sort of economic federalism for the South
and a greater share of Iraq’s oil revenues. The UK had “a strong interest in avoiding any
arrangement which would entrench sectarian divisions, e.g. a single large federation in
the South”.

468. Mr Straw wrote to DOP(I) members on 13 October, advising them that “despite its
inevitable deficiencies, the draft Constitution represents a major achievement”.271

469. Mr Straw attached an IPU paper which identified the “potential points of contention”
within the draft Constitution, including natural resources: “The ambiguities in the text were necessary to secure agreement. But they also pave the way for difficulties in the future. Perhaps the worst offender … is Article 109 on oil and gas, which is a model of imprecision.”272

470. The IPU stated that Article 109 of the draft Constitution specified that the current
oil and gas resources would be managed by the federal Government “with the producing
governorates and regional governments” in a manner to be regulated by a law.

471. The IPU commented that the law would need to clarify what “with” meant in that
context.

472. Press reports at the end of November 2005 that a Norwegian oil company had
signed a contract with the Kurdish Regional Government (KRG), rather than the Iraqi

 

Footnotes
268 Manuscript comment Sheinwald to Quarrey on Letter Straw to Blair, 12 July 2005, ‘Iraq: Oil and Gas Strategy’.
269 Letter Straw to Prime Minister, 5 July 2005, ‘Iraq: Constitution’ attaching Paper FCO/RAD, June 2005, ‘Constitutional Issues’.
270 Paper FCO/RAD, June 2005, ‘Constitutional Issues’.
271 Letter Foreign Secretary to DOP(I) Committee Members, 13 October 2005, ‘Iraq: Constitution Paper’.
272 Letter Foreign Secretary to DOP(I) Committee Members, 13 October 2005, ‘Iraq: Constitution Paper’ attaching Paper IPU, [undated], ‘Constitution: Potential Points of Contention’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
445

Government, prompted the UK Government to consider what it would be able to do if
a UK company did the same.273

473. Mr Dominic Asquith, FCO Director Iraq, advised officials on 6 December that, in
dealing with previous approaches from UK companies, he had said that:

• any contract must be with the explicit agreement of the Iraqi Government;

• any contract must have the support of the KRG, rather than any one element
of it;

• even then, the legal position would be “fragile”; and

• “so wait until things become clearer”.274

474. FCO and IPU officials agreed that those lines were appropriate.275

475. Mr William Patey, British Ambassador to Iraq, reported on 13 December 2005 that:
“Oil is the critical factor in Iraq’s economic revival. Increased revenue in 2006
will depend on a continued programme of rehabilitation of current wells and
infrastructure and, more importantly, improved security in the north.
Serious increases will require more radical surgery. The new Government will need
to focus quickly on commercialising the oil industry and a legislative framework to
attract investment. The future will be complicated by discussions on constitutional
provisions.”276

476. The pace of rehabilitation was slow. The Ministry of Oil spent less than 10 percent
of its annual capital investment budget of US$3bn (the money was used instead to pay
for additional subsidised fuel imports).

477. There were rumours that a number of draft Petroleum Laws existed, but no one
had seen them. The provisions in the Constitution on oil were unclear; ownership of
the oil and how it should be managed would need to be clarified by the Constitutional
Committee.

478. In its dialogue with potential Prime Ministers, the Embassy had emphasised:

• the importance of “getting the oil sector right” and of increasing production;

• the need for greater World Bank involvement in the sector, which would give
access to additional financing on good terms and policy advice; and

 

Footnotes
273 Email Asquith to FCO [junior official], 30 November 2005, ‘Norwegian oil deal with Kurds angers Iraq’s Sunnis’.
274 Email Asquith to DTI [junior official], 6 December 2005, ‘Norwegian oil deal with Kurds angers Iraq’s Sunnis’.
275 Email IPU [junior official] to Asquith, 7 December 2005, ‘Norwegian oil deal with Kurds angers Iraq’s Sunnis’.
276 eGram 20655/05 Baghdad to FCO London, 13 December 2005, ‘Iraq: Oil’.

The Report of the Iraq Inquiry
446

• the need for increased transparency, including through the Extractive Industries
Transparency Initiative (EITI).

479. The Iraqi elections took place on 15 December.277 Negotiations to form a new
government continued into spring 2006.

480. On 2 March 2006, DOP(I) considered a joint FCO/DTI paper setting out the UK’s
objectives for Iraq’s oil and gas sector.278

481. The UK’s third post-Occupation oil strategy set out a more cautious position on
the potential role of the private sector, including private financing.

482. The FCO/DTI paper set out three “mutually reinforcing” UK objectives:

• Iraq’s successful economic development;

• to promote Iraq’s contribution to global energy security, and its role as a
constructive influence within OPEC; and

• to support UK companies.279

483. The paper stated that raising oil production would require significant new
investment. Iraq was unlikely to be able to finance that investment from its own
resources, and did not have recent experience of the regulatory, fiscal and administrative
framework needed to make optimal use of private investment or the technical and
managerial expertise to manage a rapid expansion of the industry. A key challenge
for the Iraqi Government was therefore to access external financing and expertise.
Iraq’s first step should be to engage with “experienced development partners”, and
specifically the World Bank, which could provide independent advice on the development
of an appropriate regulatory, fiscal and administrative framework. Its second step should
be to engage with international oil companies (IOCs) and oil service companies (OSCs),
which could bring in technical expertise and capital.

484. Any form of engagement with the IOCs would be politically sensitive. The “most
straightforward” form, and the one most likely to result in a rapid increase in production,
was FDI; but the “appropriateness” of FDI and the contractual form it might take, along
with the internal distribution of oil revenues, would be hotly contested issues within the
constitutional review process. Neither Saudi Arabia nor Iran allowed PSAs, “the form of
FDI most favoured by IOCs”. The paper concluded that “other options such as debt/bond
finance and joint ventures should also be considered”.

485. The paper stated that IOCs, including BP, Shell and other UK companies, were not
currently working in Iraq due to the security situation and the lack of a foreign investment
law. BP and Shell were engaged on technical studies of oilfields and were providing
training to Iraqi officials.

 

Footnotes
277 eGram 20961/05 Baghdad to FCO London, 16 December 2005, ‘Iraq: Elections: Election Day’.
278 Minutes, 2 March 2006, DOP(I) meeting.
279 Paper IPU, 28 February 2006, ‘UK Objectives for Iraq’s Oil and Gas Sector’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
447

486. The paper identified five risks to UK objectives, including: “The US dominates the
field in advising Iraq on energy sector development.”

487. Dr Kim Howells, FCO Minister of State, introduced the paper at the 2 March DOP(I)
meeting.280 He highlighted the centrality of oil to Iraq’s economy, and reported that he
planned to visit southern Iraq shortly to look at issues relating to the southern oil fields.
Mr Malcolm Wicks, DTI Minister of State, described projections that Iraq could produce
7.9m bpd by 2030 as very significant in the global and UK context. The UK was already
working closely with IOCs and Iraq on energy issues.

488. In discussion, Ministers commented that oil and gas would continue to be the
bedrock of Iraq’s economy, but diversification was essential in the medium term.

489. DOP(I) agreed that Ministers should discuss the oil sector again after Dr Howells’
visit to Iraq.

490. Dr Howells visited Iraq later that month. He reported to Mr Straw on 23 March that
the delay in forming a Government and doubts over Iraq’s commercial legal framework
were constraining investment in the oil sector, but that the biggest barrier to investment
remained the security situation.281 He recommended that the UK should consider what
its military forces could do to provide security for international investors: “Such a joint operation [coalition military forces and Iraqi Security Forces] would mean a different focus for our forces in the South. It would entail a shift from the urban concerns of Basra to … desert-located oil installations … I suggest the FCO discuss it at the earliest opportunity with the MOD.”

491. There are no indications that Dr Howells’ proposal was discussed by Ministers or
senior officials.

492. Following the 2 March DOP(I) meeting and Dr Howells’ visit, the IPU assessed that
Ministers would be keen to discuss the future of the oil sector again, and by the end of
March had begun work to develop a “comprehensive programme of engagement” for the
oil sector, covering:

• engagement with UK oil companies in support of their activities; and

• engagement with the Iraqi Government on strategic policy issues.282

493. Mr Asquith chaired a meeting of senior officials on 19 May to agree how the UK
would like to see the Iraqi oil sector structured.283 He advised Mr Straw that the group’s
conclusions would be tested with “industry experts”, before being used as a basis for

 

Footnotes
280 Minutes, 2 March 2006, DOP(I) meeting.
281 Letter Howells to Straw, 23 March 2006, ‘My Thoughts on Iraq’s Oil Industry’.
282 Paper IPU, 29 March 2006, ‘Iraq’s Oil and Gas Sector – HMG Policy and Action’.
283 Minute Asquith to Private Secretary [FCO], 24 May 2006, ‘Iraq: DOP-I: 24 May’.

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448

engaging with the Iraqi Government. The UK was already in close contact with BP and
Shell on their business planning for Iraq.

494. The paper was finalised in September.

495. On 20 May, Prime Minister Nuri al-Maliki presented his Cabinet (minus the
Ministers for Interior, Security and Defence) to the Council of Representatives.284
All were approved. Dr Hussain al-Shahristani was appointed Minister of Oil.

496. Mr Blair visited Iraq on 22 May. He met President Talabani and, separately,
Prime Minister Maliki.

497. The following day, Sir Nigel Sheinwald wrote to Mr Straw’s Principal Private
Secretary setting out eight areas of work which were, in Mr Blair’s view, priorities for
Iraq.285 The final area of work listed was capacity building for Iraqi Ministries, including:
“During our visit, we were also asked for specific assistance in the areas of
agriculture, and promoting investment by oil companies. I would welcome advice
on both.”

498. A Cabinet Office official sent Mr Blair an update on work in those eight areas on
2 June.286 The official advised that the FCO was working closely with Shell and BP on
an early visit to meet the new Minister of Oil, and on a plan for drawing in investors.

499. A further, more substantive update on work in the eight areas identified by Mr Blair
was considered at the 15 June meeting of DOP(I).287 The update included a section on
capacity-building for Iraqi ministries, but did not address promoting investment by oil
companies (or the oil sector more generally).288

500. Mr Patey visited the Kurdish region on 14 June.289 He reported that he had
encouraged KRG Prime Minister Nechirvan Barzani and KRG Minister of Natural
Resources Dr Ashtee Hawramy to work with the federal Iraqi Government in drafting
a Petroleum Law. Mr Barzani had warned that the Kurdish people would not give up
hard-won concessions in the Constitution relating to the control of resources.

501. IPU and DTI officials met Dr Hawramy in London on 26 June.290 An IPU official
reported that Dr Hawramy had said that he not been invited to sit on the drafting
committee for the Hydrocarbons Law, and had outlined the content of a draft
“KRG ‘Petroleum Law’”, which gave responsibility for signing contracts to regional

 

Footnotes
284 BBC News, 20 May 2006, Iraqi Parliament approves Cabinet.
285 Letter Sheinwald to Hayes, 23 May 2006, ‘Iraq’.
286 Minute Cabinet Office [junior official] to Prime Minister, 2 June 2006, ‘Iraq: Follow-up to Your Visit’.
287 Minutes, 15 June 2006, DOP(I) meeting.
288 Paper Cabinet Office, 13 June 2006, ‘Follow-up to the Prime Minister’s Visit, including Delivering a Step-change in Basra’.
289 eGram 24970/06 Baghdad to FCO London, 17 June 2006, ‘Iraq: Visit to the Kurdish Region’.
290 Email IPU [junior official] to Casey, 7 July 2006, ‘Meeting with KRG Minister of Natural Resources’.

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449

Governments. Dr Hawramy thought PSAs were the only agreements that IOCs would
consider.

502. UK officials responded that contracts should be signed by central Government.
Dr Hawramy asked the UK to stop discouraging IOCs from investing in the Kurdish
region.

503. An IPU official commented: “While … IOCs such as Shell and BP are currently unwilling to invest in the KRG, as the gap widens between the investment climate in the KRG and the rest of the country, a westernised, technocratic KRG Minister offering good PSA terms under a KRG Petroleum Law is going to be increasingly tempting.…
“We were expecting him [Dr Hawramy] to express irritation at being excluded from
central Government decision-making … The impression he gave was more that
the KRG was quite content to press on regardless … We will need to work hard to
persuade the Kurds that there is a game worth playing at the centre.”

504. Dr Howells visited Baghdad and the Kurdish Region from 6 to 7 July.291 It was the
first visit to the Kurdish region by a British Minister since 2004.

505. KRG Prime Minister Barzani told Dr Howells that relations between the KRG and
the federal Government had “soured over oil”.

506. Dr Hawramy outlined the KRG’s draft Oil Plan and Petroleum Law. Dr Howells
encouraged Dr Hawramy to “work through” the Oil Plan with the federal Government,
and said that it was vitally important that the KRG Petroleum Law and the federal
Government’s Hydrocarbons Law complemented each other.

507. The British Embassy Baghdad commented: “The meetings [with Dr Howells] showed KRG determination to push forward on energy and reconstruction, the Oil Plan and the draft Petroleum Law being the flagships of their efforts.”

508. Mr Wicks met Dr Shahristani in London on 24 July.

509. Mr Wicks’ briefing for the meeting stated that, while the UK had not seen a draft of
the Hydrocarbons Law, it understood that it gave the federal Government responsibility
for signing new oil exploration and production contracts: “This is a course of action that

 

Footnotes
291 eGram 29832/06 Baghdad to FCO London, 11 July 2006, ‘Iraq: Dr Howells Visit to Kurdistan 6-7 July 2006’.

The Report of the Iraq Inquiry
450

we [the UK] would endorse, as it would ensure that the sector was managed in the
national interest.”292

510. The briefing also stated that the issue of corruption and transparency was rising
up the UK’s agenda in Iraq.

511. At the meeting, Dr Shahristani said the Iraqi Government’s aim was to get the
Hydrocarbons Law through Parliament by the end of 2006.293 He asked Mr Wicks
whether the UK could play a role in lobbying for a national, rather than regional,
approach to signing oil exploration contracts. Mr Wicks agreed to reflect on how that
message could best be conveyed.

512. A junior official in the British Embassy Baghdad reported on 21 September that
there was little support for the EITI within the Ministry of Oil.294 The official identified
a number of possible approaches to increase support, including asking the IOCs to
express their support for the EITI to the Iraqi Government, as: “The Oil Ministry cares
more about what they [the IOCs] think than about what we think.”

513. The work to develop a “comprehensive programme of engagement” for the oil
sector that was initiated in March concluded in September with the production of a paper
entitled, ‘Iraq: Building a Framework for Oil Sector Development’.295

514. The paper stated that: “Our [the UK’s] starting point is that decisions on oil sector management could support or fatally undermine efforts to preserve the territorial integrity and democratic development of Iraq. Our key concern is therefore to preserve the integrity and competence of the Iraqi state as a basis for national unity, as well as to create
a long-term basis for transparency and adequate investment in the sector.”

515. The paper defined four principles which would guide the UK’s approach:

• The oil industry should be structured to allow for managerial and financial
autonomy of business units, “within an environment principally regulated at
the federal (national) level”.

• The emphasis should be on creating an effective public sector national oil
company. Within that overall framework, and subject to decisions by the Iraqi
Government, private resources accessed through FDI, bonds, and commercial
and concessional lending were likely to be needed.

 

Footnotes
292 Briefing, [undated], ‘Mr Wicks’s Meeting with Dr Hussain Al-Shahristani (Iraqi Minister of Oil) and Dr Abd Al-Sudani (Iraqi Minister of Trade)’.
293 Record, [undated], ‘Mr Wicks’s Meeting with Dr Hussain Al-Shahristani (Iraqi Minister of Oil) and Dr Abd Al-Sudani (Iraqi Minister of Trade): Monday 24 July’.
294 Email FCO [junior official] to FCO [junior official], 21 September 2006, ‘EITI – Update’.
295 Paper British Embassy Baghdad, September 2006, ‘Iraq: Building a Framework for Oil Sector Development’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
451

• Any agreement on resource management must be accompanied by a
guaranteed revenue-sharing formula acceptable to the KRG and Iraq’s
governorates.

• Transparency in the role of government institutions and in the collection and
disbursement of revenues was critical. The UK endorsed the principles of
the EITI.

516. The paper set out the UK’s lobbying strategy in support of those principles, and
stated: “The current situation is characterised by severe constitutional uncertainty, a low
level of trust between the key players and a lack of sense of urgency on the part
of the Ministry of Oil.
“On most interpretations, the current text of the Constitution leaves the federal
Government emasculated on oil sector management. Promoting the vision outlined
in the main body of this paper will therefore be difficult …”

517. The paper stated that the KRG refused to countenance the possibility that
the “substantive” concessions they had won in the constitutional negotiations –
which gave regional authorities control over the development of new fields and on
some interpretations the rights to revenues from those fields – would be revisited.
Meanwhile, the KRG was “putting facts on the ground” by signing PSAs with
“mainly small, high-risk” IOCs, and moving ahead quickly with its own Petroleum Law.

518. A junior official at the British Embassy Baghdad commented that since 2003
successive interim and transitional Iraqi Governments had not had the opportunity to
address oil sector management.296 The issue was now “rising up the agenda” in Iraq,
and the UK had to be ready to engage at a senior level.

519. The UK first saw a draft of the Hydrocarbons Law in late October/early November
2006.

520. The British Embassy Baghdad reported on 1 November that the Ministry of Oil
had sent a draft Hydrocarbons Law to the Council of Ministers, for consideration before
submission to the Council of Representatives.297 The Embassy had seen a version of
the draft Law. It made clear that oil resources must be controlled by central Government,
and cited Article 109 of the Constitution (which stated that oil and gas resources were
the property of the whole nation) in support of that position. The Embassy commented
that it was unlikely that the KRG would accept the draft.

 

Footnotes
296 Email FCO [junior official] to Paterson, 21 September 2006, ‘Oil Sector Structure Submission’.
297 eGram 48261/06 Baghdad to FCO London, 1 November 2006, ‘Iraq: Hydrocarbons Law Update’.

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452

521. The British Embassy Baghdad produced a “core script” setting out the UK’s
response to the draft Hydrocarbons Law on 7 November.298 Key messages for the UK
to relay to Iraqi contacts included:

• It was crucial that an agreed national law was passed soon, given the
importance of oil to national economic and security interests.

• The Iraqi Constitution stated that oil resources belonged to all Iraqi citizens.
The federal Government was best placed to ensure that those resources were
developed to the maximum benefit for all Iraqi citizens.

• A national law should be agreed before the KRG passed a regional law.

522. UK officials continued to meet regularly with Ministers and senior officials
in the Iraqi Government and the KRG to discuss progress towards agreeing a
Hydrocarbon Law.

523. The IPU provided Dr Howells with an update on negotiations on a Hydrocarbons
Law on 14 February 2007.299 While there was not yet any agreement, there was a
“strong impetus to achieve consensus”. President Bush had indentified the passing of
the Hydrocarbons Law as a key indicator of progress in Iraq. The US Ambassador was
working hard to bring the key players together. The UK had “remained in close touch
with the key negotiators … in support”.

524. The update advised that the latest draft Hydrocarbons Law addressed only two
of the four principles which the UK had defined in September 2006 (it would establish
a national public-sector oil company and contained helpful clauses on transparency).

525. The update proposed that, while the UK’s influence was “limited”, it should,
alongside the US, continue to lobby key Iraqi players, and encourage the IMF and
World Bank to play an active role in providing assistance and advice on the more
technical aspects of the negotiations.

526. Dr Howells accepted that proposal, and agreed that the UK’s influence was
limited.300

527. Mr Asquith reported from Baghdad in May that disagreements continued over
the extent of regional authority in the oil sector and on the implications of foreign
investment.301 He commented: “The political mood makes quick passage of the HCL [Hydrocarbons Law] unlikely. Differences between the Kurds and Baghdad go beyond simple posturing, with Kurdish hardball tactics generating worrying anti-Kurdish sentiment among Arab politicians. Resolution by the summer would be an achievement.”

 

Footnotes
298 Email FCO [junior official] to IPU [junior official], 7 November 2006, ‘HCL – Core Script’.
299 Minute IPU [junior official] to PS/Dr Howells, 14 February 2007, ‘Iraq: Hydrocarbons Law Update’.
300 Email APS/Howells [FCO] to junior official [IPU], 19 February 2007, ‘Iraq: Hydrocarbons Law Update’.
301 eGram 20342/07 Baghdad to FCO London, 14 May 2007, ‘Iraq: Update on the Hydrocarbons Law’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
453

528. Mr Gordon Brown became Prime Minister on 26 June 2007.

529. Before Mr Brown’s final visit to Iraq as Chancellor of the Exchequer in June
2007, he commissioned advice on how the UK could increase support for economic
development and reconstruction in Iraq and, in particular, in Basra.302

530. The Treasury advised that greater security and political solutions were key to
stability, but needed to be complemented by a focus on priority economic problems.303
There were three priorities to boost economic growth:

• maintaining macroeconomic stability;

• improving the efficiency and effectiveness of the public sector; and

• expanding and improving the efficiency of the oil industry. That required:

{{a political agreement on a Hydrocarbons Law;

{{better security, to facilitate a significant increase in investment (including
foreign investment); and

{{an integrated energy strategy for investment and reform, to ensure that
the development of the sector delivered visible improvements in electricity
supply to drive private sector recovery.

531. The negotiating process for a Hydrocarbons Law should be allowed to “run its
course”, to minimise technical ambiguities and force all parties to address difficult
political issues. The UK was “working to bring in” the World Bank to assist Iraq in
developing and implementing an integrated energy strategy.

532. Mr Brown wrote to Prime Minister Maliki on 29 July, setting out some suggestions
for how the UK could help on initiatives to develop the Iraqi economy.304 Those included:
“Working with the World Bank, we are ready to help you develop an integrated
energy strategy, outlining investments and reforms in oil, gas and electricity sectors.”

533. Prime Minister Maliki replied on 7 October, welcoming the UK’s interest in
supporting private sector development in Iraq.305 In relation to oil, Iraq would welcome
UK help on infrastructure repairs, installation development and the development of an
integrated energy strategy.
534. Mr Brown met Prime Minister Maliki in the UK on 3 January 2008.306 Mr Brown said that he wanted to see rapid progress on the Hydrocarbons Law and local elections.

 

Footnotes
302 Email Bowler to Pillay and FCO [junior official], 12 May 2007, ‘Iraq – Latest Situation/Economic Development’.
303 Paper Pillay, 24 May 2007, ‘Economic Aspects of Stability in Iraq’.
304 Letter Brown to Maliki, 29 July 2007, [untitled].
305 Letter Maliki to Brown, 7 October 2007, [untitled].
306 Letter Fletcher to Carver, 3 January 2008, ‘Prime Minister’s Bilateral with Prime Minister of Iraq, 3 January’.

The Report of the Iraq Inquiry
454

535. The British Embassy Baghdad provided an update on the oil sector in January
2008.307 The Embassy reported that with negotiations stalled, the KRG had passed
its own regional Hydrocarbons Law in August 2007 and “vigorously resumed signing
contracts”. Dr Shahristani had pronounced those contracts illegal and void and the
Iraqi Government had threatened to boycott all companies that signed contracts with
the KRG.

536. The Iraqi Government and the KRG continued to discuss a Hydrocarbons Law, but
“fundamental personality clashes and political obstacles” remained and early progress
was unlikely. The US continued to “shepherd” the negotiations, but to little effect.

537. In the update, the Embassy did not report on or propose any UK action with
respect to the Hydrocarbons Law.

538. The Embassy also reported that, as those negotiations continued, the Iraqi
Government was pursuing technical service agreements (TSAs) with IOCs to improve
oil production in five major oilfields. The Embassy commented that the TSAs were
less attractive to IOCs than PSAs and would increase production by only a “fraction”
of what might be achieved under PSAs. There remained substantial political resistance,
“on sovereignty grounds”, to PSAs within the Iraqi Government.

539. Oil production in 2007 had averaged 2.1m bpd, the same as in 2006. Higher oil
prices – US$73 a barrel in 2007 against US$65 in 2006 – had meant higher revenues –
US$41bn in 2007 against US$31bn in 2006.

540. Section 9.7 describes discussions within the UK Government from autumn 2008
on the transition to a normal bilateral relationship with Iraq.

