Uncertainty defines the state of most things in Iraq, including the future for letters of credit (L/Cs) pertaining to contracts struck before the toppling of Saddam Hussain's Baath regime.

Meanwhile, with its banks and currency in tatters, Iraq needs a financial sector capable of meeting the country's future trade financing needs, and it remains unclear which institutions will step into this breach.

Turkish optimism

Turkey's environment minister, Kursad Tuzmen, is optimistic that contracts signed during his visit to Iraq earlier this year will be guaranteed by the UN and said he expected exports to resume after UN procedures had been established by the second half of 2003.

Tuzmen was referring to exports made under the UN's oil-for-food programme and includes contracts for the supply of food, medicine and medical equipment to Iraq.

Six month window

The Turkish minister argues "contracts that are signed with Iraqi establishments are approved and backed by L/Cs for six months apart from some exceptions". Thus he argues that for that duration, these contracts are protected.

Tuzmen does, however, presuppose that the oil-for-food programme remains in place - and it is far from clear whether it will.

Role reversal

The US would like to see the oil-for-food programme scrapped. Despite Washington's attempts - until the removal of Saddam's Baath regime - to tighten the sanctions and trade controls in the programme, the Bush administration is now poised to demand the UN scraps the programme altogether.

Ironically, Washington faces opposition to this proposal from several countries, notably Russia and France that had led the fight against US efforts to put teeth into the programme.

Opposition

Russia and France now seem to be the staunchest supporters of the UN policy, attracting criticism from coalition supporters that they are protecting their lucrative middleman role in the oil-for-food programme that now seems to be under threat.

The oil-for-food programme began in 1996 as a way to ease the impact of UN sanctions on Iraq's civilian population but for the time being the programme is unworkable. No oil has been sold since the war in Iraq began on 19 March because there has not been a recognised Iraqi government to sign contracts.

International law

One Russian businessman believes international law will protect L/C-based contracts made under the oil-for-food programme. "The sum of the contracts for the delivery of 5,000 cars and parts this year is 44 million euros (US$47 million). The money for 300 cars has been signed over with a L/C and as soon as the confirmation of their delivery in Iraq arrives, we will get the money," says Aleksey Barantsev, general director of motor manufacturer, Gorky Auto Plant (GAZ).

He believes that according to international trade law the contract for the delivery of GAZ Volga taxis was signed between the Foreign Affairs Ministry of Iraq and the Foreign Affairs Ministry of Russia should be respected even if the regime changes. Barantsev goes on to say that Russia accepted the debts of tsarist Russia, and argues "to my mind, the same thing should happen here".

Reconstruction prospects

Countries that opposed military action in Iraq will almost certainly do less well in work to rebuild the country. US companies will dominate lucrative reconstruction contracts while other coalition countries and some neighbouring states are also expected to benefit commercially from the rebuilding of Iraq.

Some banks are looking to topple the New York branch of France's BNP Paribas monopoly position as provider of L/Cs to the oil-for-food programme. Chicago-based Bank One says it is "gearing up" to offer trade finance, such as L/Cs and working capital loans according to a spokesman.

Illustrious future?

Documentary credits will not be new features on Baghdad's commercial landscape. The Iraqi capital has an illustrious history as a centre of commerce dating to the Abbasid Islamic dynasty, which built its capital on the banks of the Tigris in AD 762.

The city prospered in the 8th and 9th centuries as the centre of east-west trade routes, becoming such a commercial hub that a L/C issued in Baghdad was honoured from Central Asia to North Africa.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.