Russia Forgives Iraq Billions in Debt

MOSCOW ? Iraq?s foreign minister won a long-sought agreement on Monday to write off most of Iraq?s $12.9 billion in debt to Russia, much of it dating to before the first gulf war when Saddam Hussein government purchased Soviet weapons.

Russia had, in principle, agreed to write off the debt as far back as 2004 but had been dragging its feet hoping for assurances that the United States-backed government in Baghdad would honor a large Russian oil claim, also dating to the Hussein era.

On Monday, Iraq?s foreign minister, Hoshyar Zebari, offered no public guarantees. Russian officials said they had won an assurance of favorable treatment, at least. In exchange, Russia will write off all but $900 million of the debt. Separately, Russia agreed to invest $4 billion in Iraq, including the Iraqi oil industry.

While the deals resolved the longstanding debt dispute, they were also a setback, of sorts, for the American policy of encouraging Iraq to open its oil industry to wide international investment and wean it of its ties to Russia.

At the time of the United States-led invasion in 2003, Iraq had accumulated $120 billion in debt; Russia?s agreement is important in convincing other countries, including the Gulf states that hold most of the debt, to offer similar terms as the government in Baghdad grapples with its finances.

Lukoil, Russia?s largest private oil company, will benefit from the new arrangement. It won the production-sharing agreement in Iraq in 1997, at a time when Mr. Hussein?s government was seeking Russian support for lifting United Nations sanctions, and has somehow managed to hold onto it through five years of war.

At the ceremony in Moscow, Russia?s minister of finance suggested the Iraqis were willing to honor, at least in part, the Russian deal but that a final settlement would have to wait the passage of a new oil law in Iraq?s Parliament.