541. On 9 December, the Overseas and Defence Sub-Committee of the Committee on
National Security, International Relations and Defence (NSID(OD)), the successor to
DOP(I), discussed a paper entitled ‘Iraq: Arrangements for Transition’.308 An annex to
the paper suggested that the key elements of future relations with Iraq should be:

• diplomatic and political activity,

• economic development,

• defence,

• energy,

• commercial, and

• education.

 

Footnotes
307 Telegram 2973/08 Baghdad to FCO London, 27 January 2008, ‘Hydrocarbons Law: Deadlock Continues’.
308 Minutes, 9 December 2008, NSID(OD) meeting; Paper, 8 December 2008, ‘Iraq: Arrangements for Transition’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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542. The objective of the energy component was to: “… ensure security of Iraq’s oil supply and long-term increase in oil output through political lobbying on hydrocarbons legislation and national energy policy and regional support.”

543. The paper invited Ministers to agree that Mr David Miliband, the Foreign Secretary,
should circulate detailed proposals on the UK’s future relations with Iraq, for agreement
in writing.

544. Summing up the discussion, Mr Brown said that it was important to make progress
on the Hydrocarbons Law.309

545. NSID(OD) agreed that sign-off for the UK’s long-term strategy for Iraq would be
sought out of committee.310

546. Mr Miliband’s Private Secretary circulated a draft strategy for “UK policy towards
and relations with Iraq following military drawdown” on 13 January 2009.311

547. The draft strategy stated that the UK had a strategic national interest in a strong,
stable and non-hostile Iraq, which: “… contributes positively to stable world energy markets by maximising its potential as a producer and exporter of oil and gas; and increased EU energy security through developing new supply routes.”

548. The strategy identified a number of essential factors for establishing a strong and
stable Iraq, including: “… a functioning economy. In the medium term [that] will be driven by hydrocarbon production and export, which in turn requires agreement on a Hydrocarbons Law articulating the governance and development of the energy sector.”

549. The UK’s aim in the energy sector should be to: “ … help Iraq to maximise [its] potential, and hence its contribution to global oil markets and EU energy security. This will involve a combination of political lobbying on Iraqi legislation, policy dialogue and education, capacity building in central government ministries (including through a specific skills initiative), and working alongside foreign investors who can inject capital and skills into the wider Iraqi energy sector.”

 

Footnotes
309 Minutes, 9 December 2008, NSID(OD) meeting.
310 Minutes, 9 December 2008, NSID(OD) meeting.
311 Letter Hickey to Catsaras, 13 January 2009, ‘Iraq: Strategy’ attaching Paper, [undated] ‘Iraq: a Review of Strategy’.

The Report of the Iraq Inquiry
456

550. An annex to the main paper described “problem areas”, including:

• no broad agreement on the extent of political and economic centralism versus
devolution, including in relation to energy sector development and revenue
sharing; and

• the Iraqi Government’s reliance on oil revenues (which comprised more than
90 percent of revenues). A protracted period of low oil prices could even affect
the Government’s ability to fund operational expenditure.

551. On 9 February, Mr Brown’s Assistant Private Secretary told the Private Secretaries
to Mr Miliband and Lord Mandelson, the Business, Enterprise and Regulatory Reform
Secretary, that Mr Brown had endorsed the strategy.312

552. Sir Mark Lyall Grant, FCO Political Director, told the Inquiry that the strategy
reflected the strategic importance of Iraq to the UK: “There is no doubt in my mind that Iraq is a very important strategic country for the United Kingdom … and that, therefore, we should have a long-term strategic relationship with Iraq …
“The reason I say that on Iraq is because Iraq is a country which sits on the dividing
line between Persia and the Arab world. It sits on the dividing line between Sunni
and Shia communities. It is a neighbour of Turkey, and, therefore, could be a
neighbour of the European Union, if Turkey joins the European Union. It has got
massive oil and gas reserves. We therefore have a very strong strategic interest
in Iraq being a successful, prosperous, stable country, and in being an ally of the
United Kingdom.”313

553. Sir Mark said that it was not possible to strictly prioritise the UK’s political,
commercial and socio-economic interests in Iraq, in terms of their importance to the
UK.314 What was “essential” from the UK’s perspective was that Iraq remained a single
state with secure borders, with a functioning Government that could exert full security
control of the country and a functioning economy.

 

vol-9-10-3-table-1
Table 1: Iraqi crude oil production and revenue (selected years)315 316

 

Footnotes
312 Letter Catsaras to Hickey & Abel, 9 February 2009, ‘Iraq Strategy’.
313 Public hearing, 20 January 2010, pages 21-22.
314 Public hearing, 20 January 2010, page 26.
315 US Energy Information Administration website. Iraq Crude Oil Production by Year.
316 Brookings Center for Middle East Policy, Iraq Index, Comparison of Oil Revenue from Exports, 2003-2012.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
457

UK Government support for UK business – UK commercial interests, 2001 to 2002

554. Sections 1.1 and 1.2 describe the increasing challenges from 1999 to the US/UK
policy for the containment of Iraq.

555. In January 2001, the FCO’s Middle East Department drew up an internal paper for
a meeting of the FCO Policy Board, which reassessed the UK’s “fundamental interests”
in relation to Iraq and recommended a new approach to promoting them.317 The UK’s
interests were identified as:

• regional stability, including through the non-proliferation of Weapons of Mass
Destruction (WMD);

• energy security: the region accounted for 33 percent of the world’s oil production
and 66 percent of world oil reserves;

• a “level playing field” for UK companies: at its peak, UK trade with Iraq was
US$500m a year;

• preserving the credibility and authority of the UN Security Council;

• maintaining the coherence of UK policy, including on human rights, adherence
to UN Security Council resolutions, and non-proliferation;

• improving the humanitarian and human rights situation in Iraq;

• avoiding a US/UK split; and

• reducing the UK’s isolation in the EU.

Planning and preparing for a post-conflict Iraq

556. From 20 September 2002, the Cabinet Office-led Ad Hoc Group on Iraq (AHGI)
co-ordinated all non-military cross-government work on post-conflict issues. The focus
of the AHGI’s work was a series of analytical papers by the FCO and other departments
on the post-conflict administration and reconstruction of Iraq, and the possible
consequences of conflict for the UK.

557. The AHGI held its first meeting on 20 September.318 Mr Jim Drummond, Assistant
Head of the Cabinet Office Overseas and Defence Secretariat (OD Sec), wrote to
Mr Desmond Bowen, Deputy Head of OD Sec, the day before, suggesting issues for
discussion and proposing departmental responsibilities for those issues.

558. Neither Mr Drummond’s minute to Mr Bowen nor the record of the 20 September
AHGI meeting indicated that work was being or should be undertaken on promoting UK
commercial interests in a post-conflict Iraq.319

 

Footnotes
317 Paper FCO, January 2001, ‘Iraq: A fresh look at UK interests’.
318 Minute Drummond to Bowen, 19 September 2002, ‘Ad Hoc Group on Iraq (AHGI)’.
319 Minute Drummond to Bowen, 19 September 2002, ‘Ad Hoc Group on Iraq (AHGI)’; Minute Drummond to Manning, 23 September 2002, ‘Ad Hoc Group on Iraq’.

The Report of the Iraq Inquiry
458

559. The record of the first AHGI meeting stated that work should remain “as internal
thinking within departments” for the next few weeks.320

560. The AHGI remained the principal Whitehall co-ordination mechanism for
non‑military Iraq planning until the creation of the inter-departmental Iraq Planning Unit
(IPU) in February 2003.

561. The AHGI did not commission or receive any papers relating to UK commercial
interests in a post-conflict Iraq during its operation.

562. On 12 September 2002, Sir David Manning, the Head of OD Sec and Mr Blair’s
Foreign Policy Adviser, commissioned a paper from the FCO setting out what a post-
Saddam Government might look like.321

563. The FCO sent its paper on post-Saddam government in Iraq, entitled ‘Scenarios
for the future of Iraq after Saddam’, to Sir David on 26 September.322 It was circulated
separately to the AHGI.

564. The paper stated that to influence developments on Iraq, the UK needed “the
clearest possible sense of our objectives for Iraq”. The UK’s “fundamental interest
in a stable region providing secure supplies of oil to world markets” suggested four
overarching priorities:

• termination of Iraq’s WMD programme and permanent removal of the threat
it posed;

• a more inclusive and effective Iraqi Government;

• a viable Iraq which was not a threat to its neighbours; and

• an end to Iraqi support for international terrorism.

565. The UK also had a number of “second order” objectives, including ensuring that
British companies benefitted from any post-war reconstruction contracts.

566. Sir Christopher Meyer, British Ambassador to the US, responded to the paper
by questioning whether it was right to classify securing reconstruction contracts as a
second order objective.323 Russia and France were, by all accounts, anxious about their
economic interests in Iraq after Saddam Hussein. UK interests were not something to
press immediately, but should be a “top priority” in post-Saddam contingency planning.
Mr Blair would have to pursue the issue with President Bush if the UK were to have
any impact.

 

Footnotes
320 Minute Drummond to Manning, 23 September 2002, ‘Ad Hoc Group on Iraq’.
321 Letter Manning to McDonald, 12 September 2002, ‘Iraq’.
322 Letter McDonald to Manning, 26 September 2002, ‘Scenarios for the future of Iraq after Saddam’ attaching Paper FCO, [undated], ‘Scenarios for the future of Iraq after Saddam’.
323 Telegram 1256 Washington to FCO London, 1 October 2002, ‘Iraq: Dividing the Spoils’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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567. Sir Christopher concluded: “We [the UK] will need to register with the Americans that, in the event of war, the UK will expect to get a generous share of reconstruction and oil contracts after Saddam’s defeat. This did not/not happen in Kuwait after the Gulf War.”

568. An oil industry representative called on Mr Edward Chaplin, FCO Director Middle
East and North Africa, on 2 October to express his concern that “by sticking to the
rules over Iraq and not going for post-sanctions contracts”, UK oil companies would
lose out.324 There were rumours that some countries would “sell their support” for US
action in return for a guarantee that their deals with Saddam Hussein’s regime would
be honoured by a new administration.

569. Mr Chaplin said that the FCO was “seized of the issue” and “determined to get
a fair slice of the action for UK companies”. Most of the rumours could be discounted.

570. Trade Partners UK (TPUK)325 began considering in early October 2002 what it
could and should do in the event that Iraq returned to “any degree of normalcy”.326

571. On 15 October, Mr Bill Henderson, TPUK Director International Group 1, advised
Baroness Symons, joint Department of Trade and Industry (DTI)/FCO Minister of State
for International Trade and Investment, that TPUK’s contingency planning was “purely
internal and at a very early stage”.327 TPUK had made provision for a Commercial Officer
to be included in the initial stage of a re-established UK mission in Baghdad. There were
likely to be significant commercial opportunities for UK firms, although there were limits
on what TPUK could do to identify those opportunities: “For the moment there is some sensitivity to giving prominence to the commercial aspects. We are keen to avoid giving the impression that commercial interests are driving our policy in Iraq.”

572. On 25 October, Mr Tony Brenton, Deputy Head of Mission at the British Embassy
Washington, reported a conversation with Vice President Dick Cheney’s office, in which
he had been told that Vice President Cheney was about to discuss Iraqi oil contracts
with former Russian Prime Minister Yevgeny Primakov. Mr Primakov would be told that
the “bids of those countries which co-operated with the US over Iraq would be looked
at more sympathetically than those which did not”.328

 

Footnotes
324 Email Chaplin to Gray, 2 October 2002, ‘Iraq – Views of UK Business’.
325 Trade Partners UK was the division of British Trade International (BTI) responsible for promoting UK exports until October 2003, when BTI was renamed UK Trade and Investment (UKTI) and the Trade Partners UK identity fell out of use.
326 Minute TPUK [junior official] to Henderson, 2 October 2002, ‘Iraq – Getting Back into the Market’.
327 Minute Henderson to PS/Baroness Symons, 15 October 2002, ‘Iraq: Contingency Planning Commercial Aspects’.
328 Letter Brenton to Chaplin, 25 October 2002, ‘Iraq: Oil’.

The Report of the Iraq Inquiry
460

573. Representatives of BP, Shell and British Gas met Baroness Symons on 31 October
to discuss their concerns.329 Mr Christopher Segar, Head of the FCO’s Aviation Maritime
and Energy Department (AMED), reported that all three companies had argued that
they had been scrupulous in observing sanctions but were keen to play a part in any
reconstruction effort. They did not want a privileged position but equally did not want to
be “locked out” through deals done by the US for wider political purposes. They wanted
a “level playing field”.

574. In response, Baroness Symons had said that, given the Russians’ considerable
economic interest in Iraq, it was “very possible that a deal or deals” might be under
discussion in the US.

575. Baroness Symons reported her meeting to Mr Jack Straw, the Foreign Secretary,
and commented: “I said that we could not make any definitive undertakings [on securing contracts], given our determination that any action in relation to Iraq is prompted by our
concerns over WMD, and not a desire for commercial gains.
“However, I undertook to draw this issue to your attention as a matter of urgency.
They were genuinely convinced that deals were being struck and that British
interests are being left to one side.”330

576. The British Embassy Washington reported on 31 October that it had reassured BP
representatives that the Embassy had seen no evidence of any deals.331 The Embassy
had agreed to “keep a watchful eye”.

577. The Cabinet Office reported to Sir David Manning on 31 October that the
instruction to departments not to engage with external actors on contingency planning
for post-conflict Iraq (confirmed in the record of the first meeting of the AGHI on
20 September) was, in practice, being overtaken.332 There was particular pressure for
consultation from the UK oil industry; a delegation from BP would be visiting the FCO
on 6 November.

578. The FCO hosted a presentation on Iraqi energy on 6 November given by a team
from BP.333 Mr Rycroft sent the record of the presentation to Mr Jonathan Powell,
Mr Blair’s Chief of Staff, and Sir David Manning as evidence of why Iraq was so
important to BP.334

 

Footnotes
329 Minute Segar to PS/Baroness Symons, 31 October 2002, ‘Iraq Oil’.
330 Minute Symons to Straw, 1 November 2002, ‘Iraqi Oil and Gas’.
331 Telegram 1418 Washington to FCO London, 31 October 2002, ‘BP & Iraqi Oil’.
332 Minute Dodd to Manning, 31 October 2002, ‘Iraq: After the UNSCR’.
333 Minute FCO [junior official] to Arthur, 13 November 2002, ‘BP/Iraqi Energy’.
334 Manuscript comment Rycroft, 18 November 2002, on Minute FCO [junior official] to Arthur, 13 November 2002, ‘BP/Iraqi Energy’.

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461

579. Mr Powell forwarded the record to Mr Blair, who commented: “But what do we
do about it?”335

580. On 8 November, the AHGI confirmed that departments were now “encouraged,
where necessary, to engage those outside Government in prudent contingency planning
as long as such contact is discreet. This extends to DTI planning on the UK role in a
post-Saddam economy, particularly in the oil sector.”336

581. Sir Christopher Meyer wrote to Sir David Manning on 15 November, reporting the
Embassy’s recent discussions with UK oil industry representatives: “We have made clear that the US motivation as regards Iraq parallels our own: this is a matter of national security, not oil. We emphasised the flat denials we have received from State Department that any such discussions [between non-UK companies and the US Administration] are under way.
“Nevertheless, the rumours persist. It is not clear … what went on behind the scenes
at the US/Russia energy ‘summit’ in Houston last month … We have seen a report
from our team at CENTCOM [US Central Command] which suggests that the
Pentagon has already awarded a contract to Kellogg, Brown and Root, a subsidiary
of Halliburton, to restore the Iraqi oil industry to production levels of 3m bpd … We
have so far been unable to obtain collateral for this from the Administration, and it
might well in any case amount to no more than prudent contingency planning to
stabilise Iraqi oil facilities if Saddam attempts to damage them in a conflict.
“Either way, there is clearly an issue here which we need to tackle … My view
remains that the only realistic way in to this is via a PM [Mr Blair] intervention with
Bush … The points to make would be:

• Once Saddam has been disarmed … Iraq’s oil industry will be central to …
economic recovery.

• We, as you, have energy majors who have skills and resources to help …

• To give the lie to suggestions that this campaign is all about oil, it is vitally
important that, once sanctions are lifted, there is seen to be a level playing field
for all companies to work in Iraq.”337

582. Sir Christopher stated that “by being too squeamish and slow off the mark, the UK
did badly out of the Kuwait reconstruction contracts in 1991”. The approach outlined
above was the least the UK should do, to avoid a similar outcome.

583. The Kellogg, Brown and Root (KBR) contract referred to by Sir Christopher was
likely to be the US$1.9m contract to plan the repair of Iraq’s oil infrastructure awarded

 

Footnotes
335 Manuscript comment Blair on Minute FCO [junior official] to Arthur, 13 November 2002, ‘BP/Iraqi Energy’.
336 Minute Dodd to Manning, 11 November 2002, ‘Ad Hoc Group on Iraq’.
337 Letter Meyer to Manning, 15 November 2002, ‘Iraqi Oil’.

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to KBR under the US Army’s Logistics Civil Augmentation Program (LOGCAP) on
8 November.338

584. Sir David Manning raised oil and gas contracts during a meeting with
Dr Condoleezza Rice, President Bush’s National Security Advisor, in Washington on
9 December.339 A TPUK briefing note produced for Sir David Manning in advance of
the meeting summarised the UK’s position: “It would be inappropriate for HMG [Her Majesty’s Government] to enter into discussions about any future carve-up of the Iraqi oil industry. None-the-less it is essential that our companies are given access to a level playing field in this and other sectors …”340

585. At the meeting, Sir David said that he hoped UK energy companies “would be
treated fairly and not overlooked if Saddam left the scene”.341 Dr Rice said that it would
be particularly unjust if companies that had observed sanctions since 1991, a category
which included UK companies, were not among the beneficiaries of post-Saddam Iraq.

586. The US Agency for International Development (USAID) began the process of
letting its major post-conflict reconstruction contracts in December 2002.342 At that time, US military preparations were gathering pace. It was clear that very little time remained before a military campaign.

587. The UK participated in two rounds of US/UK/Australia talks on post-conflict issues,
on 6 November 2002 and 22 January 2003 (see Sections 6.4 and 6.5). There are no
indications that commercial interests were discussed during those talks.

588. Mr Blair met with President Bush and Dr Rice in Washington on 31 January 2003
to discuss post-conflict planning.

589. A briefing prepared for Mr Blair by the FCO included in its list of objectives:
“To convince President Bush … the US needs to pay much more attention, quickly,
to planning on ‘day after’ issues; and that the UN needs to be central to it.”343
Key messages included:

“• Restoring oil production will be an immediate challenge. Oil sector will need
some technology and a lot of capital. We must encourage an open investment
regime and a level playing field for foreign companies.”

 

Footnotes
338 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
339 Minute Manning to Prime Minister, 11 December 2002, ‘Iraq’.
340 Paper TPUK, 29 November 2002, ‘Note for Sir David Manning on UK Oil Company Interests in Iraq’.
341 Minute Manning to Prime Minister, 11 December 2002, ‘Iraq’.
342 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
343 Paper FCO Middle East Department, 30 January 2003, ‘Prime Minister’s visit to Camp David, 31 January: Iraq’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
463

590. A short Cabinet Office paper offered Mr Blair a “few OD Sec points, just in case
they slip through the briefing”.344 Those included:

“• Agree the importance of transparency in the use of oil revenues. Argue for
a level playing field for UK companies on new exploration contracts.”

591. The record of the meeting between President Bush and Mr Blair does not show
any discussion of oil issues.345

592. Officials from TPUK, the FCO, the Export Credit Guarantee Department (ECGD)
and a representative from the British Consultants and Contractors Bureau (BCCB) met
on 7 February to discuss post-conflict commercial issues.346

593. Following that meeting, Mr Henderson provided a further update for Baroness
Symons on TPUK’s contingency planning. He advised that: “Until now, most of our [TPUK] meetings have involved only internal players, and have been relatively low key, in view of our wish to avoid giving undue prominence to the commercial aspects of HMG’s handling of the crisis. The participation of BCCB in this meeting marked a new phase of our planning process.”

594. The meeting had concluded that the assistance needed by UK companies would
fall into three categories:

• During “Stage 1”, a small number of UK companies would want UK Government
help to gain quick access to infrastructure that they had installed in Iraq, as part
of the humanitarian and reconstruction effort but also “to protect their competitive
advantage”. Planning would require close consultation with the MOD.

• During “Stage 2”, TPUK would provide UK companies with information
on opportunities arising from the initial stages of the humanitarian and
reconstruction effort.

• During “Stage 3”, TPUK would help UK companies position themselves to take
advantage of short- and medium-term reconstruction contracts. Close contact
with the US would be a key factor.

595. Mr Henderson advised that UK companies were arguing strongly that the UK
Government should press the US Government to guarantee a “level playing field” for UK
companies on reconstruction contracts, including for oil and gas contracts. Six business
representatives had recently written to Baroness Symons, expressing their concern that
the UK was not extracting sufficient commercial advantage from its support for the US.

 

Footnotes
344 Minute Drummond to Rycroft, 28 January 2003, ‘Iraq: US Visit’.
345 Letter Manning to McDonald, 31 January 2003, ‘Iraq: Prime Minister’s Conversation with President Bush on 31 January’.
346 Minute Henderson to Symons, 12 February 2003, ‘Iraq: Post-Conflict Commercial Issues’.

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596. Mr Henderson concluded by commenting that although TPUK participated in
the weekly meetings of the AHGI: “… the overall Whitehall agenda appears to attach little importance to the commercial aspect and the interests of UK companies.”

597. Mr Geoff Hoon, the Defence Secretary, discussed post-conflict issues with
Mr Donald Rumsfeld, US Secretary of Defense, and Dr Rice in Washington on
12 February.

598. Mr Drummond sent Mr Ian Lee, MOD Director General Operational Policy, a final
version of the UK’s “key messages” on post-conflict Iraq on 11 February, for Mr Hoon
to use in his meetings.347 The final key message was: “Level playing field: Big contracts to rebuild Iraq. Putting UK lives on line. Expect level playing field for UK business in oil and other areas.”

599. The British Embassy in Washington’s record of Mr Hoon’s meetings with Secretary
Rumsfeld and Dr Rice on 12 February did not include any reference to a discussion on
commercial issues.348

600. Mr Henderson advised an FCO official on 25 February that the “general point”
that UK companies should be in a position to access opportunities arising from
reconstruction and rehabilitation in Iraq had been raised at an (unspecified) high level
with the US Government.349 The UK had been assured that a level playing field would
apply. Mr Henderson commented: “however, the reality is that US companies will be in
a privileged position”.

601. Mr Henderson sought Baroness Symons’ agreement on 27 February that officials
should adopt a “more open, pro-active approach” in their dealings with UK companies.350
Interest from UK companies was growing, and the UK Government needed to be seen
to respond.

602. Baroness Symons forwarded Mr Henderson’s minute to Mr Straw and Ms Patricia
Hewitt, Secretary of State for Trade and Industry and Minister for Women and Equality.351
In a covering letter, Baroness Symons reported that more and more companies were
approaching her and TPUK about post-conflict reconstruction. The UK Government had been careful not to take a more public stance in support of UK business. That was the

 

Footnotes
347 Letter Drummond to Lee, 11 February 2003, ‘Iraq Post Conflict: Key Messages’ attaching Paper Cabinet Office, 11 February 2003, ‘Iraq Post Conflict: Key Messages’.
348 Telegram 203 Washington to FCO London, 13 February 2003, ‘Iraq: Defence Secretary’s Visit to Washington.
349 Minute Henderson to FCO [junior official], 25 February 2003, ‘Iraq: UK/US issues’.
350 Minute Henderson to PS/Symons, 27 February 2003, ‘Iraq Contingency Planning: Commercial Aspects’.
351 Minute Symons to Straw and Hewitt, [undated], ‘Iraq: Commercial Aspects’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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right approach, bearing in mind the UK was making the case that the conflict was about
WMD and not oil: “But the pressure from businesses is building and I fear that some of our business community fear we are not engaged. Some think that the US and France are ahead of the game already …”

603. Baroness Symons concluded that she felt strongly that the time was right “to be
more on the front foot”.

604. At the end of February, Mr Keith Allan, TPUK Deputy Director International
Group 1, reported to TPUK colleagues that Mr Dominick Chilcott, the Head of the IPU,
had told him that there was scope for a “TPUK slot” in the US Office of Reconstruction
and Humanitarian Assistance (ORHA).352 The US needed more resources in ORHA
and Mr Chilcott believed that ORHA would welcome someone who could make a
substantive contribution. Mr Chilcott had made it clear that the individual would need to
do “a real job”.

