An ongoing House Banking Committee’s investigation into US policy toward Iraq, led by chair Henry Gonzalez (D-TX), sheds new light on the role of George Bush in pressing for strong US support of the Baath regime in Iraq. Documents released by the committee reveal that at critical moments Bush intervened on Iraq’s behalf during and after the Iran-Iraq war.

The committee began investigating US policy toward Iraq after US authorities raided the Atlanta branch of the Italy-based Banca Nazionale de Lavoro in 1989. This Banca branch was key to a secret Iraqi arms technology procurement network in the US. A federal grand jury in Atlanta indicted three Banca-Atlanta officials in February 1991, on charges of providing more than $4 billion in unauthorized loans to Iraq from 1985-1989.

Claiming executive privilege, the Bush administration recently refused to turn over National Security Directive 26 which the Banking Committee had subpoenaed. Bush had signed NSD-26 in October 1989. The thrust of the still-secret document was “that the US should keep trying to moderate Iraq’s behavior and increase American influence. Specifically, US companies would be encouraged to participate in the postwar reconstruction of Iraq.” [1] Gonzalez also disclosed evidence that the Bush administration continued to share US intelligence with Iraq until at least May 29, 1990, just two months before Iraqi troops invaded Kuwait.

The evidence stands in stark contrast to a Senate Intelligence Committee report on the nomination of Robert Gates as CIA director, which concluded that US intelligence sharing with Iraq stopped when the Iran-Iraq war ceasefire took effect in August 1988. [2] Gonzalez’s committee released a May 16, 1990, “Options Paper on Iraq,” marked “Secret,” which included a section on the pros and cons of US intelligence cooperation with Iraq: “Intelligence exchanges have waned since the Gulf war ceasefire. PRO: They still provide Iraq with limited information on Iranian military activity that would be missed. CON: Ending this contact would close off our very limited access to this important segment of the Iraqi establishment.”

The Iraq options paper was drafted by the State Department’s Near East and South Asia section, after an April 16, 1990 meeting of the National Security Council Deputies Committee, chaired by then NSC Deputy Director Gates. The meeting was called to discuss deteriorating diplomatic relations between Washington and Baghdad. The State Department sent a copy of the Iraq options paper on May 16, 1991 to National Security Adviser Brent Scowcroft to “pass” on to “Gates for his review.” Gonzalez also disclosed a cover sheet from a May 29, 1990 NSC Deputies Committee meeting. Marked “secret,” the agenda listed three items: “Intelligence Update: CIA; Review of US-Iraq Programs and Policy Options: State; [and] Summary: Robert Gates.”

“Did the intelligence sharing policy send Saddam Hussein the wrong signal about his importance to the US and our intentions toward Iraq?” Gonzalez asked rhetorically in a March 9, 1992 speech on the House floor. “Did the continuation of intelligence sharing well into 1990 enable the Iraqis to learn how to hide their military activities to escape US bombing?”

In 1982, when the Reagan administration removed Iraq from the US list of countries allegedly sponsoring terrorism, Baghdad became eligible for US agriculture export credits and Export-Import Bank insurance programs. From 1983 to 1990, the Agriculture Department’s Commodity Credit Corporation loan guarantee program provided Iraq with $5 billion in credit and loans with which to purchase US farm exports. [3] The Corporation credits enabled Iraq to free critically needed funds for its war effort against Iran.

From 1984 to 1986 and 1987 to 1990, the Export-Import Bank insured the export of $297 million worth of US goods to Iraq. Exports under these programs included armored ambulances, portable military communications equipment, heavy machinery, medical supplies, pesticides, agricultural products and small motors for air conditioners. Export-Import Bank and CCC programs insured US exporters against the risk of Iraqi non-payment. Gonzalez points out that Iraq’s eligibility for Export-Import Bank insurance not only allowed Iraq access to high-tech US goods, but sent a signal to other nations that the US considered Iraq creditworthy, opening new sources of credit with which Iraq could sustain itself during the tough economic times brought on by its war with Iran. [4]

A December 22, 1983 memorandum from Assistant Secretary of State Richard Murphy to Undersecretary of State Lawrence Eagleburger makes it clear the Reagan administration considered Iraqi access to the Export-Import Bank critical in the context of Iran-Iraq war. The “confidential action memorandum” expressed fear that Iraqi military setbacks in the seemingly endless war with Iran along with continued economic deprivation might result in internal dissent. “It is uncertain how long the status quo can be maintained by Iraq in its confrontation with a much more populous Iran as long as Iran exports three times as much oil as Iraq,” Murphy wrote. The US could show its “support for Iraq” and ease the pressures of war with a “gesture” by the Export-Import Bank. Two days later Eagleburger wrote a letter, marked “secret,” to Export-Import Bank chief William Draper stressing “the important role EXIM can play in furthering long-range political and economic interests of the United States by being receptive to financing American sales to and projects in Iraq.”

