Sunday, 1 May 2011

Dogfights over Iraq

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In May 2003, shortly after coalition troops invaded Baghdad, the US Federal Reserve Bank of New York set up the Development Fund for Iraq (DFI). Its remit was to shield the country's vast oil revenue from compensation claims against the former regime, ring-fencing proceeds for reconstruction and development projects.

Under Chapter Seven of the UN Charter, five per cent of those petrodollars had to be siphoned off as war reparations, gradually reimbursing Kuwait for losses incurred during Saddam Hussein's brutal 1990-91 occupation. More than $30 billion in compensation has already been distributed to foreign claimants, but on 30 June 2011, the DFI mechanism will expire.

This looming transition spells uncertainty not only for the governments of Iraq and Kuwait - who must set aside their historic differences to strike a deal over the $20 billion outstanding - but it also ushers in a dangerous new phase in the decades-old dispute between their flag carriers...