605. Mr Allan commented: “We see this as a key opportunity for UK plc. As Dominick [Chilcott] said, there would be no guarantees of contracts, but it would be a clear demonstration of our commitment to do our best for UK companies.”

606. A junior official in British Trade International (BTI) joined ORHA (then based
in Washington) on 9 March. He subsequently deployed with ORHA to Kuwait and
Baghdad.353

607. On 8 March, the US Army Corps of Engineers (USACE), which had responsibility
within the US Government for the reconstruction of the oil sector, awarded a contract
for the repair of Iraq’s oil infrastructure, worth up to US$7bn, to KBR.354 Hard Lessons
reported that the contract was the single largest reconstruction contract in Iraq and the
largest known sole-source contract in US history.

608. Mr Brenton reported on 10 March that “a commercial contact” had passed the
British Embassy Washington a version of a USAID invitation to select US companies to
bid for a US$600m contract for infrastructure reconstruction.355 USAID had confirmed
that it had issued the invitation on 12 February with a closing date of 27 February.
Mr Brenton had pressed for more transparency.

 

Footnotes
352 Email Allan to Warren, 27 February 2003, ‘Iraq: TPUK Position in US Office of Reconstruction and Humanitarian Assistance (ORHA)’.
353 Email BTI [junior official] to Henderson, 13 June 2003, ‘End of assignment to OCPA and replacement planning’.
354 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
355 Telegram 320 Washington to FCO London, 10 March 2003, ‘Iraq Day After: Infrastructure Reconstruction Contracts’.

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609. Mr Brenton also reported that it was not clear how that USAID contract related to a
separate contract “allegedly being let by the US Army Corps of Engineers” and reported
in the UK press on 9 March.

610. On 11 March, “with the agreement of Ministers”, Mr David Warren, TPUK
Director International Group, hosted a meeting with representatives of a number of
UK companies to discuss possible post-conflict reconstruction opportunities in Iraq.356
He reported to Baroness Symons the following day that it had been a useful opportunity
to emphasise that UK policy was to secure Iraq’s disarmament. The group’s main
concern had been that the US was moving ahead quickly on reconstruction and UK
companies would be frozen out.

611. At Prime Minister’s Questions on 12 March, Dr Vincent Cable asked whether
Mr Blair was aware that the US Government had “pointedly excluded British and foreign
firms” from bidding for US contracts.357 Mr Blair rejected Dr Cable’s charge that Mr Bush
regarded international co-operation with contempt.

612. Mr Mike O’Brien, FCO Minister of State, visited Washington on 13 March, to
discuss post-conflict issues with US interlocutors.358

613. A senior official from the US National Security Council (NSC) briefed Mr O’Brien
on US plans for the oil sector.359 In that context, Mr O’Brien emphasised the importance
that the UK Government attached to UK companies having “a fair crack of the whip” in
competing for contracts. He accepted that it was reasonable for US companies to be
the recipients of US money for emergency contracts, but the field should be opened up
“once Iraqi money came on stream”. The NSC official agreed, and said that it would not
be US policy to restrict oil sector contracts to US companies.

614. Mr O’Brien also called on Mr Andrew Natsios, USAID Administrator.360 Mr Natsios
advised that, for security reasons, USAID had invited only a few US companies
with the necessary clearances to bid for the 17 primary reconstruction contracts.
There were no such constraints on subcontracts, and he hoped that UK companies and
non‑governmental organisations (NGOs) with the right expertise would be successful in
securing those contracts.

615. In response to a question from Mr O’Brien, Mr Natsios said that it would be
possible for UK companies to acquire the necessary security clearances to bid for
primary contracts. Mr O’Brien agreed to send Mr Natsios a list of “trustworthy” UK
companies.

 

Footnotes
356 Minute Warren to PS/Symons, 12 March 2003, ‘Iraq contingency planning: record of meeting with UK companies.
357 House of Commons, Official Report, 12 March 2003, column 287.
358 Telegram 341 Washington to FCO London, 13 March 2003, ‘Iraq Day After: Mr O’Brien’s Visit’.
359 Letter Gooderham to Chilcott, 13 March 2003, Iraq: Day After: The Oil Sector’.
360 Telegram 341 Washington to FCO London, 13 March 2003, ‘Iraq Day After: Mr O’Brien’s Visit’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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616. On 14 March, Mr Straw marked Baroness Symons’ letter to Mr Simon McDonald,
his Principal Private Secretary, with the comment: “This is really important. Please make sure it is factored into Mike O’Brien’s discussions and that a senior official … takes a personal lead on this.”361

617. Later that day, Mr McDonald instructed Mr Chilcott that Baroness Symons’
concerns should be factored into the IPU’s follow up to Mr O’Brien’s discussions in
Washington.362

618. A No.10 official sent Mr Blair a note on reconstruction contracts on 15 March, at his
request.363 The note reported the conclusions of Mr O’Brien’s meeting with Mr Natsios on 13 March.

619. Ms Hewitt spoke to Mr Natsios by telephone the following week, to lobby for UK
companies.364

620. The Coalition began military action against Iraq on the night of 19-20 March 2003.
Influencing the Coalition Provisional Authority and the US

621. Mr Antony Phillipson, Counsellor (Trade and Transport) at the British Embassy
Washington, summarised the effect of recent UK lobbying of the US in a report to
Mr Allan on 24 March.365 Mr Natsios had told both Mr O’Brien and Ms Hewitt that UK
companies would have the opportunity to bid for subcontracts, that USAID would
sponsor UK companies to secure the necessary security clearances, and that UK bids
for subcontracts would be welcomed. UK companies could not bid for primary contracts.

622. Mr Phillipson reported that he had followed up those discussions with a meeting
with a USAID official, who: “… reiterated the assurances that … Natsios had given that the UK will get a bite at the cherry when the subcontracts came up. The US prime [contractor] would be instructed to this effect and [the USAID official] could not be more blunt than to say that ‘the fix is in’.”

623. ORHA would undertake the detailed assessments of the subcontracts; it had also
been told of the need to include the UK in the process.

624. Mr Phillipson advised that the next step was to translate that “political assurance”
into practice. The “Buy America” provisions and the inclusion of a list of US standards
and specifications in the USAID “mother contract” were a cause for concern. The best

 

Footnotes
361 Manuscript comment Straw, 14 March 2003, on Minute Symons to Straw and Hewitt, [undated], ‘Iraq: Commercial Aspects’.
362 Minute McDonald to Chilcott, 14 March 2003, ‘Iraq: Commercial Aspects’.
363 Minute Cannon to Prime Minister, 15 March 2003, ‘Iraq: Reconstruction Contracts’.
364 Observer, 23 March 2003, Hewitt begs US for Iraq deals.
365 Minute Phillipson to Allan, 24 March 2003, ‘Iraq: Contracts’.

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approach would be for the Embassy and UK companies to focus on establishing links
with the US prime contractor (rather than continuing to lobby USAID).

625. Mr Allan informed senior TPUK colleagues on 4 April that the BTI official
seconded to ORHA: “… has a full role to play in the Office of Reconstruction and Humanitarian Assistance … However, his immediate priorities for us remain the identification of opportunities for UK companies; bringing UK expertise to the attention of ORHA; and identifying key contacts for UK companies. [He] has started to identify openings (e.g. oil and gas; airports).”366

626. The IPU briefing for Mr Blair in advance of his 8 April meeting with President Bush
at Hillsborough advised: “We need to be able to demonstrate that UK company interests continue to be raised at high levels. It would be helpful to say that UK companies remain keen to work alongside US companies … UK companies have vast experience and
knowledge of doing business in the Middle East and have a great deal to offer.”367

627. The record of the Hillsborough meeting does not show any exchange on that
issue.368

628. Baroness Symons met representatives of UK companies on 8 April to discuss
commercial opportunities in Iraq.369 A TPUK official reported that she had made it clear
that the UK was “not in this conflict for business opportunities”, but that UK companies
had a great deal of expertise and knowledge to offer and should be involved in the
redevelopment of Iraq.

629. The official reported that UK companies had raised a number of issues, including:

• DFID should provide more information on its requirements, and should not
overlook UK companies;

• DFID should ring-fence reconstruction funds for UK companies, given the unique
circumstances;

• the legality of working in Iraq without a UN mandate; and

• whether the requirement to meet US standards would prevent UK companies
from securing subcontracts.

 

Footnotes
366 Email Allan to Henderson, 4 April 2003, ‘Iraq: Role of Sector Teams in Supporting [junior official] and Post-Conflict Sector Activity’.
367 Letter Owen to Rycroft, 7 April 2003, ‘Hillsborough: Iraq’ attaching Paper IPU, 6 April 2003, ‘Iraq: Phase IV: authorising UNSCR’.
368 Letter Rycroft to McDonald, 8 April 2003, ‘Iraq: Prime Minister’s meeting with Bush, 7-8 April’.
369 Minute Allan to PS/Baroness Symons, 8 April 2003, ‘Iraq: record of meeting with UK companies’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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630. Ms Hewitt reported those concerns to the first meeting of the Ad Hoc Ministerial
Group on Iraq Rehabilitation (AHMGIR) on 10 April.370 She said that she had turned
down the proposal that there should be a UK reconstruction fund for the exclusive
use of UK companies. There were worrying signs that the US was setting technical standards which only US firms could meet.

631. Ms Hewitt wrote to Mr Blair on the issue of technical standards in USAID contracts
on 15 April.371

632. The Inquiry has seen no indication that Ms Hewitt received a reply, or that Mr Blair
saw the letter.

633. On 16 April, the US Government established the Iraq Relief and Reconstruction
Fund (IRRF) and provided US$2.475bn to fund humanitarian relief and reconstruction
activities.372 USAID received just over 70 percent of those funds.

634. The following day, USAID announced that it had awarded its main infrastructure
reconstruction contract, worth up to US$680m, to Bechtel International.373

635. TPUK hosted the first meeting of the Iraq Industry Working Group (IIWG) on
24 April.374 TPUK intended that the IIWG would act as a channel of communication
between the UK Government and industry, to support the Government’s efforts to help
UK companies access commercial opportunities in Iraq.

636. In July 2003, the IIWG established six sector working groups: power, water, oil and
gas, health, education and telecommunications.375

637. Baroness Symons visited Washington on 16 May, accompanied by representatives
of the IIWG, the BCCB and the Confederation of British Industry (CBI), to discuss the
participation of UK companies in Iraq’s reconstruction with the US Government and
Bechtel.376

638. Baroness Symons wrote to Mr Straw and Ms Hewitt on 19 May, reporting that
she had been repeatedly assured of US enthusiasm for granting subcontracts to
UK companies.

 

Footnotes
370 Minutes, 10 April 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
371 Letter Hewitt to Prime Minister, 15 April 2003, ‘Iraq Reconstruction: Standards Issues’.
372 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
373 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
374 Paper TPUK, 6 May 2003, ‘Annex G: Iraq: Progress on Commercial Opportunities’.
375 Minute Warren to TPUK [junior official], 30 July 2003, ‘Iraq Sector Approach’.
376 Letter Symons to Straw, 19 May 2003, ‘British Construction/Humanitarian Help in Iraq’.

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639. Mr Straw and Ms Hewitt wrote to Mr Blair on 22 May, reflecting on
Baroness Symons’ visit: “Our main objective has been to create a favourable political atmosphere in which UK companies can position themselves to bid for subcontract work from these initial US-funded projects.
“However, we understand that as yet only 180 of the 3,500 companies which
have registered with Bechtel as potential subcontractors … are British. A share in
the commercial effort proportionate to our contributions to the military campaign
will require a higher level of commitment on the part of UK firms if they are not to
be squeezed out by international competition. We could also try to secure firmer
political guarantees from the US, and aim for a more co-ordinated HMG approach
(e.g. involving ECGD, DFID and MOD …).
“The feedback on the action we have taken so far from UK business and
organisations such as the BCCB and the CBI has been positive. We have created
the conditions in which UK companies can pursue business in a favourable climate,
and contracts for British companies are now coming through. This is encouraging.
But it is for the companies themselves to take advantage of these favourable
conditions …”377

640. The Inquiry has seen no indications that Mr Straw and Ms Hewitt received a reply,
or that Mr Blair saw their letter.

641. On 23 May, TPUK and the US Embassy London held a joint seminar on US-funded
reconstruction contracts for Iraq.378 The event was attended by representatives of 250
companies “located in Britain”.

642. On 29 May, the UK Deputy to Ambassador Ole Olsen, the Danish Head of ORHA
(South), reported to Baroness Symons’ Private Secretary that some ORHA(South)
secondees were, in addition to their ORHA work, “scouting around” for commercial
opportunities for their parent companies.379 The UK Deputy commented that UK
secondees should be doing the same.

643. Baroness Symons’ Private Secretary passed the record of the conversation to
Mr Henderson, and advised that Baroness Symons was keen to “make the most” of this
opportunity and would welcome advice on “how best this might be done”.

644. Mr Allan responded later that day, advising that the BTI official seconded to ORHA
in March (and now based in Baghdad) was already “playing the sort of role” proposed

 

Footnotes
377 Letter Straw and Hewitt to Blair, 22 May 2003, ‘Iraq: Commercial Opportunities and UK Companies’.
378 Trade Partners UK, Press Release, 23 May 2003, Meeting on redevelopment of Iraq sponsored by Trade Partners UK and the US Embassy.
379 Email UK [junior official] to Henderson, 30 May 2003, ‘Basra Commercial Opportunities’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
471

by the UK Deputy.380 TPUK would consider the possibility of seconding individuals from
UK companies to ORHA.

645. The UK Deputy reported her first impressions of ORHA(South) to Mr Chilcott
on 1 June (see Section 10.1).381 She advised that Denmark was keen to capitalise
commercially from its leading role in the South (although Ambassador Olsen was at
pains to distance himself from that effort). Many of the Danish staff in ORHA(South)
were sponsored by private companies. Although they had agreed not to pursue
commercial opportunities while working in ORHA, they were focusing their attention
and expertise in areas which might offer commercial opportunities. She concluded that
“the Danish model is an excellent one and something we should copy”. It provided
ORHA with the managers it needed, stimulated the local commercial sector, and could
help UK business.

646. The UK Deputy reported that she had re-tasked a UK secondee to ORHA(South)
to “take on the trade portfolio including, more surreptitiously, a watching UK trade brief”.

647. Mr Blair visited Basra and Umm Qasr on 29 May. The visit prompted Mr Blair to
direct Whitehall to go back to a “war footing” to avoid “losing the peace in Iraq”
(see Section 10.1).

648. On his return from Iraq, Mr Blair sent a personal Note to President Bush containing
specific suggestions on how to accelerate progress in delivering visible improvements
in Iraq, including: “Bechtel needs to move far more quickly in letting contracts for
infrastructure reconstruction – patching up won’t do.”382

649. Mr Blair chaired a meeting on Iraq on 3 June attended by Mr Hoon, Baroness
Amos (the International Development Secretary), Sir Michael Jay (FCO Permanent
Under Secretary) and No.10 officials.383 Mr Blair said he had returned from Iraq
convinced that “an enormous amount needed to be done”, including that:

• Coalition Provisional Authority (CPA) and US decision-making processes were
too slow: contracts needed to be processed faster; and

• UK companies needed to be energised to take up opportunities in Iraq.

650. Following the meeting, a No.10 official commissioned a number of papers
for a further meeting to be chaired by Mr Blair on 6 June. Those included a list of
10‑15 outstanding practical issues for Mr Blair to raise with President Bush that would
“make a big difference to the people of Iraq if they are resolved”.

 

Footnotes
380 Email Allan to Chatterton Dickson, 30 May 2003, ‘Basra Commercial Opportunities’.
381 Minute UK [junior official] to Chilcott, 1 June 2003, ‘ORHA South – First Impressions’.
382 Letter Manning to McDonald, 2 June 2003, ‘Iraq: Prime Minister’s Note’ attaching ‘Note’.
383 Letter Cannon to McDonald, 3 June 2003, ‘Iraq: Prime Minister’s meeting, 3 June’.

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651. That list was produced by the IPU on 5 June and sent to Mr Blair the same day
under a covering minute from Mr Straw.384 The IPU list identified as a priority:
“Baghdad needs an extra 400 MW of power capacity now. Siemens UK can put
in 170 MW in a few weeks – all they need is a letter of intent. This seems to be
stuck in Washington.”

652. Mr Straw highlighted that issue in his covering minute to Mr Blair, stating that
Ms Hewitt was keen for Mr Blair to lobby President Bush on behalf of Siemens
UK, whose bid had been stalled in Washington “by counter-lobbying from
GE [General Electric]”.385

653. On the same day, Mr Straw sent a separate and personal letter to Mr Blair, asking
him to raise a number of points “very forcefully” with President Bush.386 Those included:
“Contracts: As you know, the US are completely ruthless on favouring US
companies, and will not help UK companies unless you play hardball with Bush.”
Mr Straw offered as an example of this behaviour a Bechtel subcontract for electricity
systems. Siemens UK had almost secured that contract, when it had “gone cold”.

654. Mr Blair held a further meeting on Iraq on 6 June, to agree the points to put
to President Bush.387 The meeting agreed a number of key messages and actions,
including that Ms Hewitt should try to visit Iraq to promote the involvement of UK
business.

655. Mr Blair spoke to President Bush later that day.388 Mr Blair raised delays
in Bechtel’s operations, including unnecessary delays in agreeing a contract for
Siemens UK. The US was chasing Bechtel.

656. Ms Hewitt visited Iraq on 9 July, to ensure that British business expertise was
not overlooked in the reconstruction effort and to ensure that Iraqi women were being
properly involved in the political process.389

657. Ms Hewitt reported to Mr Blair on 11 July that she had raised with Ambassador
Paul Bremer, the Head of the CPA, the UK’s concern about the way proposals for
subcontract work from Siemens UK and Balfour Beatty were being handled by Bechtel.
Ambassador Bremer had undertaken to look into the issue.

658. During the visit, Ms Hewitt was joined by an IIWG “scoping mission” for discussions
with senior Iraqi officials and US members of the CPA’s economics team. Ms Hewitt

 

Footnotes
384 Letter Owen to Rycroft, 5 June 2003, ‘Iraq: Reconstruction Priorities’ attaching Paper IPU, 5 June 2003, ‘Iraq Reconstruction: 30 Day Priorities, 5 July 2003’.
385 Minute Straw to Blair, 5 June 2003, ‘Iraq: Winning the Peace’.
386 Minute Straw to Blair, 5 June 2003, ‘Iraq’.
387 Letter Cannon to McDonald, 6 June 2003, ‘Iraq: Prime Minister’s Meeting 6th June’.
388 Letter Cannon to McDonald, 6 June 2003, ‘Iraq: Prime Minister’s Conversation with Bush, 6 June’.
389 Minute Hewitt to Prime Minister, 11 July 2003, ‘Report of my Visit to Baghdad’.

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473

reported that with CPA officials, the group had discussed “the need to get a procurement
expert into the CPA quickly (not least to ensure not all contracts go to US firms)”.

659. TPUK seconded a procurement officer to the CPA in August: “… to ensure that DFI [Development Fund for Iraq] and Iraqi Ministry procurement meets international procurement standards. Our aim is to create a level playing field for UK companies in the DFI, then help to give them a competitive advantage through support and advice from TPUK.”390

660. On 10 and 11 August, Basra experienced severe rioting.391 Section 10.1 describes
the UK’s assessment of the causes of that disturbance, and its response.

661. Representatives of Siemens’ Washington office met officials from the British
Embassy Washington on 14 August.392 The Embassy reported to the DTI:
“Siemens report a favourable change in CPA attitudes to their participation in the
power sector, which they attribute to HMG teamwork on their behalf in London,
Baghdad and Washington. The crisis in Basra over fuel and electricity may also have
tipped the balance in their favour.”

662. Mr Gregor Lusty, Head of the DTI’s Iraq Unit, commented to DTI colleagues on
that report: “Siemens has turned out to be quite a success story after all. A good indication of the level of political support which may be needed to unblock the US system, and
the level of determination to get business success in Iraq.”393

663. On 14 August, Mr Blair appointed Mr Brian Wilson as his Special Representative
on Trade Opportunities for British Business.394 Mr Wilson’s remit was to:

• support BTI in identifying and developing opportunities for British business
to help rebuild the infrastructure of Iraq and Afghanistan; and

• support BTI’s work in helping British business to invest in the energy sector.

664. Mr Wilson had previously been the Minister for Energy and Construction.

665. Mr Wilson met Sir Stephen Brown, TPUK Chief Executive, and senior TPUK
officials on 4 September to discuss the practicalities of the appointment.395 They agreed
that the priority “was clearly Iraq”, where Mr Blair had asked departments to raise
their game.

 

Footnotes
390 Paper TPUK, 3 September 2003, ‘Iraq Action Plan’.
391 Telegram 114 IraqRep to FCO London, 12 August 2003, ‘Situation in Basra’.
392 Telegram 3 Washington to DTI London, 15 August 2003, ‘British Commercial Interests in Iraq: Follow‑up’.
393 Email Lusty to TPUK [junior official], 19 August 2003, ‘British Commercial Interests in Iraq: Follow-up’.
394 PA News, 14 August 2003, Special Representative for British business abroad.
395 Email Tibber to Gallagher, 5 September 2003, ‘Brian Wilson’.

The Report of the Iraq Inquiry
474

666. President Bush announced on 7 September that he had asked Congress for
a further US$20.3bn to support Iraq’s reconstruction.396

667. Mr Lusty advised TPUK colleagues on 12 September that, following
President Bush’s announcement that the US would provide further funding for Iraq’s
reconstruction, establishing a TPUK office in Baghdad was: “… not so much timely as a critical necessity. Without a dedicated commercial presence on the ground we will continue to miss out on ensuring that the UK private sector plays the role it is capable of to reconstruct Iraq.”397

668. Mr Lusty reported that the British Office in Baghdad had recently secured
additional space in the Green Zone in Baghdad, which could accommodate a
commercial office. The “concept” was that the commercial office would initially be staffed
by two members of TPUK staff and two consultants from AMEC plc in a “public/private
partnership”.

669. TPUK deployed three Commercial Officers to Baghdad during September.398
A secondee from AMEC, to provide advice on infrastructure, followed in November.

670. The AMEC secondee deployed under the Short-Term Business Attachment
programme, which included a conflict of interests clause in the contract.399

671. Those were the first Commercial Officers to deploy to Iraq after the invasion.
A June 2004 briefing advised that the FCO had reneged on a pre-invasion agreement
that there would be a Commercial Officer among the initial deployment of UK officials
to Baghdad.400

672. TPUK deployed a Commercial Officer to Kuwait to cover Basra and southern Iraq
in January 2004.

673. The Annotated Agenda for the 18 September meeting of the AHMGIR advised
Ministers that the US had decided to establish a Program Management Office (PMO)
to oversee CPA reconstruction funds.401 The decision was a response to the persistent
problems in transferring funds from CPA(Baghdad) and CPA regional offices. However:
“Our initial response is sceptical: the PMO will manage predominantly US funds,
which will require US contracting and procurement procedures to be followed.
The prospect of developing Iraqi capacity, and of opening up contracts to include UK

 

Footnotes
396 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
397 Minute Lusty to Henderson, 12 September 2003, ‘Baghdad: TPUK Presence’.
398 Briefing UKTI, 7 June 2004, ‘Permanent Secretaries’ Meeting on UK Civilian Staffing in Iraq, 8 June 2004’.
399 Briefing UKTI, 25 November 2003, ‘Mr O’Brien’s Meeting with AMEC’.
400 Briefing UKTI, 7 June 2004, ‘Permanent Secretaries’ Meeting on UK Civilian Staffing in Iraq, 8 June 2004’.
401 Annotated Agenda, 18 September 2003, Ad Hoc Group on Iraq Rehabilitation meeting.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
475

companies (in the interests of effectiveness and value for money) remains negligible.
Nevertheless, without participating in some form in the PMO, we may lose a point
of influence.”

674. Mr Lusty provided advice to Mr O’Brien on 25 September on how TPUK would
ensure that procurement for Iraq’s reconstruction was transparent and created a
level playing field for UK companies.402 Mr Lusty advised that, although the CPA’s
procurement rules were “generally fair”, UK business remained concerned about the
lack of transparency and that the dominance of US personnel in the CPA resulted in
a bias towards US contractors.