The State Department was fully aware that the Export-Import Bank considered Iraq a poor credit risk because of the war’s impact on Iraq’s economy and possible war-related damage to projects. (The Export-Import Bank is required to extend credit only when there is “a reasonable assurance of repayment.”) [5]

An Iraqi-proposed oil pipeline provides a specific example of how the Reagan administration mustered all forces, including Vice President Bush, to intervene with the Export-Import Bank on Baghdad”s behalf. The Bechtel Corporation had secured a $1 billion contract to build the pipeline, which would have allowed Iraq to pump oil directly from Iraq to the Jordanian port of ‘Aqaba on the Red Sea, thus bypassing war-damaged Iraqi oil terminals in the Persian Gulf. The Export-Import bank refused to provide credit. Secretary of State George Shultz, a former Bechtel executive (as was then-Secretary of Defense Caspar Weinberger), wrote to the US Embassy in Baghdad in a March 25, 1984 telex saying, “We have urged EXIM to reconsider this policy in general.” Then CIA director William Casey, Attorney General Edwin Meese and Vice President Bush all participated in the effort to lobby the Export-Import Bank to finance the ‘Aqaba pipeline project. The State Department prepared a background paper for Bush’s use in telephoning Export-Import Bank head William Draper. One of the talking points in the June 12, 1984 paper emphasized the crucial role of the Export-Import Bank in “our efforts in the region.”

The Export-Import Bank board of directors succumbed to the administration’s pressure, approving a preliminary $484 million commitment for the ‘Aqaba pipeline project at its June 19, 1984 meeting. A margin note in the meeting minutes indicated that “under normal peaceful circumstances, this project would not be economically viable.” Despite credit approval, the project was never undertaken because the US could not secure Israeli guarantees that it would not attack the pipeline under any circumstances. [6]

It came as no surprise to the Export-Import Bank staff that Iraq was unable to meet meet the bank’s repayment schedule for other loans. In March 1986, the bank suspended Iraq from its programs. A May 4, 1987 staff report to the Export-Import Bank board of directors stated, “Eximbank should remain Off Cover for all programs concerning Iraq.”

In 1987 the State Department again played the Bush card to get the Export-Import credit spigot turned on again for Iraq. They prepared a background paper for a meeting Bush had scheduled with Nizar Hamdoun, the Iraqi ambassador to the US. The February 26, 1987 memo suggested Bush call Export-Import chairman John Bohn to urge him to approve Iraq’s request for $200 million in short-term credits before Bush saw the ambassador. Bush was instructed to say to Bohn, “Exim’s support for continued trade with Iraq would be a powerful, timely signal — both to Iraq and to the Gulf Arab states — of US interest in stability in the Gulf.”

In May 1987, in a surprise move and against the advice of Export-Import’s professional staff, the board reversed its policy and approved a new $200 million short-term credit program for Iraq. “Could it be that a call from the vice president could sway the Ex-Im Bank board into reversing its policy on Iraq?” Gonzalez asked. “Given the very severe doubts about Iraq’s financial condition it is hard to draw any other conclusion.”

Iraq’s economic weakness continued in the wake of the August 1988 ceasefire in the Iran-Iraq war. The Export-Import Bank continued to give Iraq poor reviews on its ability to repay foreign debt. “Iraq’s payments situation has further deteriorated, according to recent reports from Embassy Baghdad, the CIA and others…. Iraq’s payments problems — related to its low, uncertain oil revenues — are likely to continue,” stated an Export-Import Bank Country Risk Analysis Division report for January 23, 1989.

Now president, Bush once again intervened on Baghdad’s behalf. In early 1990, he issued an executive order waiving economic sanctions against Iraq in legislation approved by Congress on November 21, 1989. The sanctions were to prohibit Export-Import Bank financing because of Iraqi human rights abuses.

“At the time of the sanctions debate the State Department had extensive knowledge of Iraq’s efforts to develop additional chemical, biological and nuclear weapons along with the missiles to deliver those weapons…. Had Congress been fully informed about these issues, the waiver authority probably would not have been made available to the president,” Gonzalez asserted. [7]

The House Banking Committee’s investigation of pre-Gulf war policy toward Iraq is far from complete. According to Gonzalez, the Bush administration has stonewalled the panel’s probe. But the investigation has already dramatically demonstrated that Bush was one of Saddam Hussein’s best allies in Washington right up to the Iraqi invasion of Kuwait.


[1] Don Oberdorfer, “Missed Signals in the Middle East,” Washington Post Magazine, March 17, 1991.
[2] Senate Select Committee on Intelligence, “Nomination of Robert M. Gates to be Director of Intelligence,” October 24, 1991.
[3] United States General Accounting Office, “Iraq’s Participation in US Agricultural Export Programs,” November 1990. See also, Jack Colhoun, “Did US Hide Iraq ‘Arms and Farms’ Deal?” Guardian, June 5, 1991.
[4] Floor speech, House of Representatives, Congressional Record, February 24, 1992.
[5] A March 16, 1983 memorandum to Secretary of State George Shultz stated, “Eximbank is discouraging the few inquiries from US exporters regarding Iraq because of the war’s effect on Iraq’s economy.”
[6] The Iraqi pipeline scandal, like the Iran-contra scheme gathering momentum at the same time, involved Israeli military. intelligence and financial interests. See the investigative report by Stephen Engelberg and Jeff Gerth in the New York Times, January 31, 1988.
[7] Regarding Iraq’s arms procurement network in the US, see Jack Calhoun, “Trading With The Enemy: The Bush Administration and US Exports to Iraq,” Covert Action Information Bulletin 37 (Summer 1991).

How to cite this article:

Jack Colhoun "How Bush Backed Iraq," Middle East Report 176 (May/June 1992).

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