675. Mr Lusty continued: “It has been clear from our contacts with the Americans at all levels that there will be no special favours for British business in bidding for reconstruction work in Iraq. We have made it clear to UK firms that there is no inside track …
“To maximise UK business involvement in Iraq reconstruction, we must ensure a
level playing field for international businesses bidding for reconstruction work from
the CPA and from the US Government; and give British business a competitive
advantage through our [TPUK’s] own bilateral trade promotion efforts.”

676. To achieve that, TPUK was:

• “Sending a … procurement expert back to the CPA asap.” The BTI official
seconded to ORHA/CPA in March (who had left at the end of June) had
focused on improving procurement by the Iraqi Ministries; President Bush’s
announcement of further, substantial funding for Iraq’s reconstruction and the
creation of the PMO had shifted the priority back to the CPA.

• Identifying public and private sector secondees for the PMO, in response to
a request from Rear Admiral (retired) David Nash, the Director of the PMO.

677. Mr Lusty recommended that Mr O’Brien press the US for greater transparency
in procurement by the CPA and the US Government (especially the Department of
Defense).

678. The UK Government seconded two consultants to the PMO; the first arrived in
March 2004.

 

Footnotes
402 Minute Lusty to PS/Mr O’Brien, 25 September 2003, ‘Iraq Reconstruction: UK Company Involvement’.

The Report of the Iraq Inquiry
476

679. TPUK sent Mr Blair an update on commercial issues in Iraq on 10 October.403
TPUK’s strategy was: “… to position UK firms … through the provision of information about contracts, procurement issues, etc, and to press the US authorities (and the CPA) to ensure a level playing field on which UK companies can compete.”

680. TPUK advised that the US had made it clear that while they welcomed the
participation of UK companies, there was no “special deal”.

681. TPUK’s major concern was the lack of openness in the CPA’s tendering and
procurement procedures, which might result in a bias towards US companies.
TPUK was lobbying on this issue in Baghdad and Washington, and had funded a
procurement consultant in the CPA Ministry of Finance “to make procurement more
transparent and ensure that UK firms were on the CPA’s bidding lists”. It would also
fund secondments to the PMO.

682. The TPUK paper considered oil and gas contracts separately from other
reconstruction contracts; oil and gas contracts are addressed earlier in this Section.

683. TPUK reported that UK firms were doing “quite well”, given that most of the work
so far had been US-funded. An analysis of Bechtel’s subcontracts showed that Iraqi
firms had won 36 percent, US firms 28 percent and UK firms 16 percent. UK firms had
also won major contracts in other areas.

684. British Trade International was subsequently renamed UK Trade and Investment
(UKTI) and the Trade Partners UK (TPUK) identity fell out of use.

685. Congress approved the CPA’s request for additional funds on 6 November,
allocating US$18.4bn to the Iraq Relief and Reconstruction Fund (IRRF2).404

686. Hard Lessons recorded that, at that time, the PMO comprised only Adm Nash,
two US Government officials, and 13 contractors.405

687. In December, Mr David Warren, Director of the UKTI’s International Trade Division,
provided a review of UKTI’s experience of promoting UK business for Mr Stephen
Haddrill, Director-General of the UKTI’s Fair Markets Group: “It took time, initially, to persuade Ministers that this [promoting UK commercial interests] was a legitimate objective that the Government should be seen to be promoting actively, rather than by default …

 

Footnotes
403 Letter Zimmer to Rycroft, 10 October 2003, ‘Iraq: Update on Commercial Issues’ attaching Paper UKTI, 10 October 2003, ‘Iraq: Update on Commercial Issues’.
404 Emergency Wartime Supplemental Appropriations Act, 2003.
405 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
477

“The inter-departmental structures to handle reconstruction issues … allowed UK
Trade and Investment to register this interest. But the departments responsible
for overseeing this co-ordination made clear at an early stage that UK commercial
interests were a lower priority than other aspects of reconstruction. The result …
was that the contribution that the private sector could make to post-conflict
reconstruction was less well registered. This contrasts with the US use of the private
sector at the planning stage.”406

688. Mr Warren also advised that DFID’s concentration on international competitive
tendering and the ECGD’s “understandable” reluctance to offer cover had further
inhibited a “proactive and joined-up approach”. Co-operation with DFID at a working
level had been “reasonable”.

689. The result had been that promoting UK companies was seen solely as the
responsibility of UKTI.

690. Mr Warren concluded that the interests of the private sector had not been
a high enough priority for the Government, and that the potential contribution to
reconstruction that could have been made by private sector had not been recognised
by the Government. UKTI activities had nevertheless resulted in “a reasonable amount”
of business for UK companies.

691. UK Government lobbying on behalf of UK business intensified in early 2004,
in anticipation of contracts that would flow from IRRF2 and against a background of
growing press and Parliamentary criticism that UK companies were at a disadvantage
in bidding for US-funded contracts.

692. CPA officials briefed UK private sector representatives on the CPA’s objectives and
requirements at a conference in London on 21 November.407

693. On 5 December, the US announced that companies from the US, Iraq, “Coalition
partners and force-contributing nations” were eligible to bid for prime contracts under
IRRF2.408 Prime contracts under IRRF1 had been open to US companies only.

694. In mid-December, the US Department of Defense invited bids for 12 major IRRF2
design and build construction contracts and six reconstruction management contracts.409

695. USACE awarded two design and build construction contracts in the oil sector on
16 January 2004 (the first contracts awarded under IRRF2).410 The contracts were won
by a US company (KBR, for the southern oilfields) and a joint US/Australian venture
(for the northern oilfields). Bids submitted by three UK companies were unsuccessful.

 

Footnotes
406 Minute Warren to Haddrill, 10 December 2003, ‘Post-Conflict Resolution: Iraq’.
407 Annotated Agenda, 27 November 2003, Ad Hoc Group on Iraq Rehabilitation meeting.
408 Paper Wolfowitz, 5 December 2003, ‘Determination and Findings’.
409 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
410 Briefing DTI, [undated], ‘Key Points Brief on DTI Issues: Ad Hoc Ministerial Meeting on Iraq’.

The Report of the Iraq Inquiry
478

696. In response, Sir Nigel Sheinwald, Mr Blair’s Foreign Policy Adviser, commissioned
a paper on UK access to US-funded reconstruction contracts for the 22 January meeting
of the AHMGIR.411

697. The 20 January meeting of ISOG concluded that, in contrast to the UK’s success
in 2003, the UK’s “current record” on winning US contracts was not good.412 The ISOG
agreed that the UK needed a “proper campaign plan” involving Ministers and the British
Embassy Washington, targeting the next tranche of US-funded contracts that would be
awarded by the PMO in March.

698. UKTI submitted a draft paper on UK access to US-funded reconstruction contracts
to the 22 January meeting of the AHMGIR.413

699. The draft paper stated that UK companies had good access to most US-funded
contracts, but had achieved only limited success so far. US procurement rules were
complex; several UK companies had formed joint ventures with US companies to
overcome that barrier. The recent award of the US-funded oil contracts to US companies
(bids with significant UK components had not been successful, despite lobbying by
Ministers) suggested that the UK needed to take a “stronger and more active political
line” in Washington to lobby for UK commercial interests.

700. The draft paper stated that while the British Embassy Washington conceded that
UK lobbying had not been successful, the Embassy was not convinced that the UK had
yet reached the stage where “high level political pressure” was appropriate.

701. The draft paper concluded that, as a first step, the Government should take
the line that UK companies had expertise and capacity in areas needed for Iraq’s
reconstruction, and that the Government wanted to see a significant UK component
in the PMO’s prime contracts. DTI and FCO Ministers should lead the UK’s lobbying.
The UK should consider targeted lobbying visits by Ministers to Washington closer to
the announcement of the PMO contracts.

702. UKTI prepared a final version of the paper for the next meeting of the AHMGIR,
on 12 February.

703. At Mr Straw’s request, Sir Stephen Brown contacted the three unsuccessful
UK companies for their views on the process.414

704. Sir Stephen reported to Mr O’Brien on 30 January that UK companies were
unsurprised at the result; the scale and complexity of the work was such that “US giants”

 

Footnotes
411 Briefing DTI, [undated], ‘Key Points Brief on DTI Issues: Ad Hoc Ministerial Meeting on Iraq’.
412 Minutes, 20 January 2004, Iraq Senior Officials Group.
413 Annotated Agenda, 21 January 2004, Ad Hoc Ministerial Group on Iraq Rehabilitation meeting attaching Paper UKTI [draft], 20 January 2004, ‘Access to US-funded Reconstruction Contracts’.
414 Minute Brown to O’Brien, 30 January 2004, ‘Iraq: Access to US Funded Reconstruction Contracts’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
479

were exceptionally well placed. The bidding process had been “fair but … pedantic
and complex”.

705. Mr O’Brien circulated a core script for a lobbying campaign targeting the US
Government to Mr Straw, Ms Hewitt, Mr Paul Boateng, the Chief Secretary to the
Treasury, Mr Hilary Benn, the International Development Secretary, and senior officials
on 9 February.415

706. The core script highlighted the strengths of UK industry and expressed the hope
that UK companies would be given the opportunity to display those strengths in the
reconstruction process.

707. In his covering note, Mr O’Brien stated that although UK companies had not
secured either of the oil sector contracts, they were winning other contracts, including
from the US Government. UK companies assessed that US procurement procedures
were “essentially fair” and were not critical of the UK Government’s support, but were
convinced that there was a window of opportunity to press the US. It was now vital that
UK Ministers ensured that their US interlocutors were “in no doubt about the political
importance we attach to UK firms being seen to contribute actively to the reconstruction
process”.

708. On 12 February, the AHMGIR received a final version of the UKTI paper on access
to US-funded reconstruction contracts.416 The paper stated that UK companies had
good access to most US-funded contracts, and recommended that the UK Government
should take a concerted approach to lobbying for US-funded contracts.

709. The final paper presented a significantly more positive picture of the UK’s
experience of, and potential for, accessing US-funded contracts than the draft paper
which had been prepared for the 22 January meeting of the AHMGIR.

710. Mr Straw wrote to US Secretary of State Colin Powell on 17 February, expressing
the UK’s disappointment that UK companies had not secured either of the oil
infrastructure rehabilitation contracts.417 Mr Straw hoped that UK companies would play
a significant role in Iraq’s reconstruction, and highlighting in general terms the capability
of UK companies.

711. Sir Nigel Sheinwald wrote to Dr Rice on 19 February, in similar terms.418

 

Footnotes
415 Minute O’Brien to Foreign Secretary, 9 February 2004, [untitled] attaching Paper, [undated], ‘UK Bids for CPA Program Management Office Prime Contracts’.
416 Annotated Agenda, 12 February 2004, Ad Hoc Group on Iraq Rehabilitation meeting attaching Paper UKTI, February 2004, ‘Access to US-Funded Reconstruction Contracts’.
417 Letter Straw to Powell, 17 February 2004, [untitled].
418 Letter Sheinwald to Rice, 19 February 2004, ‘Iraq: Contracts’.

The Report of the Iraq Inquiry
480

712. Mr Wilson and Mr O’Brien made separate visits to Washington on 18 to
20 February and 20 February respectively, to lobby the US on behalf of UK companies
bidding for the US-funded PMO contracts.419

713. Sir Nigel Sheinwald reported to Mr Blair on 21 February that Mr Wilson and
Mr O’Brien had “conspicuously failed to de-conflict their programmes and insisted on
seeing the same people”.420 Sir Nigel continued: “To make things worse, Brian Wilson’s
visit seems to have been organised, at least in part, by a private American lobbying
organisation.”

714. The Inquiry has seen no indications that Mr Blair responded to that report.

715. The British Embassy Washington reported on 23 February that Mr O’Brien and
Mr Wilson had stressed with all their interlocutors that the UK was not alleging any unfair
treatment of UK companies, but had pointed out that there would be “intense scrutiny”
of the PMO contract awards and it would be “very difficult for us [the UK], politically, if we
had no successes”.421

716. The Embassy reported that, in response, US officials “on the technical side”
(described by the Embassy as comprising the PMO, US Department of Defense,
and USACE) had stressed that PMO contracts would be awarded on merit, with no
scope for political interference. The “political response” (from the NSC, the CPA and
the Department of State) had been “more nuanced”, with a recognition of the political
problem that the process could cause the UK.

717. The Embassy commented: “The message from those on the technical side was not surprising, although given the way the process has gone so far it is hard to take at face value their insistence that they are immune to political pressure … The response from the political contacts was as encouraging as we could hope for. They genuinely understand the
problems that this could cause us.”

718. Mr Henderson, who had accompanied Mr Wilson and Mr O’Brien to Washington,
reported on the visits on the same day.422 Copies of his report were sent to officials in
UKTI, DTI, the FCO and No.10. The UK’s “core message” had been to demonstrate
strong UK Government support for the involvement of UK companies but stop short of

 

Footnotes
419 Telegram 4 Washington to UKTI London, 23 February 2004, Iraq Reconstruction: Lobbying the US’.
420 Minute Sheinwald to Prime Minister, 21 February 2004, ‘Visit to Washington, 20 February’.
421 Telegram 4 Washington to UKTI London, 23 February 2004, Iraq Reconstruction: Lobbying the US’.
422 Minute Henderson to Tibber, 23 February 2004, ‘Iraq Reconstruction: Visits of Brian Wilson and Mike O’Brien to Washington 18 – 20 February’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
481

demanding a “fair share”. Mr Henderson commented that it remained to be seen whether
the visits would make a difference: “… my impression is that despite the insistence of the technocrats that the process was not subject to political influence or interference, it will be more difficult now for the collective US machinery involved to produce a result that did not give the UK companies a significant share of the action.”

719. Mr Henderson wrote to Sir Stephen Brown on 23 February, reporting that
Mr O’Brien was “deeply unhappy” that Mr Wilson’s programme had included a number
of political calls, which breached the guidelines (as Mr O’Brien understood them) that
Mr O’Brien should concentrate on official contacts and Mr Wilson on the private sector.423 Copies of the minute were sent to UKTI officials only.

720. Mr Henderson concluded: “… it is clear that the arrangement is not working … We run the risk of spending more time on this than on the core task of helping UK companies to win business.”

721. Mr Henderson also reported that the British Embassy had been “furious” at the
activities of a public relations company contracted by AMEC, which had sought to
organise Mr Wilson’s visit.

722. Sir David Manning, the British Ambassador in Washington, wrote to Sir Michael
Jay on 3 March, detailing the Embassy’s concerns.424 He highlighted two issues, both
of which had caused significant problems for the Embassy:

• the lack of clarity regarding the roles of Mr O’Brien and Mr Wilson, and the lack
of communication between their offices; and

• the relationship between Mr Wilson and AMEC, which appeared uncomfortably
close, with a significant risk of serious embarrassment to the UK.

723. Sir David concluded that the roles of Mr Wilson and Mr O’Brien needed to be
clearly defined, and the potential for a conflict of interest arising from Mr Wilson’s links
to AMEC resolved.

724. ISOG discussed the opportunities for UK companies on 24 February.425 Sir Nigel
Sheinwald confirmed that Mr Blair was prepared to write or speak to President Bush on
the issue.

 

Footnotes
423 Email Henderson to Brown, 23 February 2004, ‘Wilson and O’Brien Visits to Washington 18-20 February’.
424 Letter Manning to Jay, 3 March 2004, [untitled].
425 Letter Owen to Cannon, 25 February 2004, ‘Iraq Reconstruction Contracts’.

The Report of the Iraq Inquiry
482

725. Mr Blair wrote to President Bush on 5 March, identifying some of the UK
companies bidding for PMO contracts and highlighting in general terms the expertise
of UK companies.426

726. The US Department of Defense awarded the major remaining IRRF2 contracts
during March, comprising seven project management contracts and 10 design and build
construction contracts.427

727. The Annotated Agenda for the 18 March meeting of the AHMGIR stated that,
following a campaign of high-level lobbying, UK companies had “achieved success” in
the latest round of US reconstruction contracting.428 Three of the project management
contracts, with a total value of up to US$80m, had been awarded to consortia with a
significant UK content, and two of the design and build construction contracts with a total
value of up to US$1.1bn had been awarded to consortia with a significant UK content.
It was not possible at this stage to calculate the exact value to the UK of those contracts.

728. Ministers were advised on 2 April that consortia with significant UK content had
secured three further design and build construction contracts.429 The total value of the
contracts was capped at US$1.6bn.

729. Following Admiral Nash’s request for UK help in staffing the PMO, UKTI contracted
two consultants to work in the PMO, initially for three months. The first deployed in early
March 2004, the second in early April.430

730. A UKTI official told ISOG that: “Their [the consultants] role would be one of intelligence, to enable UKTI to help UK companies frame their bids [for PMO contracts] …”431

731. The security situation in Iraq deteriorated significantly in March and April, leading
to the withdrawal of many aid agency personnel and contractors.

732. The FCO tightened its travel advice on 8 April to read: “Even the most essential
travel to Iraq should be delayed, if possible.”432 Companies involved in reconstruction
were encouraged to “ensure that they have made the appropriate security
arrangements”.

733. The UK company Foster Wheeler Energy Ltd, which had been contracted by the
PMO to provide oil and gas project management services, informed the PMO on

 

Footnotes
426 Letter Blair to Bush, 5 March 2004, [untitled].
427 Bowen SW Jr. Hard Lessons: The Iraq Reconstruction Experience. U.S. Government Printing Office, 2009.
428 Annotated Agenda, 17 March 2004, Ad Hoc Group on Iraq Rehabilitation meeting.
429 Letter Dodd to Owen, 2 April 2004, ‘Iraq: Update’ attaching Paper Cabinet Office, 2 April 2004, ‘Iraq: update’.
430 Minute UKTI [junior official] to PS/O’Brien, 21 June 2004, [untitled].
431 Minutes, 3 February 2004, Iraq Senior Officials Group meeting.
432 FCO Travel Advice for Iraq, 8 April 2004.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
483

14 April that it intended to postpone the deployment of its staff to Iraq, citing the 8 April
FCO travel advice.433

734. Under its contract, Foster Wheeler had committed to deploy 34 staff to Baghdad
by 21 April.434

735. In response, the PMO warned Foster Wheeler that postponement could lead to the
termination of its contract.435

736. Mr David Richmond, the Prime Minister’s Deputy Special Representative on
Iraq, reported on 18 April on the challenges of “designing and executing post-conflict
reconstruction in what effectively remains a conflict zone”.436 He advised that there was:
“Probably less activity on the ground than CPA are prepared to admit, as aid
agencies and contractors withdraw personnel to safer areas pending decisions to
re-engage. Main foreign contractors operating at 50 – 75 percent staffing levels.
Some NGOs well below that.”

737. Mr Richmond concluded that the UK needed to consider the advice it gave to UK
development partners and contractors, and the divergence between UK and US advice.
US contractors appeared to operate “as if their even stricter advice against coming to
Iraq does not exist”. The UK’s travel advice gave the Embassy “no option but to counsel
caution … and to reinforce with [UK contractors] the importance of ensuring robust
security arrangements”. Foster Wheeler encapsulated the dilemma: “risk coming out
or losing out.” Mr Richmond advised that the UK should maintain its current line.

738. The Annotated Agenda for the 22 April meeting of the AHMGIR advised that
security had deteriorated “markedly” over Easter (9 to 12 April) and that the risks to UK
civilian staff in Iraq were high.437 The deployment of civilians had been reviewed and,
as a temporary measure, new deployments to Baghdad had been suspended and staff
unable to operate in the current security environment had been withdrawn.

739. The British Embassy Baghdad informed UKTI on 3 May that, largely because of
deteriorating security, there were “next to no” UK business visitors in Baghdad requiring
UKTI assistance.438

740. In advance of the 6 May meeting of the AHMGIR, Mr O’Brien was advised by a DTI
official that UKTI continued to try to “bridge the differences” between Foster Wheeler and

 

Footnotes
433 Letter O’Connell to CPA/PMO, 14 April 2004, ‘Oil Sector Program Management Contractor’.
434 Minute Lusty to PS/O’Brien [FCO], 10 May 2004, ‘Iraq: Foster Wheeler: Dealing with the Potential Fallout’.
435 Letter CPA/PMO to O’Connell, 18 April 2004, ‘Contract No. W914NS-04-C-0007’.
436 Telegram 173 IraqRep to FCO London, 18 April 2004, ‘Iraq: Effects of the Recent Crisis on Reconstruction’.
437 Annotated Agenda, 21 April 2004, ‘Ad Hoc Meeting on Iraq Rehabilitation meeting.
438 Email Allen to Lusty, 3 May 2004, ‘Baghdad Commercial Staffing’.

The Report of the Iraq Inquiry
484

the PMO.439 Mr Straw was taking “a much more bullish line, and wants Foster Wheeler
to deploy immediately”, but that would go beyond current UK travel advice and “play
badly if leaked to the press”. The official concluded that the final decision must rest with
Foster Wheeler.

741. The Annotated Agenda for the 6 May meeting of the AHMGIR advised that:
“If … the [Foster Wheeler] contract is terminated the impact may go beyond the
immediate loss of business and negatively affect the chances of other British
companies winning US contracts in Iraq.”440

742. At the meeting, Sir Stephen Brown reported that Mr O’Brien had spoken to Foster
Wheeler to emphasise the serious implications of its delayed deployment, including for
other UK companies.441

743. Mr Lusty advised Mr O’Brien on 10 May that if talks between Foster Wheeler
and the PMO broke down and Foster Wheeler sought UK Government support for
its position, the Government should take the line that this was a contractual issue and
not get drawn into a wider discussion on travel advice or the safety of foreign contractors
in Iraq.442

744. Mr Lusty advised that the FCO’s travel advice was clear. The decision on whether
to travel remained “a matter of personal or commercial judgement”. There was “no
agreed position” within the Government on reconciling FCO travel advice with the need
to pursue reconstruction. UKTI staff in Washington, Baghdad and the UK continued
to work with Foster Wheeler to help it address its security concerns.

745. A UKTI official informed Mr O’Brien on 14 May that Foster Wheeler and the PMO
had reached an agreement on deploying staff to Iraq.443

746. On 24 May, Mr Bob Morgan, an adviser to the Iraqi Oil Ministry employed by the
FCO, and his bodyguard Mr Mark Carman, were killed in Baghdad.444

747. Mr O’Brien spoke to Mr Ian Bill, Chairman and CEO of Foster Wheeler, on
26 May.445 Mr Bill said that although Foster Wheeler had deployed staff to Iraq, it
remained concerned that security provided by the PMO was not adequate. One of its
staff had already decided to leave as he was accommodated in a tent in the Green Zone
with no protection from mortar rounds.

 

Footnotes
439 Briefing DTI Energy Markets Unit, 5 May 2004, ‘Key Points Brief on DTI Issues: Ad Hoc Ministerial Meeting on Iraq’.
440 Annotated Agenda, 6 May 2004, Ad Hoc Group on Iraq Rehabilitation meeting.
441 Minutes, 6 May 2004, Ad Hoc Group on Iraq Rehabilitation meeting.
442 Minute Lusty to PS/O’Brien [FCO], 10 May 2004, ‘Iraq: Foster-Wheeler: Dealing with the Potential Fallout’.
443 Minute Lusty to PS/O’Brien, 14 May 2004, ‘Iraq: Foster Wheeler Reach Agreement with the PMO’.
444 Minutes, 25 May 2004, Iraq Senior Officials Group meeting; BBC News, 26 May 2004, Oil Expert Killed in Iraq ‘felt safe’.
445 Minute Lusty to PS/O’Brien, 26 May 2004, ‘Iraq: Foster-Wheeler’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
485

748. In a 7 June briefing, the UKTI advised that it had stopped “all proactive commercial
work” in Iraq, although it remained heavily involved in providing information to UK
companies and in helping them manage existing commitments.446 UKTI planned to
maintain one UK Commercial Officer post in Baghdad, which it considered the “minimal
level for operational needs” (reduced from the three Commercial Officers deployed in
September 2003).

749. Mr Lusty advised Sir Stephen Brown on 9 June that the IIWG had “run its
course”.447 Private sector participation was poor. The IIWG had originally been conceived
as the core of an early UK trade mission to Iraq, but the security situation had made that
impossible. It had served instead as a useful forum for briefing industry. That function
had now been taken over by the six sector working groups.

750. In early June, UKTI began to consider whether to continue to fund the two
consultants in the PMO.448

751. A UKTI official set out the arguments for Mr O’Brien on 21 June: “We can claim indirect benefit to UK plc from these consultants, but it is difficult to quantify any direct commercial benefit. PMO procurement still (rightly) has to go through a full competitive process … But these consultancies have earned us a great deal of goodwill from PMO senior management, ensured a UK voice at the highest levels of the organisation, and [have been] a useful but unacknowledged source of commercial information.”449

752. The PMO had identified a prime contractor that was willing to take over the
contract of one of the UKTI-funded consultants. The contract of the second ended
in September.

753. The official recommended that given the difficulty in identifying any direct
commercial benefit to the UK and the high cost of the consultants, UKTI should not
agree to Admiral Nash’s request to extend the consultants’ contracts.

754. Mr O’Brien’s Assistant Private Secretary responded on 23 June, asking officials
to look for an alternative source of funding for the posts.450

755. Discussions within UKTI and between UKTI and the FCO and DFID failed to
identify further funding for the posts.451

 

Footnotes
446 Briefing UKTI, 7 June 2004, ‘Permanent Secretaries’ Meeting on UK Civilian Staffing in Iraq, 8 June 2004’.
447 Minute Lusty to Brown, 9 June 2004, ‘What should we do with the Iraq Industry Working Group?’
448 Minute Lusty to Fletcher, 9 June 2004, ‘Iraq: UKTI Consultancy Support for the PMO’.
449 Minute UKTI [junior official] to PS/Mr O’Brien, 21 June 2004, [untitled].
450 Minute APS/O’Brien to UKTI [junior official], 23 June 2004, ‘UKTI Secondees to the PMO in Baghdad’.
451 Minute UKTI [junior official] to PS/Mr O’Brien [FCO], 13 August 2004, ‘UK Secondees in the Project and Contracting Office (PCO) Baghdad’.

The Report of the Iraq Inquiry
486

THE SUCCESS OF UK COMPANIES IN SECURING CONTRACTS IN IRAQ

756. On 30 July, Mr Fergus Harradence, Head of the UKTI’s Gulf Unit, provided an
update for Mr O’Brien on UK commercial success in Iraq.452

757. Mr Harradence advised that there were over 60 UK companies working in Iraq,
involved in contracts which UKTI estimated were worth a total of US$2.6bn.
That figure did not represent the total value of work undertaken and goods supplied
by UK companies, but rather the total value of the contracts on which UK companies
worked as contractors or subcontractors.

758. UK companies had been successful in winning contracts from all the major
contracting organisations (the US, the CPA and Iraqi Ministries, the UN and DFID),
although UK companies had been particularly successful in winning work as contractors
or subcontractors to US Government agencies.

759. UKTI believed that it had played a “leading role” in helping UK companies to
secure work on contracts worth approximately US$1.8bn (of which AMEC had secured
work on contracts worth US$1.6bn).

760. At BP’s request, on 30 August, during his introductory call on Mr Thamir Ghadban,
the Iraqi Minister of Oil, Mr Chaplin raised BP’s bid for a contract relating to the Rumalia
oilfield.453 Mr Ghadban responded that the contract would be awarded on technical
and commercial criteria, and commented that BP appeared more cautious than other
companies in turning expressions of interest into “real engagement”. Mr Chaplin
commented: “This is not the first time we have heard criticism of excessive caution from BP (and to a lesser extent Shell). Rightly or wrongly, the perception amongst the Iraqi
oil establishment is that they are less committed than many of their international
competitors.”

761. Sir Stephen Brown met senior UKTI officials on 5 November 2004 to discuss
UKTI’s future engagement on Iraq, on the basis of a paper produced by UKTI’s Iraq
Unit.454

762. The paper stated that private sector interest in Iraq had started at a “feverish
level”, but had declined after April 2004 when contractors started to be targeted by
insurgents, and had now levelled off. Over 1,300 business people had attended UKTI
events in London since August 2003 and over 200 had attended UKTI-supported events
in the region. UKTI had organised trade missions from Iraq to the UK focusing on
financial services, health, education, oil and gas, and power and water.

 

Footnotes
452 Minute Harradence to PS/O’Brien, 30 July 2004, ‘Impact of UK Firms in Iraq’.
453 Telegram 167 Baghdad to FCO London, 31 August 2004, ‘Iraq: Introductory Call on Thamir Ghadban, Minister of Oil’.
454 Minute Lusty to Fletcher, 5 November 2004, ‘Iraq Unit’ attaching Paper UKTI Iraq Unit, October 2004, ‘Iraq: Next Steps’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
487

763. The paper stated that staffing in London had been reduced as the number of
enquiries from companies had declined, and staffing overseas would be kept under
constant review; UKTI needed to retain the flexibility to move quickly to support UK
companies as security improved.

764. The slowdown in reconstruction in Iraq had severely hampered UKTI’s ability
“to play a useful role in the Whitehall process, and reduced our need to be involved”.

765. The paper concluded: “UK business is now a strong player in post-conflict Iraq. We have met high Ministerial and business expectations and avoided a US dominance …”

766. Sir Stephen agreed the paper.455

Responding to renewed commercial interest in Iraq, 2008

767. The UK Commercial Officer post in Basra was cut in 2006 because of the security
situation and UKTI’s desire to free up resources for emerging markets.456

768. The remaining UK Commercial Officer post in Baghdad was cut in July 2007.457
A UKTI official commented: “UKTI has retained a UK-based presence in Baghdad (and previously Basra) until now because of the political imperatives of doing so rather than on the basis of the normal criteria relating to business demand … The on-going security situation raises serious questions about whether retaining the UK-based … slot can be justified. The resource is also very expensive – some £560,000 in cash terms … which could be deployed more productively in other markets.”

769. From July 2007, the UK Commercial Section in the British Embassy Baghdad
comprised one junior Iraqi Commercial Officer supported by a UKTI officer based in
Amman, Jordan.458

770. Mr Gordon Brown succeeded Mr Tony Blair as Prime Minister in June 2007.
Section 10.2 describes the development and implementation from July 2007 of
Mr Brown’s economic initiatives for Iraq, which included measures to facilitate private
sector investment in Basra and across Iraq.

771. The British Embassy Baghdad reported to UKTI in September 2007 that the new
arrangement (of one junior Iraqi Commercial Officer supported by UK staff based in
Amman, Jordan) was not working.459 The lack of a senior Commercial Officer meant that

 

Footnotes
455 Minute Lusty to Fletcher, 5 November 2004, ‘Iraq Unit’ attaching Paper UKTI Iraq Unit, October 2004,
‘Iraq: Next Steps’.
456 Minute McInnes to PS/McCarthney, 20 June 2007, ‘UKTI Resources in Baghdad’.
457 Minute McInnes to PS/McCarthney, 20 June 2007, ‘UKTI Resources in Baghdad’.
458 Email Lodge to McInnes, 2 September 2007, ‘Baghdad – Resourcing Commercial Work in Iraq’.
459 Email Lodge to McInnes, 2 September 2007, ‘Baghdad – Resourcing Commercial Work in Iraq’.

The Report of the Iraq Inquiry
488

opportunities were being missed. The Embassy recommended that UKTI recruit a senior
Iraqi Commercial Officer to head the commercial team in Baghdad.

772. Mr Douglas Alexander, the International Development Secretary, announced
the appointment of Mr Michael Wareing as joint Chair of the Basra Development
Commission (BDC) in December.460 Mr Alexander described the BDC, which aimed
to bring national, regional and international business knowledge together to provide
strategic advice to the Iraqi authorities on investment and growth, as the “centrepiece”
of Mr Brown’s economic initiatives.461

773. Mr Wareing told the Inquiry that he had three roles:

• to champion economic development, particularly in Basra and the South;

• to champion international investment into Iraq; and

• to help set up and to chair the BDC.462

774. Mr Wareing said that his role was not specifically to promote investment from
the UK: “… the line that I pursued was … to try to push investment, not just from a British or indeed a European or even a Western … point of view, but basically any investment
– and there was a significant amount of investment from the Gulf region.”463

775. Mr Des Browne, the Defence Secretary, visited Iraq with Mr Wareing in mid-
March.464 Mr Browne reported to Mr Brown that: “The overall mood in Iraq is optimistic,
reflecting the improved security situation, political progress and the new focus on
economic regeneration to which Michael [Wareing] is contributing.” Mr Browne’s
discussions with Iraqi Government Ministers had suggested several areas where the
UK could do more, including:

• reinforcing the UK team in Basra and Baghdad to support Mr Wareing’s work;
and

• redoubling the UK effort to unblock the investment and hydrocarbon legislation,
and to encourage international business to invest in Basra.

776. Mr Brown hosted a reception at No.10 on 28 April 2008 to raise the profile of
southern Iraq as an investment destination and to enhance Iraqi Government interaction
with potential investors.465

 

Footnotes
460 Letter Jones to Aldred, 13 December 2007, ‘Basra: Situation Report’.
461 Letter Alexander to Brown, 9 November 2007, [untitled].
462 Public hearing, 16 July 2010, page 3.
463 Public hearing, 16 July 2010, page 12.
464 Letter Browne to Brown, 18 March 2008, ‘Visit to Iraq and Kuwait’.
465 Minute Cabinet Office [junior official] to Prime Minister, 25 April 2008, ‘Basra Investors’ Reception,
No.10: 28 April 2008’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
489

777. The Cabinet Office subsequently advised Mr Brown that between 25 and
30 companies had expressed a serious interest in exploring investment opportunities
in Iraq.466

778. Mr Nick McInnes, Director of UKTI’s International Group, briefed UKTI colleagues
on 3 May 2008 on the growing pressure from the British Embassy Baghdad and the
MOD for a larger UKTI presence in Baghdad.467 Their arguments for that were:

• the increased interest in Iraq from UK companies;

• the likelihood that Mr Brown’s economic initiatives would stimulate further
interest; and

• the possibility of sales of UK military equipment to Iraq.

779. DFID advised members of the Iraq Strategy Group (ISG) on 8 May that several
companies that had attended the reception had expressed an interest in visiting Iraq.468
DFID was working with MOD to arrange this. DFID cautioned that there was still work
to be done to secure the correct conditions for inwards investment, and such investment
was unlikely to start flowing in the immediate future.

780. UKTI and DFID officials met on 21 May, at DFID’s request, to discuss UKTI’s
interests in Iraq.469 Mr Paul Taylor, Head of the UKTI’s Middle East Department, reported to Mr Andrew Cahn, UKTI Chief Executive, that DFID had said it would be difficult for DFID to handle the “investment visits” which had emerged from Mr Brown’s 28 April reception. DFID did not have the appropriate expertise and, more importantly, under the International Development Act, it could not favour UK companies by providing them with such support. DFID officials had asked UKTI to reinstate a UK Commercial Officer post in Baghdad. Mr Taylor had said that UKTI was highly unlikely to be able to find funding for such a post.

781. Mr Taylor reported to Mr Cahn on 2 July that a DFID proposal to fund a UK
Commercial Officer post in Baghdad from the Stabilisation Aid Fund (SAF) had not
proved viable.470 The pressure remained on UKTI to increase its presence in Baghdad.

782. In response, Mr Cahn stated his strong opposition to reinstating a UK-based
Commercial Officer post in Baghdad.471

783. The 11 September meeting of the ISG, chaired by Mr Simon McDonald,
Mr Brown’s Foreign Policy Adviser, discussed the need for a UKTI presence in Iraq.472

 

Footnotes
466 Minute Cabinet Office [junior official] to Prime Minister, 30 April 2008, ‘Iraq: Meeting with Petraeus and Crocker, 1 May 2008’.
467 Email McInnes to Haird, 3 May 2008, ‘Resourcing Commercial Work in Iraq’.
468 Letter DFID [junior official] to Cabinet Office [junior official], 8 May 2008, ‘Iraq Strategy Group, 28 April – Response to DFID Action Points’.
469 Email Taylor to Cahn, 21 May 2008, ‘UKTI and Iraq: Meeting with DFID – 21 May 2008’.
470 Email Taylor to Cahn, 2 July 2008, ‘Resourcing Trade and Investment Work in Iraq’.
471 Email Cahn to Taylor, 4 July 2008, ‘Resourcing Trade and Investment in Iraq’.
472 Letter Lyon to McDonald, 15 September 2008, ‘Iraq Strategy Group, 11 September’.

The Report of the Iraq Inquiry
490

At the meeting, it was agreed that Mr Cahn and Mr Wareing should discuss the
issue further.

784. The following week, Mr Frank Baker, Head of the FCO’s Iraq Group, wrote to
Mr McInnes: “The [11 September ISG] meeting concluded that we needed an official in Baghdad to identify investment opportunities in Basra, as well as help UK businesses work
with the Government of Iraq, otherwise we risk falling behind our international
competitors.”473

785. Mr Baker stated that, given the “exceptional circumstances” and the high priority
that the UK Government attached to having a trade representative in Baghdad, that post
could be funded from the SAF until the end of the UK financial year (31 March 2009).

786. Mr Cahn met Mr Wareing on 1 October.474 Mr Wareing said that the UK needed to
exploit its excellent high-level relationships in Iraq. The UK had invested heavily in Iraq,
and it would be a major disappointment if other countries went on to enjoy the fruits of
stabilisation and economic development. UKTI needed to be “at the table”. Mr Cahn
proposed that UKTI should recruit an international business specialist for a period of
six months, to scope the market and produce recommendations for UKTI on the way
forward.

787. Mr Alexander wrote to Mr Brown on 20 November to provide an update on
progress in Basra.475 He reported that DFID had already facilitated 18 investor visits by
14 companies, with proposals worth over US$9bn submitted to the Iraqi Government.

788. Mr Brown met Prime Minister Maliki in Iraq on 17 December.476 Prime Minister
Maliki called for a wider long-term relationship, including investment and economic
co-operation and stronger cultural and educational links.

789. Mr Brown’s Assistant Private Secretary wrote to the Principal Private Secretary
to Lord Mandelson, the Business, Enterprise and Regulatory Reform Secretary,
the following day to advise that Mr Brown believed there were opportunities in Iraq
and interest from British companies that were not being exploited.477 Mr Brown was
convinced that there was an urgent need for a significant UKTI presence in both
Baghdad and Basra, both to consolidate security gains and to ensure that UK investors
had every chance to benefit from commercial opportunities in Iraq. Mr Brown asked
UKTI to start planning immediately for a long-term presence in Iraq, consulting
Mr Wareing and DFID.

 

Footnotes
473 Letter Baker to McInnes, 19 September 2008, ‘Iraq: UKTI position’.
474 Minute, 2 October 2008, ‘Meeting with Michael Wareing, co-Chair of the Basra Development Commission: Wednesday 1 October 2008’.
475 Letter Alexander to Brown, 20 November 2008, [untitled].
476 Letter Catsaras to Gould, 18 December 2008, ‘Prime Minister’s Meeting with Iraqi Prime Minister, 17 December’.
477 Letter APS/Prime Minister to Abel, 18 December 2008, ‘UKTI Presence in Iraq’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
491

790. Lord Mandelson’s Principal Private Secretary replied on 16 January 2009,
reporting that:

• A new Iraqi Commercial Officer would start work in the British Embassy
Baghdad later that month.

• An international business specialist would deploy to Iraq on 24 January.
He would support UK companies, scope opportunities for UK companies and
make recommendations on UKTI’s future footprint in Iraq by the end of March
2009. There would be no gap in commercial representation in Iraq.

• UKTI was recruiting an industry secondee to assist the International Business
Specialist.

• The British Embassy Baghdad had just recruited a USAID employee into its
vacant Commercial Assistant post.478

791. The international business specialist arrived in Baghdad at the end of January.479
He was joined by a second UKTI-funded consultant on 12 February.480

792. Lord Mandelson visited Iraq on 6 April, at the head of a delegation of 23 companies
(the largest official business delegation for over 20 years).481 The steering brief prepared
for Lord Mandelson identified a number of objectives including:

• underlining the UK’s commitment to building a new broad-based, longterm
partnership with Iraq, with a strong emphasis on economic and trade
co‑operation;

• countering Iraqi complaints (from Prime Minister Maliki and others) about the
lack of interest from UK business, while assisting the business delegation to
build contacts with Iraqi Ministers and members of the Iraqi business community;
and

• supporting UK companies pursuing business in Iraq.

793. The steering brief also advised: “Interest [in the visit] in Iraq has been surprisingly high – perhaps underlining that the time is right for a big push in our commercial relations.

“Iraqis trust British companies and products. But Iraqi politicians feel that [the] UK
has been slow off the mark in terms of exploiting opportunities in the country, and
there is a view (perhaps unfair) that we are lagging behind competitors from the rest
of Europe, China, Russia and Japan.”

 

Footnotes
478 Letter Abel to Catsaras, 16 January 2009, [untitled].
479 Report DFID, 1 February 2009, ‘Weekly update: 1st February 2009’.
480 Report DFID, 15 February 2009, ‘Weekly update: 15th February 2009’.
481 Paper BERR, [undated], ‘Visit of the Rt Hon Lord Mandelson to Bahrain, Kuwait, Iraq, Abu Dhabi and Dubai, 5-8 April 2009’.

The Report of the Iraq Inquiry
492

794. In response to demand from UK companies, UKTI now had four staff in Baghdad
and a “senior trade diplomat” would arrive in mid-2009.

795. The briefing for the Iraq leg of the visit provided by the British Embassy Baghdad
advised: “With our [the UK’s] effort now refocusing on support for UK investors and
developing the bilateral business relationship, UKTI are resuming lead responsibility
and are increasing their presence in country.”482

Debt relief

796. The Treasury was the lead department within the UK Government on securing debt
relief for Iraq.483 It worked closely with the Foreign and Commonwealth Office (FCO) and other departments.

UK policy

797. The UK’s ‘Contract with the Iraqi People’, which was developed between February
and December 2001, included an objective “to facilitate Iraq’s access to financial
markets by encouraging generous debt rescheduling through the Paris Club” (see
Section 6.4).

798. The Paris Club describes itself as an informal group of official creditors whose role
is to find coordinated and sustainable solutions to the payment difficulties experienced
by debtor countries.484 The Paris Club only negotiates debt restructurings with debtor
countries that:

• need debt relief: debtor countries are expected to provide a precise description
of their economic and financial situation;

• have implemented and are committed to implementing reforms to restore their
economic and financial situation; and

• have a demonstrated track record of implementing reforms under an
International Monetary Fund (IMF) programme.

799. A Treasury official sent Mr Gordon Brown, the Chancellor of the Exchequer,
a paper on the global, regional and local (Iraqi) economic impact of “war” in Iraq on
6 September 2002. The paper identified the urgency of dealing with Iraq’s “huge”
external debt, and suggested that a generous Paris Club deal would be the “obvious”
way to address it. The Russians might be a major stumbling block, given the size
of Iraq’s debt to them (around US$8bn, or 15 percent of Iraq’s total external debt).
The paper is considered in detail in Sections 6.4 and 13.1.

 

Footnotes
482 eGram 11967/09, [undated], ‘Iraq: Lord Mandelson’s visit to Baghdad and Basra: Scenesetter’.
483 Paper Treasury, 2010, ‘Iraq Briefing – Debt’.
484 Paris Club website, About us: The six principles.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
493

800. The FCO Directorate of Strategy and Innovation (DSI) one-page paper ‘Vision
for Iraq and the Iraqi People’, which was submitted to the Ad Hoc Group on Iraq on
11 October, listed actions that the UK/Coalition would take to help the Iraqi people,
including “encouraging generous debt rescheduling”.485

801. In advance of the first round of US/UK/Australia talks on post-conflict issues
on 6 November 2002, the Cabinet Office produced a paper synthesising work being
undertaken by departments.486 That paper identified the need for debt rescheduling
to reconcile Iraq’s “huge external debts with reconstruction and development needs”.

802. During the talks, the US agreed that Iraq would require debt rescheduling.487

803. On 11 February 2003, a Treasury official invited Mr Brown’s comments on officials’
“first thoughts” on Treasury policies in a post-Saddam Iraq.488 The official identified the
Treasury’s “two main Finance Ministry interests” in Iraq as ensuring its prosperity and
stability, while fairly sharing the costs of achieving this. An “emerging policy position”
would include: “… push for debt rescheduling, to ensure that Iraqi contributions [to its
reconstruction] are not knocked off course by having to resume crippling debt
service. The cost of this would conveniently fall to probable non-combatant
countries.”

804. The official advised that although it was difficult to gauge the size of Iraq’s debt, the
US State Department estimated that, as at 2002, Iraq owed around US$82bn to external
creditors. The State Department estimated that the four largest creditors were:

• Russia (US$16.1bn, or some 20 percent of the total external debt);

• France (US$9.1bn, 11 percent);

• Japan (US$9.1bn, 11 percent); and

• Germany (US$6.7bn, 8 percent).

The State Department estimated that the US was the sixth largest creditor (US$4.4bn,
5 percent) and the UK the tenth largest creditor (US$2.4bn, 3 percent).

805. The official commented that if those figures were accurate, Iraq was one of the
most heavily indebted countries in the world.

 

Footnotes
485 Paper FCO [draft], [undated], ‘Vision for Iraq and the Iraqi People’.
486 Minute Drummond to Manning, 1 November 2002, ‘Iraq: Post-Saddam’ attaching Paper Cabinet Office, [undated], ‘Iraq: Models and some questions for post-Saddam government’.
487 Minute Drummond to Manning, 8 November 2002, ‘Iraq: Day After’.
488 Minute Treasury [junior official] to Chancellor, 11 February 2003, ‘HMT Policy on Post-Saddam Iraq’ attaching Paper Treasury, 11 February 2003, ‘Post-War Iraq: International Financing Policy’.

The Report of the Iraq Inquiry
494

806. The official expanded upon the rationale for debt rescheduling: “In post-war Iraq, the UK would be entitled to pursue repayment of US$1 – US$2 billion bilateral debts … However, if all creditors did the same and were successful, Iraq’s ability to fund its own reconstruction would be severely compromised. This would lead to a fiscal financing gap for Iraq, probably filled largely by bilateral financing. In such a situation, the UK might be under pressure to make a big contribution … The other advantage to rescheduling is that we suspect that most of the debt is owed to probable non-combatant countries (e.g. France, Russia), with debt relief thus providing a neat way of burden sharing. The other strong argument for debt relief is that, without it, multilateral lending is likely to prove very difficult.”

807. The Treasury told the Inquiry that Mr Brown did not comment on the submission.489

808. Mr John Dodds, Head of the Treasury’s Defence, Diplomacy and Intelligence
Team, advised Mr Brown on 19 February that the UK’s Export Credit Guarantee
Department (ECGD) had already made a 96 percent provision in relation to Iraq.490

809. On 6 March, Mr Blair chaired a meeting on post-conflict issues with Mr Brown
and other Ministers (see Section 6.5).491 At the meeting, Mr Brown said that the burden
of reconstructing Iraq should not be borne by just the US and the UK; other countries
(and the EU) should contribute. In the long term, Iraq’s oil should fund the country’s
reconstruction. Mr Brown was particularly concerned that UK funds should not be used
to repay Iraq’s debts.

810. Mr Blair concluded that Mr Brown should draw up “a funding plan, including
securing funding from wider international sources, in particular the IFIs [international
financial institutions]”.

811. The FCO sent a number of background papers to No.10 in advance of the
16 March Azores Summit, including a revised version of the UK’s ‘A Vision for Iraq and
the Iraqi People’.492 The revised version of the ‘Vision’ reflected a number of changes
from the version developed in October 2002, including “Seeking a fair and sustainable
solution to Iraq’s debt problems” in place of “Negotiating generous debt rescheduling”.

812. The Vision for Iraq and the Iraqi People issued by Mr Blair, President Bush and
Spanish Prime Minister José María Aznar at the Azores Summit did not mention debt.493

 

Footnotes
489 Email Treasury [junior official] to Iraq Inquiry [junior official], 26 February 2010, [untitled].
490 Minute Dodds to Chancellor, 19 February 2003, ‘Iraq – “Aftermath” – UK Role’ attaching Paper Treasury, 19 February 2003, ‘Iraq Conflict – Public Expenditure Impact’.
491 Letter Cannon to Owen, 7 March 2003. ‘Iraq: Post-Conflict Issues’.
492 Letter Owen to Rycroft, 15 March 2003, ‘Azores Summit’ attaching Paper FCO, [undated], ‘A Vision for Iraq and the Iraqi people’.
493 Statement of the Atlantic Summit, 16 March 2003, A Vision for Iraq and the Iraqi People.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
495

813. Mr Jeremy Heywood, Mr Blair’s Principal Private Secretary, passed the US State
Department estimates of debt owed by Iraq to Sir David Manning, Mr Blair’s Foreign
Policy Adviser, on 25 March.494 Mr Heywood advised that compensation claims from
Kuwait’s Government and citizens could add up to US$100bn to Iraq’s debt.

814. The Development Committee of the World Bank Group and IMF agreed at their
April 2003 Spring Meetings that debt relief for Iraq should be pursued through the
Paris Club.495

815. The Treasury prepared a paper for the 8 May meeting of the Ad Hoc Ministerial
Group on Iraq Rehabilitation (AHMGIR), which considered whether a Paris Club
agreement on Iraq would be achievable.496

816. A Treasury official advised Mr Paul Boateng, the Chief Secretary to the Treasury,
in advance of the meeting that most creditors seemed content with that approach,
though the US appeared to be “not fully committed” to the Paris Club route.

817. The Treasury paper stated that three of Iraq’s biggest Paris Club creditors –
Russia, France and Germany – had been hostile to the invasion and would be deeply
disappointed at the prospect of debt relief.497 There were also a number of encouraging
factors, however, including:

• No creditor had been paid for more than a decade. A Paris Club deal was the
only real prospect of recovering any funds.

• France, as Paris Club chair, would find it hard to resist a Paris Club deal.

• Many creditors would be keen to exploit new commercial opportunities which
would require a regularisation of the debt position.

818. A Treasury official briefed Mr Brown on progress in securing debt relief for Iraq
on 17 November, in advance of a meeting the following day with Mr John Snow, the US
Secretary of the Treasury.498

819. The official warned that the US was becoming impatient with the pace of progress
in the Paris Club and concerned over the US’s lack of control over the process; a poor
outcome could leave Iraq with an unsustainable debt burden. The UK continued to
believe that the most effective way to achieve debt relief was through the Paris Club.

 

Footnotes
494 Minute Heywood to Manning, 25 March 2003, ‘Iraq: Debt’.
495 Minute Treasury [junior official] to Chief Secretary, 7 May 2003, ‘Ad Hoc Ministerial on Iraq Rehabilitation, Thursday 8th May at 2.30pm’.
496 Annotated Agenda, 8 May 2003, Ad Hoc Group on Iraq Rehabilitation meeting attaching Paper Treasury, April 2003, ‘Iraq: Debt’.
497 Paper Treasury, April 2003, ‘Iraq: Debt’.
498 Minute Habeshaw to Chancellor, 17 November 2003, ‘Iraq: International Debt’ attaching Paper Treasury, [undated], ‘Chancellor – Secretary Snow: Iraq: International Debt’ and Paper Treasury, 17 November 2003, ‘Iraq: International Debt’.

The Report of the Iraq Inquiry
496

820. The official advised that the UK estimated that Iraq had debts of at least
US$108bn, over 700 percent of GDP or 900 percent of exports. That level of debt was
unsustainable, especially when it was combined with Iraq’s commitment to meet at least
US$85bn in compensation claims from the Kuwait war. Preliminary Treasury analysis
was that a reduction of almost 80 percent in the net present value of Iraq’s external debt
would be required to restore sustainability.

821. Mr Brown discussed debt relief for Iraq with Secretary Snow on 18 November.499
Mr Brown’s Private Secretary reported that Secretary Snow had agreed that Iraq’s debt
should be dealt with through the Paris Club, though the terms would have to be more
generous than usual.

The US push for substantial debt relief, December 2003

822. On 5 December, President Bush appointed Mr James T Baker III, former US
Secretary of State, as his personal envoy on Iraqi debt.500 Mr Baker embarked on
a series of meetings with key creditors.

823. President Bush, Mr Jacques Chirac (the French President) and Mr Gerhard
Schröder (the German Chancellor) issued a joint statement on debt relief for Iraq on
16 December.501 It confirmed that France, Germany and the United States agreed
that there should be substantial debt reduction for Iraq, but stated that: “The exact
percentage of debt reduction that would constitute ‘substantial’ debt reduction is subject
to future agreement between the parties.”

824. Mr Baker called on Mr Blair on 18 December.502

825. The Treasury advised Mr Blair that Mr Baker was expected to ask the UK to:

• advocate publicly for significant debt relief, perhaps as much as 90 percent;

• lobby other key creditors; and

• act with the US in providing bilateral debt relief, should the Paris Club not look
like producing a sustainable solution.

826. In response, the UK should:

• Commit to advocating for “significant debt relief”, but not to a specific figure.
The US figure of 90 percent was an “extreme case”.

 

Footnotes
499 Email Bowman to Treasury [junior official], 18 November 2003, ‘Iraq Debt: CX Meeting with Secretary Snow’.
500 Minute Cannon to Blair, 17 December 2003, ‘Iraqi Debt: Meeting with James Baker’ attaching Paper Treasury, [undated], ‘Brief on Iraq’s International Debt’.
501 Statement President Bush, President Chirac and Chancellor Schroeder, 16 December 2003, Joint statement on Iraq and debt reduction.
502 Minute Cannon to Blair, 17 December 2003, ‘Iraqi Debt: Meeting with James Baker’ attaching Paper Treasury, [undated], ‘Brief on Iraq’s International Debt’.

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• Urge the US to use the Paris Club. That offered Iraq the best chance of a
sustainable solution. Bilateral debt relief would need to be funded through public
expenditure.

827. At the meeting, Mr Baker said that he hoped to secure 80 percent debt relief for
Iraq, though that might be optimistic.503 Mr Baker agreed with Mr Blair’s proposal that
the US should stick with the Paris Club mechanism. Mr Baker said that President Chirac
was seeking debt reduction of no more than 50 percent and that Chancellor Schröder
was starting from a position of 50 percent but was open to negotiation. Russia was
giving mixed signals.

828. Mr Baker met Russian President Vladimir Putin on 18 December. The media
reported that President Putin had told Mr Baker that Russia would join talks on settling
Iraq’s debt, but would negotiate on the issue taking into account the economic interests
of Russia and Russian companies in Iraq.504

The UK seeks a better deal for the most heavily indebted countries

829. In January 2004, Mr Jon Cunliffe, Treasury Managing Director for Macroeconomic
Policy and International Finance, highlighted to Mr Gary Edson, US Deputy Assistant to
the President for International Economic Affairs, the UK’s need to demonstrate broad
consistency between debt relief for Iraq and debt relief under the Heavily Indebted
Poor Countries (HIPC) Initiative, in order to avoid charges of “aid diversion” from poor
countries to Iraq.505

830. Mr Edson argued that Iraq was a special case, but acknowledged the need to be
“creative” in developing an acceptable debt relief agreement.

831. Mr Blair spoke to Mr Baker again on 18 May, at President Bush’s request.506

832. The Treasury’s briefing for Mr Blair restated the UK’s “key interests”:

• debt relief would facilitate Iraq’s economic development;

• debt relief through the Paris Club would strengthen that multilateral process; and

• financial: the UK was Iraq’s 14th largest creditor, holding claims of approximately
£1.15bn; there was also a public expenditure issue.507

 

Footnotes
503 Letter Cannon to Bowman, 18 December 2003, ‘Iraq Debt: Call on Prime Minister by James Baker’.
504 The New York Times, 19 December 2003, Russia agrees to discuss debt relief for Iraq; People’s Daily Online, 20 December 2003, Russia says business interests crucial in Iraq debt relief.
505 Email Treasury [junior official] to Cunliffe, 9 January 2004, ‘Iraq: NSC-HMG Telecon 08-01-04’ attaching Note, [undated], ‘Note of NSC-HMG Telecon’.
506 Letter Quarrey to Bowman, 18 May 2004, ‘Iraqi Debt: Prime Minister’s Phone Call with James Baker, 18 May’ attaching Paper, [undated], ‘Contingent HIPC Proposal: Extend HIPC, Accelerate Debt Reduction, Increase Grants’.
507 Minute Quarrey to Blair, 18 May 2004, ‘Iraq Debt: Jim Baker, 18 May’ attaching Paper Treasury, [undated], ‘Prime Minister’s Vidcon with Secretary Baker’.

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833. The briefing described that public expenditure issue: “Provided debt reduction can be justified on financial grounds, the cost of writing off commercial debts does not score as departmental expenditure but is borne by ECGD and the Treasury. In practice, the most effective way of demonstrating a good financial case is to use the Paris Club process. In contrast, if the UK were to write off debts on policy grounds … the cost would score as departmental expenditure and would need to be financed by DFID or another spending department.”

834. The Treasury briefing identified a fourth interest: to use UK support for debt relief
for Iraq to press the US to commit to more generous treatment of HIPCs. That treatment
should include extending the HIPC Initiative and providing additional relief if HIPCs
experienced external shocks. The briefing observed that the cost of debt relief for Iraq
was likely to exceed the cost of the debt relief for all 38 of the countries which had
benefited from the HIPC Initiative.

835. The briefing stated that the US might be intending to cancel 100 percent of
Iraqi debt owed to it, and might press the UK to do the same. Assuming a Paris Club
agreement to write-off 80 percent of Iraq’s debt, such an additional write-off would cost
the UK £230m. As that additional write off would be on policy (rather than financial)
grounds, the cost would fall to DFID, which would almost certainly make a claim on
the Reserve. The Treasury advised that while a 100 percent write-off could have
presentational benefits, it might not represent the best use of the resources available
to Iraq and that other debtor countries, including some that had large debts to the UK,
might demand similar generosity.

836. Just before Mr Blair and Mr Baker’s conversation, Mr Baker’s office sent No.10 an
outline proposal to extend the HIPC Initiative for up to three years and to accelerate the
provision of debt reduction under HIPC programmes.508

837. During the phone call on 18 May, Mr Baker said that the US agreed with the UK’s
proposal that debt reduction for Iraq should be accompanied by an extension of the
HIPC Initiative.509 He told Mr Blair that President Bush was prepared to support the
HIPC Initiative only if there was a “parallel agreement” on Iraq. Referring to the outline
proposal that his office had sent to No.10, Mr Baker said that it would not fly if it was
seen as a US initiative, but might if it was seen as a UK and French initiative to secure
concessions from the US on the HIPC Initiative in return for deep debt reduction for Iraq.

838. Mr Blair said that this was an important initiative and undertook to send it to
President Chirac.

 

Footnotes
508 Email Rogers to Bowman, 18 May 2004, ‘Heavily Indebted Poor Country (HIPC) Program’.
509 Letter Quarrey to Bowman, 18 May 2004, ‘Iraqi Debt: Prime Minister’s Phone Call with James Baker, 18 May’ attaching Paper, [undated], ‘Contingent HIPC Proposal: Extend HIPC, Accelerate Debt Reduction, Increase Grants’.

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839. The IMF released the final elements of its Debt Sustainability Analysis (DSA)
for Iraq on 25 May.510 The DSA assessed that Iraq’s debt stock was US$124.8bn, of
which US$42bn was owed to Paris Club creditors, US$67.3bn to non-Paris Club official
creditors, US$15bn to the private sector and US$0.5bn to multilateral institutions.

840. A Treasury official briefed Mr Brown on the DSA two days later.511 He estimated
that, on the basis of the DSA assessment, Iraq required debt reduction of at least
80 percent and preferably 90 to 95 percent; the higher figures would deliver a robust exit
from debt unsustainability and enable Iraq to cope with economic shocks.

841. Mr Blair spoke to President Chirac on 1 June, and suggested that the UK and
France should make a joint approach to the US on debt relief for Iraq and HIPCs.512
President Chirac did not support the proposal.

842. The US sought to broker a deal on debt relief for Iraq at the 8 June 2004 G8
Summit at Sea Island, but without success.513 The Summit did agree to extend the HIPC
Initiative for two years until 31 December 2006 and to provide the necessary financing
to complete the initiative, and to provide additional debt relief “where appropriate”.514

843. During a press conference at the end of the Summit, President Chirac was asked
whether he still thought that 50 percent was the right level of debt relief for Iraq.515
He replied: “It is absolutely the right one … Iraq is potentially a rich country even though she has a substantial debt. How will you explain to the very indebted poor countries … that
we’re going to do for Iraq in three months more than we’ve done in ten years for the
world’s thirty-seven poorest and most indebted countries? That … isn’t right.”

844. Treasury officials commented the following month that the Sea Island agreement
had not gone as far as they had hoped, in part because there had been no concomitant
agreement on debt relief for Iraq.516 They reported that Mr Brown still believed that
the UK should maintain a linkage between debt relief for Iraq and “a better deal for …
HIPCs”.

Paris Club agrees debt relief for Iraq, November 2004

845. Discussions continued over the summer between the Iraqi Government, the IMF
and creditors on debt reduction and the terms of an IMF programme for Iraq.517

 

Footnotes
510 International Monetary Fund, 25 May 2004, Iraq – External Debt Sustainability Analysis.
511 Minute Habeshaw to Chancellor, 27 May 2004, ‘Iraq Debt: IMF Debt Sustainability Analysis’.
512 Letter Rycroft to Adams, 1 June 2004, ‘Prime Minister’s Conversation with Chirac, 1 June’.
513 Paper Treasury, 7 July 2004, ‘Iraq Debt and HIPC’.
514 Sea Island Summit 2004 Communiqué, 10 June 2004, Debt Sustainability for the Poorest.
515 Présidence de la République, 10 June 2004, Sommet du G8 – Conférence de Presse de M. Jacques CHIRAC Président de la République, a l’issue du Sommet.
516 Paper Treasury, 7 July 2004, ‘Iraq Debt and HIPC’.
517 Minute Habeshaw to Chancellor, 6 September 2004, ‘Iraq Debt: Update’.

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500

The UK’s position remained that Iraq required debt reduction of at least 80 percent
to deliver debt sustainability. The US and the Iraqi Government sought 95 percent,
which the UK assessed would leave Iraq in a “very strong” financial position. The UK’s
negotiating line, including in a bilateral meeting with the French on 1 September 2004,
was to support the US position “while hinting flexibility”.

846. The IMF Board approved a US$436m Emergency Post-Conflict Assistance
programme for Iraq on 29 September.518 The UK Delegation to the IMF reported that
unanimous approval had followed “tetchy” discussions, with a number of Executive
Directors expressing unease at the speed of approval (the timetable had been driven by
US demands and the IMF had cut back substantially on formal review processes) and
whether the Iraqi Government would be able to implement the necessary policy reforms
if the security situation did not improve. The IMF had commented that agreement paved
the way for discussions on debt relief.

847. In early November, at the request of the Paris Club and in anticipation of an
agreement on debt relief for Iraq later that month, the IMF revisited its DSA for Iraq.519
Treasury officials briefed Mr Brown that, on the basis of the new figures, debt reduction
of between 75 and 85 percent was required to restore sustainability; debt reduction
above 85 percent could not be justified financially. Officials also told Mr Brown that
the US had now circulated a draft proposal seeking debt reduction of 89.5 percent in
three phases, with a generous repayment profile. The UK supported that proposal as
a negotiating position, but doubted that it could be agreed with Paris Club members.

848. A Treasury official warned Mr Brown on 12 November that the US had decided
to offer Iraq additional debt relief following a Paris Club deal, writing off 100 percent
of Iraq’s debt.520 If the UK did the same it would cost between £172m and £344m,
depending on the deal agreed at the Paris Club. Echoing the arguments offered in
May 2004, the official advised that, while there were “political arguments” in favour of
offering additional debt relief, there were also arguments against it:

• Significantly poorer countries had not received 100 percent debt relief.

• Iraq had no track record of using savings generated by debt relief for poverty
reduction.

• Providing 100 percent debt relief would set a precedent for the UK’s treatment
of other countries.

849. The official recommended that the UK should not offer additional debt relief to Iraq.

 

Footnotes
518 Telegram 25 UKDEL IMF/IBRD to Treasury, 30 September 2004, ‘Iraq: IMF Approves Emergency Post Conflict Assistance’.
519 Minute Habeshaw to Chancellor, 8 November 2004, ‘Iraq Debt: New Debt Sustainability Numbers’.
520 Minute Treasury [junior official] to Brown, 12 November 2004, ‘Iraq Debt: Update’.

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850. The Treasury told the Inquiry that it has no record of Mr Brown responding to that
advice.521

851. Paris Club creditors agreed on 21 November to reduce Iraq’s official debt by
80 percent.522 The deal would be delivered in three stages: 30 percent immediately;
30 percent on approval of a standard IMF programme; and 20 percent on completion
of the standard IMF programme. The deal would write off US$31.1bn of the US$38.9bn
owed to Paris Club creditors. The Iraqi Government committed to seek comparable
treatment from its non-Paris Club creditors.

852. The UK’s share of that write-off was approximately US$1.39bn,523 or £954m
(£337m in UK financial year 2004/05, £337m in UK financial year 2005/06 and £280m
in UK financial year 2008/09).524 The entire amount was charged to the ECGD.

853. A Treasury briefing for Mr Brown stated that the deal represented an important
success for the international community, demonstrating an ability to act together on an
issue as divisive as Iraq.525

854. The Treasury told the Inquiry that the agreement followed intense negotiations
between G7 officials and Ministers, including between Mr Brown, Secretary Snow and
Mr Nicolas Sarkozy, the French Minister of Finance.526 The deal had been finalised in a
meeting between Secretary Snow and Mr Hans Eichel, the German Minister of Finance.

855. The Treasury told the Inquiry that it has no records of the discussions between
Mr Brown and Mr Snow and Mr Sarkozy.527

856. The US wrote off 100 percent of Iraq’s debt, totalling US$4.1bn, on
17 December 2004.528

857. In November 2006, Mr Brown was asked by Dr Barham Salih, Iraqi Deputy
Prime Minister, to provide 100 percent debt relief for Iraq.529 Mr Brown responded
by highlighting the aid that the UK was already providing and his discussions with
counterparts in the Gulf states and the EU on supporting Iraq.

 

Footnotes
521 Email Treasury [junior official] to Iraq Inquiry [junior official], 17 April 2014, ‘Further Queries Relating to Resources’.
522 Paris Club, Press Communiqué, 21 November 2004, Restructuring the Iraqi debt – Agreement between the Paris Club and Iraq.
523 Briefing Treasury, [undated], ‘Brief: Meeting with Barham Saleh, Deputy Prime Minister of Iraq’.
524 Letter Cabinet Office [junior official] to Aldred, 13 September 2011, ‘Iraq Inquiry: Request for Further Information on Funding’.
525 Briefing Treasury, [undated], ‘Brief: Meeting with Barham Saleh, Deputy Prime Minister of Iraq’.
526 Paper Treasury, 2010, ‘Iraq Briefing – Debt’.
527 Email Treasury [junior official] to Iraq Inquiry [junior official], 22 April 2014, ‘Further Queries Relating to Resources’.
528 Congressional Research Service, Report for Congress, 11 March 2005, Iraq: Debt Relief.
529 Record, [undated], ‘Chancellor’s Visit to Basra: 18/11/06’.

The Report of the Iraq Inquiry
502

858. The UK did not provide additional bilateral debt relief for Iraq, beyond the
agreement reached at the Paris Club.
Returning asylum seekers to Iraq

859. Iraq, with almost 50,000 applicants, was the biggest source of asylum seekers to the
29 industrialised countries that provided monthly data to the UN High Commissioner for
Refugees (UNHCR) in 2002.530 Of those applicants, 14,565 applied for asylum in the UK.

860. Table 2 shows the number of asylum applications to certain industrialised countries
and the UK originating in Iraq between 2002 and 2009.

10-3-table-2-asylum-applications-to-industrialized-countries-uk-from-iraq

Table 2: Asylum applications to industrialised countries and to the UK originating in Iraq

 

Footnotes
530 UNHCR, 24 February 2004, Asylum Levels and Trends: Europe and non-European Industrialized Countries, 2003.
531 UNHCR, 24 February 2004, Asylum Levels and Trends: Europe and non-European Industrialized Countries, 2003. Figures reflect origin of asylum applications in 29 countries providing monthly data to UNHCR.
532 UNHCR, 1 March 2005, Asylum Levels and Trends: Europe and non-European Industrialized Countries, 2004. Figures reflect origin of asylum applications lodged in 36 countries providing monthly data to UNHCR.
533 UNHCR, 17 March 2006, Asylum Levels and Trends in Industrialized Countries, 2005. Figures reflect origin of asylum applications lodged in 36 countries providing monthly data to UNHCR.
534 UNHCR, 23 March 2007, Asylum Levels and Trends in Industrialized Countries, 2006. Figures reflect origin of asylum applications lodged in 36 countries providing monthly data to UNHCR.
535 UNHCR, 18 March 2008, Asylum Levels and Trends in Industrialized Countries, 2007. Figures reflect origin of asylum applications lodged in 43 countries providing monthly data to UNHCR.
536 UNHCR, 24 March 2009, Asylum Levels and Trends in Industrialized Countries, 2008. Figures reflect origin of asylum applications lodged in 44 countries providing monthly data to UNHCR.
537 UNHCR, 23 March 2010, Asylum Levels and Trends in Industrialized Countries, 2009. Figures reflect origin of asylum applications lodged in 44 countries providing monthly data to UNHCR.
538 UNHCR, 28 March 2011, Asylum Levels and Trends in Industrialized Countries, 2010. Figures reflect origin of asylum applications lodged in 44 countries providing monthly data to UNHCR.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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861. Establishing a programme to enable the return of Iraqi asylum seekers currently in
the UK to Iraq was an early priority for the UK Government.

862. On 8 April 2003, as major combat operations in Iraq continued, Mr David Blunkett,
the Home Secretary, wrote to Mr Blair: “As the conflict in Iraq moves towards a successful conclusion, we need to look at the consequences for the tens of thousands of Iraqi asylum seekers currently in the United Kingdom.
“Once peace and stability have returned to Iraq I believe it is right to press ahead
with a substantial returns programme … The new Iraq needs the skills of its exiles
to help in reconstruction. And with the threat from Saddam’s regime removed
there is no justification for failed Iraqi asylum seekers and new arrivals to remain
in the UK.”539

863. No.10 replied on 10 April, confirming that Mr Blair had asked departments to work
towards “forced returns … in the course of the next three months”.540

864. The International Organization for Migration (IOM) facilitated a small number of
voluntary returns from the UK to Iraq, beginning in June 2003.541

865. The Home Office reported in October 2003 that 50 Iraqis had so far returned
on that basis.542

866. In October 2003, the UK sought the CPA’s agreement to expand its voluntary
returns programme and to introduce an enforced returns programme, to the Kurdish
Autonomous Zone (KAZ) only, for those who had no legal right to remain in the UK.543

867. Sir Jeremy Greenstock, the Prime Minister’s Special Representative on Iraq,
reported on 7 November that the CPA was reluctant to agree those requests.544
Ambassador Paul Bremer, the Head of the CPA, had decided in July not to encourage
returnees until Iraq’s infrastructure could deal with them. The CPA argued that while the
KAZ was a more stable and better serviced area of Iraq:

• there were already more than 600,000 internally displaced people there;

• the ethnic balance remained sensitive;

• there was not yet a policy on resolving disputes over property ownership; and

 

Footnotes
539 Letter Blunkett to Blair, 8 April 2003, ‘Iraq: Organising Rapid Returns’.
540 Letter Miles to Razavi, 10 April 2003, ‘Iraq: Organising Rapid Returns’.
541 Minute Baird to Hughes, 6 June 2003, ‘Returns to Iraq: Update’.
542 Letter Baird to Fry, 16 October 2003, ‘Iraq: Return of Failed Asylum Seekers’ attaching Paper, [undated], ‘Iraq: Returns’.
543 Letter Baird to Fry, 16 October 2003, ‘Iraq: Return of Failed Asylum Seekers’ attaching Paper, [undated], ‘Iraq: Returns’.
544 Telegram 255 Baghdad to FCO London, 7 November 2003, ‘Iraq: Iraqi Returns’.

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504

• UNHCR and IOM had no expatriate staff in Iraq to maintain and monitor returnee
programmes.

868. The UK continued to lobby Ambassador Bremer.545

869. Ambassador Bremer agreed on 17 February 2004 that the UK could implement a
pilot programme of enforced returns to northern Iraq from 1 April 2004.546 The agreement covered the lifetime of the CPA only. An IPU official commented that Ambassador Bremer had not agreed to accept enforced returns from any other Western country, including the US.

870. Later that month, Mr Blunkett announced that the UK intended to begin a pilot
programme of voluntary and enforced returns to Iraq.547

871. It did not prove possible to implement that pilot programme.

872. The Kurdish Regional Government (KRG) wrote to UNHCR on 9 May stating its
opposition to enforced returns.548

873. The FCO subsequently cancelled a scoping mission by a Home Office delegation
scheduled for late May, due to the lack of helicopters and armoured vehicles to transport
them to northern Iraq and to avoid antagonising the KRG.549

874. Mr Blunkett wrote to Mr Straw on 28 May, to urge him to reconsider.550 Mr Blunkett
advised that Iraq consistently figured in the list of the “top ten asylum producing
countries”. Unless the UK established the principle of forced return by sending out a
flight of returnees before 30 June 2004 (the expected date of the transfer of power in
Iraq from the CPA to an Iraqi Interim Administration), the new Iraqi authorities might
insist that negotiations on enforced returns “recommence from the beginning”.

875. Mr Straw replied on 7 June, acknowledging Mr Blunkett’s concern but stating
that making enforced returns before 1 July without consultation with the incoming
Interim Iraqi Government (IIG), its ministries and the KRG could undermine broader
UK diplomatic efforts and predispose the IIG to be unhelpful on returns in the future.551

876. Mr Blunkett accepted Mr Straw’s response.552

 

Footnotes
545 Minute Greenstock to Bremer, 15 February 2004, ‘Iraqi Returns from the UK’.
546 Minute IPU [junior official] to PS/Baroness Symons, 18 May 2004, ‘Iraq: Enforced Returns of Failed Asylum Seekers to Iraq’.
547 Paper FCO, 26 February 2004, ‘No.10 Weekly Update – 26 February 2004’.
548 Letter Siwaily to UNHCR, 9 May 2004, ‘Iraqi returnees from Iran’.
549 Minute IPU [junior official] to PS/Baroness Symons, 18 May 2004, ‘Iraq: Enforced Returns of Failed Asylum Seekers to Iraq’.
550 Letter Blunkett to Straw, 28 May 2004, ‘Enforced Return of Failed Asylum Seekers to Iraq’.
551 Letter Straw to Blunkett, 7 June 2004, ‘Enforced Return of Failed Asylum Seekers to Iraq’.
552 Letter Blunkett to Straw, 22 June 2004, ‘Enforced Return of Failed Asylum Seekers to Iraq’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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877. The Iraqi Minister of Displacement and Migration visited the UK from 23 to 27 July,
and agreed that Iraq and the UK should draw up a Memorandum of Understanding
(MOU) to cover returns to Iraq.553

878. The Occupation of Iraq formally came to an end on 28 June. Power was
transferred from the CPA and Iraqi Governing Council to the IIG.554

879. On 3 November, an IPU official provided an update for Mr Straw on enforced
returns.555 A Home Office delegation had visited Iraq from 3 to 11 September and had
“eventually persuaded” KRG Ministers and officials to accept forced returns.
The Minister of Displacement and Migration had not yet signed the MOU. The Home
Office believed that forced returns could go ahead without it as, under the Chicago
Convention, Iraq had an obligation to take back its nationals who did not qualify to
remain in the UK. The Home Office was therefore making plans to send the first 15 failed
asylum seekers back to northern Iraq on around 23 November.

880. The IPU official advised that the FCO’s view was that no forced returns should take
place until the MOU was signed, for three reasons:

• to ignore IIG views could generate “ill will” from the IIG and KRG, at a time when
the UK needed their support on a number of political priorities;

• the planned destinations for returnees might not be safe; and

• the presentational issue of enforced returns coinciding with military operations
in Fallujah, and with Ramadan.

881. Mr Blunkett’s Private Secretary wrote to No.10 on 15 November, reporting that
the IIG accepted the principle of enforced return, but was unlikely to accept returnees
until the following year.556 The Minister of Displacement and Migration had asked for an
improved package of assistance for returnees. Mr Blunkett’s Private Secretary restated
the FCO’s view that no enforced returns should take place without an MOU, and
recommended that the UK should intensify its lobbying to secure the IIG’s signature to it.

882. No.10 replied on 18 November, confirming that Mr Blair agreed that no enforced
returns should be made without an MOU.557

883. Mr Blair visited Baghdad on 21 December.558 In his record of Mr Blair’s meeting
with Prime Minister Ayad Allawi, Mr Quarrey reported that Prime Minister Allawi had
agreed that Iraq should sign an MOU covering enforced returns before the end of
the month.

 

Footnotes
553 Minute IPU [junior official] to Straw, 3 November 2004, ‘Iraq: Update on Enforced Returns’.
554 Bremer LP III & McConnell M. My Year in Iraq: The Struggle to Build a Future of Hope. Threshold, 2006.
555 Minute IPU [junior official] to Straw, 3 November 2004, ‘Iraq: Update on Enforced Returns’.
556 Letter PS/Blunkett to No.10 [junior official], 15 November 2004, ‘Enforced Returns to Iraq’.
557 Letter No.10 [junior official] to PS/Blunkett, 18 November 2004, ‘Enforced Returns to Iraq’.
558 Letter Quarrey to Adams, 21 December 2004, ‘Prime Minister’s Visit to Baghdad, 21 December: Meeting with Allawi’.

The Report of the Iraq Inquiry
506

884. The MOU was signed in January 2005 by the Ministry of Displacement and
Migration, on behalf of the IIG, and the Home Office.559

885. Notwithstanding the signature of the MOU, discussions continued between the
UK Government and the IIG on the implementation of an enforced return programme.560
The IIG’s concerns included the impact of returnees within the KRZ and the package of
assistance provided to returnees.

886. Mr Tim Torlot, Deputy Head of Mission at the British Embassy Baghdad, called
on Prime Minister Ibrahim Ja’afari on 4 August. Mr Torlot reported to the FCO that
Prime Minister Ja’afari had agreed that Iraq should abide by the terms of the MOU,
and to instruct the Minister of Displacement and Migration to accept enforced returns.
Prime Minister Ja’afari hoped that the UK would consider substantially increasing the
assistance provided to returnees.

887. The UK planned to operate the first flight carrying enforced returnees on
28 August.561

888. Mr Charles Clarke, who had succeeded Mr Blunkett as Home Secretary, wrote
to Mr Blair on 25 August to confirm that he had postponed that flight, due to opposition
from the KRG and a concern that the RAF aircraft carrying the returnees would be a
target for insurgent activity.562

889. President Jalal Talabani and Mr Blair met at 10 Downing Street on 6 October.563
Mr Blair said that he attached great importance to early progress on the issue of
enforced returns, and said that it would be helpful if President Talabani took a personal
interest.

890. Mr Straw was advised on 17 November that the KRG had, following Ministerial
pressure, finally agreed to accept enforced returnees.564

891. The first flight of enforced returnees, comprising 15 failed asylum seekers, took
place on 20 November, landing in Erbil.565

892. Mr Clarke reported to Mr Blair on 25 November that the UK had not received
“the expected legal challenge” to the returns on the grounds that Iraq was an unsuitable
destination.

 

Footnotes
559 Paper, 26 January 2005, ‘Memorandum of Understanding between the Ministry of Displacement and Migration of the Republic of Iraq and the Home Office for the United Kingdom of Great Britain and Northern Ireland’.
560 eGram 10598/05 Baghdad to FCO London, 5 August 2005, ‘Iraq: Enforced Returns of Asylum Seekers: Call on Prime Minister’.
561 Minute Clarke to Prime Minister, 25 July 2005, ‘Enforced Returns to Iraq’.
562 Minute Clarke to Prime Minister, 25 August 2005, ‘Enforced Returns to Iraq’.
563 Letter Quarrey to Siddiq, 6 October 2005, ‘Iraq: Talabani’.
564 Minute FCO [junior official] to Straw, 17 November 2005, ‘Iraq: Enforced Return of Failed Asylum Seekers’.
565 Note Clarke to Blair, 25 November 2005, ‘Enforced Returns to Iraq’.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
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893. No flights to central or southern Bagdad were made during the period covered by
this Inquiry.

Post-conflict reconstruction and stabilisation

894. A cross-government review of the UK’s approach to post-conflict reconstruction
began in September 2003.566

895. The inter-departmental Post-Conflict Reconstruction Unit (PCRU) was established
in September 2004.567 It became operational during 2005.568

896. In December 2007, the PCRU was renamed the Stabilisation Unit (SU).569

897. The PCRU and the SU focused their activity on Afghanistan. They made limited
but valuable contributions in Iraq.

898. Since 2007, the SU has continued to evolve in response to the strategic and
policy framework established by:

• the 2008 and 2010 National Security Strategies (NSSs);

• the 2010 Strategic Defence and Security Review (SDSR); and

• the 2011 Building Stability Overseas Strategy (BSOS).

The Post-Conflict Reconstruction Unit

899. On 16 September 2003, Mr Straw, Mr Hoon and Baroness Amos discussed postconflict
planning and preparation. A number of papers, including a joint FCO/DFID/MOD
paper on post-conflict reconstruction, had been prepared beforehand.570
900. Mr Straw highlighted the contrast between the UK’s preparation for domestic
crises and post-conflict situations. More needed to be done to “get ahead of the curve”.

901. Mr Hoon highlighted the absence of any civilian equivalent to military planning.
The UK should aim for international agreement on the civilian resources and skills
needed and where they were available.

902. Baroness Amos emphasised the need first to “link up” across government and to
learn lessons from previous interventions.

 

Footnotes
566 Paper [unattributed], 17 September 2003, ‘Meeting of Secretaries of State for Foreign Affairs, Defence and International Development – 16 September 2003 at 2.15pm’.
567 Minute [DFID junior official] to Drummond, 29 June 2005, ‘PCRU Update Meeting with the PUSS, 21 June’.
568 House of Commons, Official Report, 21 July 2005, column 155WS.
569 Paper Stabilisation Unit, December 2007, ‘Stabilisation Unit’.
570 Paper [unattributed], 17 September 2003, ‘Meeting of Secretaries of State for Foreign Affairs, Defence and International Development – 16 September 2003 at 2.15pm’.

The Report of the Iraq Inquiry
508

903. Other points made in discussion included:

• the possibility of using Territorial Army (TA) training and pre-deployment centres
for civilians involved in post-conflict work;

• the critical importance of policing and security;

• the possibility of establishing contingency arrangements to make it easier to start
preparing earlier for post-conflict operations; and

• the importance of building capacity elsewhere, including in the UN and EU.

904. The three Ministers agreed that officials should:

• review the UK’s approach to planning and preparing for post-conflict situations at
the national level and then look at influencing others, with the EU a high priority;

• consider setting up an inter-departmental “co-ordinating mechanism”, look at the
tools needed and consider how to spread best practice; and

• take into account the resource implications.

905. On 28 November, Mr John Sawers, FCO Political Director, informed Sir Nigel
Sheinwald, Mr Blair’s Foreign Policy Adviser, that FCO, DFID and MOD officials were
preparing a paper for discussion by Ministers in January 2004.571 Mr Sawers identified
three main issues to address: “a. how we improve the UK performance in this area; b. how we help improve the international effort – especially in the UN; c. what our training and personnel management needs are.”

906. A trilateral FCO/MOD/DFID working group agreed on 7 January 2004 to focus
on “the gap that has been identified in terms of planning for the initial implementation
post-conflict phase”.572

907. Officials presented a paper setting out recommendations for the “better planning,
implementation and management of the UK’s contribution to post-conflict reconstruction”
to DOP on 12 February.573

908. The paper, already agreed by Mr Straw, Mr Benn and Mr Hoon, recommended
setting up an inter-departmental Post-Conflict Reconstruction Unit (PCRU) with a double
remit:

• “Policy: developing government strategy for post-conflict reconstruction linked
into concomitant military and humanitarian planning, the wider international

 

Footnotes
571 Letter Sawers to Sheinwald, 28 November 2003, ‘Foreign Policy Strategy Group: First Meeting’ attaching Paper [unattributed and undated], ‘Post Conflict Reconstruction’.
572 Paper [unattributed and undated], ‘Post Conflict Reconstruction Trilateral Working Group: Meeting at the Royal Artillery, Woolwich on 7 January 2004’.
573 Letter Owen to Fergusson, 5 February 2004, ‘Post Conflict Reconstruction: Paper for the DOP, 12 February’ attaching Paper [unattributed and undated], ‘Post Conflict Reconstruction’.

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community (separate from the broader political process underlying the need for
intervention) and best practice.

• Executive: implementing and managing the UK’s contribution to post-conflict
reconstruction, including the identification and training of civilian personnel and
the maintenance of databases, with deployable capability.”

909. Four options were proposed:

• a small non-permanent secretariat with a co-ordinating function;

• a small permanent unit of 15-18 people to inform strategy and devise operational
plans;

• a unit of 40-50, with a component able to deploy alongside armed forces (the
recommended option); and

• a large, permanent department of 150-200 of whom about half could be
deployed.

910. DOP agreed the proposed remit and to a scale somewhere between options two
and three.574 DOP did not envisage that the unit itself should have a deployable capacity.

911. Officials sent a second paper, setting out detailed structures and already agreed
by Mr Straw, Mr Benn and Mr Hoon, to DOP on 23 July.575

912. The paper proposed that: “The PCRU will bring together financial, analytical, planning and personnel resources that in the past have been distributed across government. This will enable HMG to:

• Integrate planning for the military and civilian components of any
intervention … Advance planning for post-conflict reconstruction should
influence military planning … and force composition …

• Co-ordinate with the international community and burden-share …

• Identify resources in advance … Honeymoon periods in PCR situations
are short. Failing to deliver a rapid and demonstrable improvement in the
quality of life to the local population can have a negative impact …”

913. The paper proposed that DFID would host the PCRU and meet administrative and
running costs to the end of financial year 2007/08.

 

Footnotes
574 Letter Fergusson to Drew, 19 February 2004, ‘Post-Conflict Reconstruction: Follow Up to DOP’.
575 Paper [Cabinet Office], 20 July 2004, ‘DOP paper on the Post Conflict Reconstruction Unit’.

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914. The paper explained that there had been “substantial discussion” between
departments over governance and accountability. The proposed arrangements took into
account the need for:

• policy and strategy decisions to be taken inter-departmentally (policy would
be set jointly by departments through a Cabinet Office-chaired steering group,
reporting to a DOP Sub-Committee chaired by the Foreign Secretary); and

• financial accountability to be the preserve of the DFID Permanent Secretary
as Accounting Officer for DFID funds.

915. The paper stated that PCRU staffing would grow over two to three years to
become fully operational with a core staff of about 40. It would have “an additional surge
capacity and deployable element drawn from volunteers from across Whitehall, NGOs
and the private sector”. The proposed size reflected: “… the need to support the likely scales of effort and concurrency of UK military deployments as reflected in the Defence White Paper: one enduring minimum deployment (e.g. the Balkans or Iraq) plus either two enduring small-scale deployments (e.g. Sierra Leone or Mozambique flood relief) or one short-term medium deployment (e.g. Afghanistan).”

916. On 6 September, Sir Nigel Sheinwald informed members of DOP and Sir Andrew
Turnbull, the Cabinet Secretary, that Mr Blair was content with the management
arrangements set out in the July DOP paper. Mr Blair believed the PCRU should be
“lean”, with an ability to surge when required, and wanted staffing to be kept under
review.576 The Cabinet Office would now start to establish the necessary committee
structures.

917. Mr Benn informed Parliament on 16 September of “the Government’s intention to
improve the United Kingdom’s capacity to deal with immediate post-conflict stabilisation,
including by integrating civilian and military policy, planning and operations”.577 The FCO, the MOD and DFID were working closely to develop the capabilities that were needed
and expected to be in a position formally to establish the PCRU later in the year.

918. The PCRU was established in September 2004.578

 

Footnotes
576 Letter Sheinwald to Malik, 6 September 2004, ‘Lessons of Iraq: Whitehall Responses’.
577 House of Commons, Official Report, 16 September 2004, column 173WS.
578 Minute [DFID junior official] to Drummond, 29 June 2005, ‘PCRU Update Meeting with the PUSS, 21 June’.

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919. In March 2005, the House of Commons Defence Committee expressed concern
that the PCRU might not achieve its initial operating capability by the target date of
spring 2005.579 Issues still to be resolved included:

• identification of the best department to manage the deployment of civilian police
officers;

• the need for the PCRU to operate in “a genuinely cross-departmental manner”
and not as “the advocate of a particular department’s priorities”; and

• provision of the funding needed not only to establish itself but to pay for
deployments.

920. On 4 May 2005, Mr Neil Crompton, the departing Head of the IPU, expressed
doubts to Mr Sawers about the PCRU’s ability to achieve everything expected of it:
“MOD frustration with the pace of reconstruction has been a cause of much tension
within Whitehall. The creation of the PCRU should help resolve some of the issues,
but I doubt that it will solve the problem completely, HMG as a whole has lost the old
ODA [Overseas Development Agency] ability to ‘fix things’. DFID no longer regard
this as core business. Civilians and contractors have to operate under tight security
rules which prevent them operating at the required pace in environments like Iraq.
“Part of the solution is for MOD to regard post-conflict reconstruction as their core
business … MOD need to follow US practice and develop civil affairs battalions …
“In parallel, we need to sell the notion that military assets (particularly transport)
belong to HMG as a whole and that decisions on how they are deployed should be
determined by HMG, rather than MOD/PJHQ on the basis of military priorities …
We [FCO] and DFID should be involved in the force level review process in a
more formal way than our participation in Chiefs of Staff allows, so that wider
considerations are taken into account. PJHQ will resist – but we should persist.”580

921. Mr Sawers shared Mr Crompton’s scepticism about the PCRU, but suggested
that it would need to be tested in a real crisis.581 He added: “The MOD’s resistance to doing civilian reconstruction has been a problem and I am attracted by your proposal that they should develop civil affairs battalions who can actually restore basic services in a post-conflict environment. With DFID’s near exclusive focus on poverty, and as you say their inability these days to ‘fix things’, it is always going to be difficult to get DFID to wholeheartedly commit to underpinning the political objectives of HMG. MOD is more resource constrained than DFID but this is an area worth exploring with the new Defence Secretary.”

 

Footnotes
579 Sixth Report from the Defence Committee, Session 2004-05, Iraq: An Initial Assessment of Post‑Conflict Operations, HC 65-1, paras 267-270.
580 Minute Crompton to Sawers, 4 May 2005, ‘Iraq Reflections’.
581 Minute Sawers to Crompton, 9 May 2005, ‘Iraq: Reflections’.

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922. On 21 June, Mr Paul Schulte, Head of the PCRU, updated Mr Suma Chakrabarti,
DFID Permanent Secretary, and Mr Drummond on progress setting up the Unit,
explaining that it had expanded rapidly since being established in September 2004:

• 27 permanent staff had been appointed and recruitment was nearly complete;

• the PCRU had created a database of deployable civilian experts;

• progress had been made on a number of framework agreements to allow timely
provision of services; and

• work on assessment and planning tools was well under way.582

923. Mr Schulte reported that a number of proposals for operational work were being
considered, including in Afghanistan and Sierra Leone.

924. Mr Drummond cautioned against widening the PCRU’s remit beyond stabilisation
activities where UK forces were deployed.

925. Mr Chakrabarti asked to see a list of operations being considered and an
explanation of how decisions were being made.

926. An internal review of the PCRU’s first months, produced for Mr Schulte in
July 2005, recommended a number of changes to the Unit and its remit.583
The recommendations included:

• greater engagement with multilateral operations;584 and

• promoting a new approach to civilian force generation to replace what remained
an “unsystematic and largely ad hoc process” for identifying, recruiting and
deploying personnel.585

927. Mr Benn updated Parliament on 21 July: “I wish to inform parliament of the establishment and current capabilities of the Post-Conflict Reconstruction Unit (PCRU). The PCRU is an inter-departmental unit, which has been set up by our three departments to improve the United Kingdom’s capacity to contribute to the creation of a stable environment in countries emerging from conflict. The Unit’s work is overseen by the Defence and Overseas Policy (Conflict and Reconstruction) Committee, chaired by the Foreign Secretary.
“The PCRU has been established to carry out two main tasks: first, to develop
government strategy for post-conflict stabilisation, which includes linking military
and civilian planning, as well as working with the wider international community for

 

Footnotes
582 Minute [DFID junior official] to Drummond, 29 June 2005, ‘PCRU Update Meeting with the PUSS, 21 June’.
583 Minute Astle and Korski to Schulte, 14 July 2005, ‘PCRU – A Look Ahead’.
584 Minute Astle and Korski to Schulte, 14 July 2005, ‘Strategic Discussion Paper 1 – PCRU Concept of Operations’.
585 Minute Astle and Korski to Schulte, 14 July 2005, ‘Strategic Discussion Paper 3 – Civilian Force Generation’.

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the spread of best practice, capacity building and burden sharing; and, secondly, to
plan and direct activities to create stability in post-conflict environments in the period
immediately following the cessation of hostilities.
“The PCRU is nearly fully staffed and has reached an initial capacity to plan for, and
support, stabilisation activities. The Unit is building up a database of civilian experts
who can be deployed. It is also developing methods to help the Government reach
an understanding of, and plan responses to, individual conflicts. In addition the Unit
is writing a series of guidance papers on a range of specific issues that may need to
be tackled in post-conflict situations, such as security sector reform and governance.
The PCRU is also developing links with international organisations and other
Governments to ensure that the UK’s efforts are part of a co-ordinated contribution
to the international response to conflict. I expect the PCRU to be able, if necessary,
to plan and organise a large-scale deployment of up to several hundred civilians,
including police, as part of a post-conflict stabilisation operation by mid-2006.”586

928. In his valedictory report on leaving the PCRU in December 2005, Mr Schulte
described it as “the most sophisticated and integrated arrangement we know of”,
presenting “a significant opportunity to influence international – and particularly
American and EU – thinking and practice”.587 But there had been difficulties, including
finding people with the right experience and skills who were willing to join an unproven
organisation and could be released quickly from their current jobs. There had also been
“departmental sensitivities over responsibilities and boundaries”.

929. Mr Schulte concluded: “… senior support will remain crucial for some time to ensure successful PCRU involvement in cross-Whitehall work. The Unit relies critically upon the development of coherent and effective cross-departmental working relationships. But they all impose costs and demands on the staff time of others. We have learned that it is
sometimes difficult to persuade colleagues to take this on without direction from
within their own organisations.”

930. A second internal review of the PCRU was carried out at the request of PCRU
Directors in January and February 2006.588 Directors agreed the recommendation for
a new statement of the PCRU’s role to reflect the experience of its first year: “… to provide HMG and its partners with integrated assessment and planning, and operational expertise, to deliver more effective stabilisation operations.”589

 

Footnotes
586 House of Commons, Official Report, 21 July 2005, column 155WS.
587 Minute Schulte to Drummond, 19 December 2005, ‘Valedictory Note’.
588 Paper PCRU, March 2006, ‘PCRU Internal Review – Key Findings’.
589 Paper PCRU, July 2006, ‘Principles for determining where PCRU deploy, what it funds and for how long’.

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THE PCRU AND IRAQ

931. From autumn 2005, the PCRU looked for ways to support existing UK stabilisation
operations while continuing to build capacity to undertake possible “but very unlikely”
future large-scale deployments.590

932. At the request of the FCO, the PCRU provided a temporary head for the Political
Section at the British Embassy Office Basra from 9 to 23 December 2005.

933. During March 2006, a member of the PCRU undertook a scoping study for the
UK-led Basra Provincial Reconstruction Team (PRT), which became operational during
May (see Section 10.2).

934. In April 2006, no UK department or international partner, including the US, had a
budget for PRT running costs. The PCRU filled the gap.591 It agreed to recruit and fund
three staff for a six-week period, including Mr Mark Etherington, the PRT Team Leader,
while discussions continued on funding.592

935. In July 2006, the PCRU’s support to the Basra PRT was extended to July 2007,
at a total cost of £758,000. Most work was expected to be completed by December
2006.593

936. In late July 2006, Mr Richard Teuten, Mr Schulte’s successor as Head of the
PCRU, visited Baghdad and Basra to understand better the stabilisation challenges
in Iraq, assess the PCRU contribution and raise awareness of what the PCRU could
offer.594

937. In September 2006, Mr Teuten reported that, in relation to Iraq, the PCRU had:

• supported PRT management from London;

• provided funding up to December 2006 for three Deployable Civilian Experts
(DCEs): the PRT Team Leader and two support officers;

• helped identify a civilian expert to set up a Prosecution Mentoring Unit in Basra;

• identified and funded a specialist to design a communications strategy in support
of the UK’s Southern Iraq Steering Group; and

 

Footnotes
590 Paper PCRU, July 2006, ‘Principles for determining where PCRU deploy, what it funds and for how long’.
591 Minute Middle East and North Africa Department [junior official] to Private Secretary [DFID], 19 April 2006, ‘DOP(I) Briefing, 19 April 2006’ attaching Paper MENAD, 19 April 2006, ‘Iraq Update’.
592 Minute PCRU [junior official] to Private Secretary [DFID], 25 April 2006, ‘Information Note: Basra Provincial Reconstruction Team & PCRU’.
593 Paper Post Conflict Reconstruction Unit, July 2006, ‘Project Memorandum: PCRU Support for HMG Engagement in Iraq’.
594 Minute Teuten to PCRU [junior official], 31 July 2006, ‘Visit to Baghdad and Basra 19-25 July’.

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• begun a review of PRT management and support arrangements, comparing
Basra and Helmand (Afghanistan).595

938. The Basra/Helmand review was one of two Iraq-related reports produced by the
PCRU in 2006:

• ‘Provincial Reconstruction Teams (PRTs) in Iraq and Afghanistan –
A Comparison’;596 and

• ‘Refocusing civilian efforts in Basra in the run up to PIC [Provincial Iraqi
Control]’.597

The Stabilisation Unit

939. In December 2007, the PCRU was renamed the Stabilisation Unit (SU), reflecting
the emergence of the broader concept of stabilisation and the Unit’s new role managing
a £269m MOD Stabilisation Aid Fund announced as part of the September 2007
Comprehensive Spending Review.598

940. The SU’s key tasks were:

• assessment and planning: helping departments “plan together so there is
a single UK aim and strategic framework”;

• deployments: providing experienced civilian personnel; and

• lesson learning: identifying and sharing best practice in the UK and
internationally.

941. Afghanistan was the principal focus. On 12 December, Mr Brown announced in
Parliament that the UK would make available £450m in development and stabilisation
assistance for Afghanistan for 2009-2012, part of which would help fund:
“… Britain’s new cross-government Stabilisation Unit, which has Afghanistan as its
first priority, and which, with a global budget of £260m over the next three years, will
drive forward reconstruction projects and provide expert civilian support to rebuild
basic services.”599

 

Footnotes
595 Minute Teuten to Drummond, 26 September 2006, ‘PCRU Directors’ Board Meeting: 2 October 2006’ attaching Paper PCRU, 27 September 2006, ‘PCRU Headline Achievements: August-September’ and Paper PCRU, September 2006, ‘PCRU: Lessons Learning and Evaluation’.
596 Minute Teuten to PS/Minister(AF), 17 November 2006, ‘Provincial Reconstruction Teams (PRTs) in Iraq and Afghanistan – A comparison’ attaching Paper PCRU, ‘Review of Provincial Reconstruction Teams (PRTs) in Iraq and Afghanistan’.
597 Report PCRU/DFID, 19 December 2006, ‘Refocusing civilian efforts in Basra in the run up to PIC’.
598 Paper Stabilisation Unit, December 2007, ‘Stabilisation Unit’.
599 House of Commons, Official Report, 12 December 2007, columns 305-306.

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942. During 2008 and 2009, the SU produced three reports on Iraq, described in more
detail in Section 10.2:

• a review of the Basra PRT;600

• a strategic review of the Governorates Capacity Building Project;601 and

• a joint paper with the MOD Development, Doctrine and Concepts Centre on
civilian-military relations in Basra.602

The Cabinet Office Task Force Review of Stabilisation and Civil Effect

943. On 19 March 2008, during a statement to Parliament on the launch of the UK’s
National Security Strategy, Mr Brown announced that: “… the National Security Strategy proposes a new departure – and again, it is a lesson learned from recent conflicts ranging from Rwanda to Bosnia to Iraq, Afghanistan and Somalia. It proposes to create a stand-by international civilian capability so that for fragile and failing states, we can act quickly and
comprehensively by combining the humanitarian, peacekeeping, stabilisation and
reconstruction support that those countries need. In the same way as we have
military forces ready to respond to conflict, we must have civilian experts and
professionals ready to deploy quickly to assist failing states and to help rebuild
countries emerging from conflict, putting them on the road to economic and
political recovery.
“I can tell the house that Britain will start by making available a 1,000-strong UK
civilian stand-by capacity that will include police, emergency service professionals,
judges and trainers. I am calling on EU and NATO partners to set high and ambitious
targets for their contributions to such a force.…
“In order to maximise our contribution to all the new challenges of peacekeeping,
humanitarian work and stabilisation and reconstruction, the Secretary of State
for Defence is also announcing this afternoon that, as part of a wider review, the
Government will now examine how our reserve forces can more effectively help
with stabilisation and reconstruction in post-conflict zones around the world.”603

944. The Cabinet Office launched the Stabilisation Task Force Review of Stabilisation
and Civil Effect (shortened to Cabinet Office Task Force (COTF)) in June 2008.604

 

Footnotes
600 Paper Stabilisation Unit, 3 September 2008, ‘Review of the Basra Provincial Reconstruction Team’.

601 Paper Stabilisation Unit, November 2008, ‘Strategic Review of DFID Governorates Capacity Building Programme’.
602 Paper Stabilisation Unit and Development, Doctrine and Concepts Centre, 27 February 2009, ‘Civilian‑Military Relations in Basra’.
603 House of Commons, Official Report, 19 March 2008, columns 927-928.
604 Letter Aldred to Gould, 24 July 2008, ‘Stabilisation and Deployed Civil Effect’ attaching Paper Stabilisation Review Team, 27 June 2008, ‘Stabilisation and Deployed Civil Effect’.

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945. Ms Margaret Aldred, Deputy Head of the Overseas and Defence Secretariat
(OD Sec) in the Cabinet Office, sent an interim report to departments on 24 July.

946. Ms Aldred explained the background to the Review:
“The UK’s current civil effect capability has developed without a clear long-term
strategy, and more specific guidance is required on what our capability goals should
be. Our assessment is that existing mechanisms do not provide confidence that
current activity is effective (in terms of the skills and experience of the personnel
deployed) or sustainable (in terms of our ability to maintain current commitments
indefinitely). Moreover, there is no robust basis on which we could calculate our
“standby” or “total” capacity – of civil servants, police or contractors/consultants.
If we are to make real progress then we need to agree broad policy objectives
for the capability around which we can design effective structures (or improve
existing ones).”

947. The interim report proposed definitions of “stabilisation” and “civil effect” to define
the scope of the review: “‘Stabilisation’ is support to places emerging from violent conflict in:

{{preventing or reducing violence;

{{protecting people and key institutions;

{{promoting political processes which lead to greater stability; and

{{preparing for longer-term development and non-violent politics.
‘Civil effect’ is activity to build public confidence and support for an enduring peace
and focuses on the ‘survival functions’ of a state:

{{public order and the rule of law;

{{basic public services; and

{{economic stability.

For success, an integrated effort – bringing together the efforts of civilian agencies
(including multilateral), military and local partners – is required.”

948. The interim report proposed a capability that would:

• support joint civil-military stabilisation operations with at least 100 civilians and
50 police continuously deployed;

• make a further contribution of up to 100 civilians and 100 police to a wider range
of multilateral deployments;

• identify at least 1,000 personnel as a “UK Civilian Standby Capability”; and

• incorporate a “Stabilisation Volunteer Network” able to draw on a wider range
of volunteers than existing mechanisms.

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949. The report emphasised that funding issues would need to be resolved. Such a
capability would cost between £8m and £10m a year to maintain, with additional and
more substantial deployment costs.

950. On the multilateral response, the interim report recommended establishing a
shared international assessment of need, leading by example in seeking agreed national
targets for contributions, and seeking to improve international structures.

951. The Cabinet Office produced a supplementary report on 5 September.605
The report proposed four options:

• the status quo: about 270 civilian personnel deployed at an estimated annual
cost of £70m to £90m;

• a UK standby capacity able to deploy up to 350 better qualified personnel,
costing £98m to £140m per year;

• an expanded standby capacity able to deploy 550 personnel, costing £122m
to £171m; or

• a Civilian Reserve Corps of around 2,500 able to deploy 500 personnel at any
one time, at significant additional cost.

952. The final paper, reflecting discussions between Sir Gus O’Donnell, Sir Andrew
Turnbull’s successor as Cabinet Secretary, and the FCO, MOD and DFID Permanent
Secretaries, was produced for NSID(OD) on 21 January 2009.606

953. The paper stated that, although the UK’s performance was improving as previous
reforms and learning from operational experience took effect, the review had identified
a number of problems: “Whitehall structures to deliver civil effect are currently fragmented. MOD, DFID, FCO and the Stabilisation Unit each deploy personnel to stabilisation and civil effect missions. Problems include the lack of single-point accountability for stabilisation policy, objectives, capability and delivery in Whitehall: multiple and poorly co-ordinated mechanisms for resourcing civil effect; no effective unified performance management of individuals; little effective measurement of the overall impact of civil effect; no cross-Whitehall register of available skills; limited UK civil effect planning capability; and a SU role that lacks clarity, focus and authority.”

954. The paper’s recommendations included:

• creation of a Civilian Standby Capacity (CSC) from at least 1,000 civilians and
a further 500 police, to provide a capability to deploy continuously at least 350
pre-trained personnel;

 

Footnotes
605 Paper Stabilisation Review Team, 5 September 2008, ‘Review of Stabilisation and Deployed Civil Effect, Capability Options’.
606 Letter Aldred to Gould, 16 January 2009, ‘Civil Effect’ enclosing Paper Cabinet Office, [undated], ‘Stabilisation and Deployed Civil Effect’.

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• expansion and refocusing of the SU, under Director-level leadership, to become
the single government delivery unit for civil effect with an enhanced planning
capacity and rapid response capability;

• DFID to take increased responsibility for the SU and the CSC;

• the SU to lead delivery of civil effect on operations, but conflict and regional
policy to remain a joint Cabinet Office/FCO/DFID/MOD responsibility;

• establishment of a cross-Whitehall Civil Service Stabilisation Cadre (CSSC),
initially of at least 200 personnel;

• development of a new International Police Assistance Group (IPAG);

• creation of a Stabilisation Volunteer Network (SVN) to widen substantially the
range of potential volunteers available; and

• the MOD to identify members of the Armed Forces Volunteer Reserves with
relevant skills to be available to deploy as part of the CSC.

955. The review made no specific recommendations on enhancing multilateral
stabilisation capacity, but stated: “A significant UK commitment to develop enhanced national civilian capabilities … will put us in a stronger position to argue for ambitious new capability targets for civilian deployable capacity, and to galvanise other contributions to improve the effectiveness of multilateral stabilisation and early recovery capabilities.”

956. The review explained that previous efforts to strengthen capabilities had “lacked
the strategic drive, authority and resources to overcome the obstacles encountered”.
Short-term operational requirements had diverted attention from medium-term capability development. An implementation team would therefore be set up before the end of February.

957. Sir Gus O’Donnell commented on 20 January that, while he agreed with the report,
it had: “… taken some time to get inter-departmental agreement on the way ahead …
I hope that departments will now be able to devote the energy and resources to
this issue which will be essential if we are to have significant progress to report
on delivery of real capability when the update of the National Security Strategy
is published before the Summer Recess.”607

958. Ministers agreed the recommendations in the Cabinet Office review on
21 January.608

 

Footnotes
959. Dr Nemat Shafik, Sir Suma Chakrabarti’s successor as DFID Permanent
Secretary, replied to Sir Gus O’Donnell on behalf of DFID, the FCO and the MOD.
607 Letter O’Donnell to Gould, 20 January 2009, ‘Civil Effect’.
608 Letter Shafik to O’Donnell, 16 February 2009, ‘Civil Effect’.

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She explained that DFID had already taken increased responsibility for the SU. The
DFID Director chairing the SU Board would act as Senior Responsible Officer for the
Unit and be responsible for developing capability and overall performance. More broadly,
departments had agreed that the SU Board needed to provide “more active governance
and direction” for the Unit than had been the case in the past.

960. In October 2009, the SU took over responsibility from the FCO for managing the
deployment of civilians and police officers to international missions.609

961. The MOD, FCO and DFID produced a joint memorandum on progress against
the recommendations in the Cabinet Office review for the House of Commons Defence
Committee in December 2009.610 The joint memorandum stated: “A 1,000 strong civilian capability (of whom 200 can be deployed at any one time) has been developed ahead of schedule; greater capacity for planning and rapid reaction in [the] Stabilisation Unit will be in place by the December [2009] target date; and progress has also been made on deployment of military Reservists in a civilian capacity and police deployments. The additional capabilities have been developed at a significantly lower cost than originally envisaged.”

962. In a brief reference to Iraq, the joint memorandum stated: “… SU managed consultants to support capacity building in Basra International Airport, leading to the handover to Iraqi control in January 2009, improved the effectiveness of donor support in rule of law nationally and undertook a series of reviews to improve the effectiveness of the Basra PRT and identify future lessons.”

963. In August 2010, the Royal United Services Institute (RUSI) published a review of
the Government’s progress in promoting stability in countries emerging from conflict.611
The review was written by Mr Richard Teuten, a Senior Visiting Fellow at RUSI and a
former Head of the PCRU, and Mr Daniel Korski, Senior Policy Fellow at the European
Council of Foreign Relations and a former Deputy Head of the PCRU.

964. The review concluded that, between 2005 and 2010, a drive towards greater
inter‑departmental co-operation had led to a number of institutional innovations, an
increase in the resources available for stabilisation, new cadres of practitioners and

 

Footnotes
609 Briefing Stewart, [undated], ‘From Iraq to Afghanistan – The evolution of “Stabilisation”’.
610 Seventh Report from the Defence Committee, Session 2009-10, Third supplementary memorandum from the Ministry of Defence, the Foreign and Commonwealth Office and the Department for International Development: Strengthening of the Stabilisation Unit and implementation of the Cabinet Office Task Force review of stabilisation and civil effect, 15 December 2009.
611 R. Teuten and D. Korski, Preparing for Peace. Britain’s Contribution and Capabilities, RUSI, 2010.

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improved co-ordination in-country, but that the UK was “not yet delivering on its full
potential to engage in fragile states”. Five issues were highlighted: “The first has been a mismatch between ambitions and resources … a gap existed between what was expected by Cabinet Ministers and promised to the public, and what was resourced by way of programmes and capabilities …
“The second concerns the mechanisms for the allocation of resources … and the
decisions on relative priorities … The current system pushes effort towards current
crises at the expense of forestalling future crises [and] perpetuates an imbalance
between the use of military and civilian tools …
“The third problem is the fact that loyalty remains to departments rather than to the
Government as a whole … Pooled funding arrangements account for only a small
proportion of resources devoted to fragile states.

“Fourth, there are still areas where the UK’s ability to send the right people … to
work in hostile environments needs to be on a more sustained and reliable footing …
The gap between government ambition and UK capability on policing, for example,
has if anything grown rather than diminished.
“Fifth and finally … Lessons are recorded and stored by the MOD, DFID, the Foreign
Office and academia, but rarely dusted off when new decisions have to be made at
Ministerial or official level.”

965. In November 2010, the SU produced a paper on lessons learned from the UK’s
growing experience of stabilisation activities.612 Designed to “provide policymakers and
practitioners with accessible material, which conveys both the breadth and depth of
challenges facing the UK and other international partners”, the lessons included the
need to:

• exercise caution when transferring lessons from one conflict to another;

• ensure that economic and development objectives complement and support
efforts to promote a peaceful political process (an effective response required
understanding of multiple political interests and how they are leveraged to
impede or facilitate stabilisation);

• form a single multi-disciplinary and multi-departmental team;

• implement activities in a way that builds on local culture, context and the
operating environment;

• adopt a flexible and adaptive approach to monitoring and evaluation;

• secure community engagement;

 

Footnotes
612 Paper Stabilisation Unit, November 2010, ‘Responding to Challenges in Hostile and Insecure Environments: Lessons Identified by the UK’s Stabilisation Unit’.

The Report of the Iraq Inquiry
522

• apply rigorous quality assurance in selecting the right people;

• recognise non-state forms of local governance, security, justice and dispute
resolution that are often more familiar and meaningful to most of the population
than state-wide government; and

• adopt a two-speed approach to security (short-term stabilisation, principally
through local actors, at the same time as creating the conditions for longer-term
security sector reform).

966. Sir Gus O’Donnell and Sir Peter Ricketts, the National Security Adviser, sent an
update on the SU to the Inquiry on 19 January 2011.613 They reported that:

• 1,289 civilians had been approved for the Civilian Stabilisation Group (CSG),
including 1,012 Deployable Civilian Experts (DCE) and 277 members of the
CSSC;

• the SVN now included the Local Government Association (LGA), the National
Health Service (NHS), private sector companies and a number of NGOs;

• the MOD and the SU continued to discuss the best ways of identifying
Reservists’ civilian skills and increasing interoperability;

• now the SU was responsible for international secondments and police
deployments, it was the sole government delivery unit for civil effect;

• the SU could provide planning support to UK operations with or without a UK
military presence, and to international partners;

• the SU would take the lead in establishing Stabilisation Response Teams
(SRTs), the joint civilian-military capability announced in the 2010 SDSR; and

• a new International Police Assistance Group (IPAG) had been formed in
September 2009 to develop more robust arrangements for delivering police
capabilities for civil effect. A pool of 125 police officers was now on standby for
deployment for stabilisation efforts.

967. The Building Stability Overseas Strategy (BSOS) was published in July 2011 by
DFID, the FCO and the MOD.614 The three departments undertook to strengthen their
integrated approach to tackling instability and conflict by increasing the integration of
skills and capacities across government. Those included:

• strong intelligence and assessments;

• diplomacy;

• development work;

• defence engagement;

• promotion of trade and open markets; and

• the SU.

 

Footnotes
613 Statement, 19 January 2011, Annex C.
614 DFID, FCO and MOD, July 2011, Building Stability Overseas Strategy.

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
523

968. The BSOS stated that the SU could: “… respond rapidly to conflict or pre-conflict situations on behalf of the Government, and in partnership with other key players. The Unit draws upon expertise from across government, the police and the military to deliver these outcomes. It also manages the Civilian Stabilisation Group of over 1,000 civilian experts from the public and private sector with critical stabilisation skills and expertise.”

969. The MOD told the Inquiry in 2013 that Reservists mobilised through the Military
Stabilisation Support Group (MSSG) were routinely employed by the SU in a civilian
capacity in the CSG.615 The MOD explained that the MSSG provided a full-time
Regular Liaison Officer to the SU. The Commander of MSSG was a member of the
SU Management Board and attended the Building Stability Overseas Board as an
observer.616

970. ‘The UK Government’s Approach to Stabilisation (2014)’, published by the SU
in May 2014, listed four characteristics of the Government’s approach:

• Any action “will be planned and implemented with an overtly political objective
in mind, ideally with a means of identifying success and a process of transition
to longer-term recovery”. In some environments the political need to act might
make things worse in the short term.

• It will be integrated and civilian-led, unifying effort across government, including
when there are military-led tasks such as patrols to bolster security.

• It will be “flexible and targeted” and can be applied in a state or part of a state
affected by violent political conflict.

• Stabilisation “will be transitory but cannot afford to be short term in outlook or
objectives” and “must be planned or implemented with reference to other parallel
or longer-term engagement”.617

971. The SU paper listed three “mutually reinforcing components of stabilisation”:

• protecting political actors, the political system and the population;

• promoting, consolidating and strengthening political processes; and

• preparing for longer-term recovery.

972. The SU used the example of Iraq to illustrate the importance of security as one
of the three components: “… the disbanding of the Iraqi security forces after the US-led invasion in 2003 meant that large numbers of previously enfranchised Sunnis at senior and junior levels now had no role in the new Iraqi state. This not only created a security

 

Footnotes
615 Letter Ryan to Aldred, 7 June 2013, ‘Deployment of Military Reservists in a Civilian Role’.
616 Letter Ryan to Aldred, 17 September 2013, ‘Deployment of Military Reservists in a Civilian Role’.
617 Paper Stabilisation Unit, May 2014, ‘The UK Government’s Approach to Stabilisation (2014)’.

The Report of the Iraq Inquiry
524

vacuum which Allied forces did not have the capacity to fill but also resulted
in alienation of the former army. This actively contributed to deterioration in
security, hampered political progress and was a factor leading to the subsequent
insurgency …”

973. In 2014/15, the SU was based in the FCO and jointly owned by the FCO, MOD and
DFID.618 It used DFID financial and risk management systems and had a DFID Senior
Responsible Officer.

974. The SU’s 2014/15 Business Plan explained that the Unit had an operational role
across all three pillars of the BSOS:

• early warning;

• rapid crisis prevention and response; and

• investing in upstream prevention.619

975. The SU’s contribution included:

• being the hub for Joint Analysis of Conflict and Stability (JACS);

• supporting the UK National Security Council (NSC) by facilitating development
of cross-government strategies for fragile and conflict-affected states;

• providing high-quality advice on the design and implementation of programmes
funded by the Conflict Pool/Conflict, Stability and Security Fund (CSSF);620

• supporting the development of monitoring and evaluation guidance;

• capturing and disseminating lessons learned;

• maintaining the CSG database; and

• providing a hub for the Government’s non-operational international policing
activity.

The impact of the PCRU and the SU

976. Witnesses to the Inquiry gave conflicting evidence on the impact of the PCRU
and the SU.

977. Mr Benn told the Inquiry: “I think the PCRU and now the Stabilisation Unit is a very practical response to a need that has been identified.

 

Footnotes
618 Stabilisation Unit, March 2014, ‘Stabilisation Unit Business Plan 2014-15’.
619 Stabilisation Unit, March 2014, ‘Stabilisation Unit Business Plan 2014-15’.
620 The Conflict Pool funded UK conflict prevention, stabilisation and peacekeeping activities in support of the Building Stability Overseas Strategy. In April 2015 it was replaced by the Conflict, Stability and Security Fund (CSSF).

10.3 | Reconstruction: oil, commercial interests, debt relief, asylum and stabilisation policy
525

“Of course, it doesn’t provide the whole of the answer, but it means that you
are in a better position to do that range of work that is required in these kinds of
circumstances. So it is about learning lessons, building capacity to be able to do
it better in the future.”621

978. Lord Walker, Chief of the Defence Staff from May 2003 to April 2006, was critical
of the early days of the PCRU. He told the Inquiry that the problem of pulling together
the strands of post-conflict activity had been an issue since the Balkans, but the PCRU
had gone into “university mode: lots of discussions sitting round the table”.622

979. Sir Suma Chakrabarti also commented on the PCRU’s difficult start in 2005,
but told the Inquiry that its performance had improved during 2006 and 2007, when it
became “more focused on operational work, rather than … policy and strategy, which
was left with the three departments”.623

980. Dr Shafik, who succeeded Sir Suma Chakrabarti as Permanent Secretary at about
the time the PCRU became the SU, told the Inquiry that the SU’s contribution in Iraq was
“relatively modest, because, by that stage, the numbers of people that we needed to
deploy were relatively small”, whereas in Afghanistan it had been “hugely important”.624
In the early days the Unit had been a “body shop”, but it had “evolved enormously”,
becoming “the repository for expertise on how to do stabilisation well” and, as it had built
its credibility in Whitehall, starting to lead programmes in Afghanistan.625

981. Dr Shafik also confirmed that agreement had been reached with the MOD on
incorporating military Reservists into the pool of deployable expertise available to
the SU. The key was: “… when people deploy, they have to be clear what they are doing. Are they there as a soldier or are they there as a civilian? I think that distinction of roles is quite important, but tapping into the expertise is a huge potential gain … if a reservist,
for example, happens to have skills in accounting or in agriculture, they can be
employed by the Stabilisation Unit, but in their civilian capacity.”

982. Ms Lindy Cameron, Head of DFID Baghdad from 2004 to 2005, told the Inquiry that
it was only the SU’s work to put civilians on military courses that had eventually begun to
undermine some of the military’s preconceptions about DFID. It was not until then “that
people realised that actually there was a real intention on DFID’s part to actually make
this work collectively”.626

 

Footnotes
621 Public hearing, 2 February 2010, page 41.
622 Public hearing, 1 February 2010, pages 63-64.
623 Public hearing, 22 January 2010, page 42.
624 Public hearing, 13 January 2010, page 30.
625 Public hearing, 13 January 2010, pages 32-34.
626 Public hearing, 22 June 2010, page 84.

About AJ Layon

AJ Layon was, for 28 years, at the University of Florida College of Medicine, in the Division of Critical Care Medicine, in Gainesville, FL. For the past approximately 10 years, until September 2011, he was Professor and Chief of Critical Care Medicine at UF; In September of 2011 he became System Director of Critical Care Medicine in PA. While his interests are primarily related to health care, health care reform, and ethical issues, as a citizen of our United States and our world, he will occasionally opine on issues of our "time and destiny". You are welcome to respond to him at ajlayon@gmail.com.
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