Global Policy Forum

Dispute Arises on Iraqi Debt


By Barbara Crossette

New York Times
August 23, 2000

A dispute pitting the United States against Russia and France over Iraqi reparations to a Kuwaiti oil company has for the first time stymied the work of a United Nations compensation commission set up after the 1991 Persian Gulf war. At stake is a large claim of $21.6 billion submitted by the Kuwait Petroleum Corporation for lost oil and gas sales resulting from Iraq's invasion of Kuwait in 1990, during which oil wells were destroyed or damaged.

The compensation commission, based in Geneva, proposed in June that the Kuwait company be awarded $15.9 billion. Russia and France objected, and no award was made. Diplomats say the United States is lobbying to line up support for Kuwait before a vote on the issue that may be held at the commission's next meeting, late next month.

Until now, all decisions by the commission have made been by consensus on the advice of experts. The 15-member panel, made up of representatives from Security Council countries, is expected to award claims as income from Iraqi oil sales becomes available. The disagreement adds another irritant to an already frayed Security Council consensus on how to deal with the government of President Saddam Hussein as economic sanctions imposed on Iraq after its invasion of Kuwait a decade ago drag on.

As a critical moment approaches in the efforts of the United Nations to return arms inspectors to Iraq -- a key to lifting the embargo -- the new dispute over war reparations reopens another divisive debate in a second important area, the oil-for-food program. The program is an exception to the embargo under which Iraq is permitted to sell oil abroad to pay for the imports of essential civilian goods.

Mr. Hussein, now earning billions in oil sales thanks to the lifting of all restrictions on oil exports last year just as prices were rising, has always objected to the requirement that a third of his oil income should go to compensate the many victims of his invasion and occupation of Kuwait. Money from the oil sales is also set aside for the Kurdish regions of northern Iraq and to help pay for the arms inspection program.

The Iraqis rejected the oil sales program entirely until 1995, because of the controls on how Iraq could spend the money. In the first few years of the program, with oil prices low and limits on how much oil Iraq could sell, the issue merely simmered. Iraq continued to demand that sanctions be lifted to relieve the hardships of people living under the embargo, but was never able to challenge the reparations plan successfully. Now the sums being set aside for compensation are rising into the tens of billions and Iraq -- with the backing of Russia and France, both of which are owed money by Iraq and hope for more business in the future -- has become more active in opposing the payments.

In recent years the Iraq compensation commission has paid more than $8 billion in claims, mostly to individuals and small businesses or other institutions hurt by the Iraqi invasion. But the commission has now begun to process claims from petroleum companies, and the amounts being sought are significant. Last year the Kuwait Oil Company and the Kuwait Petroleum Corporation were jointly awarded $2.3 billion for the loss of equipment and other measurable assets.

This year's much larger Kuwaiti request for the loss of less tangible things like thwarted sales ran into technical objections from France, which requested a delay to have its own experts review the claim. United Nations officials and diplomats said that the Russian objection was more political and that it raised the larger issue of the future of the claims process. According to unofficial notes from the June meeting, provided by panel officials, the Russians said it would be unacceptable to give that much money to the Kuwaiti oil industry, whether or not the claim was sound, while Iraqis were suffering from a trade embargo. The Russians then said that they would like a review of the level of Iraq's contribution to the compensation fund from its oil revenues. The money now goes into an escrow account in Paris managed by the United Nations, and any change in its allocation would have to be made by the Security Council. Diplomats said they expected Russia to raise the issue next month, when all aspects of policy toward Iraq will be open for debate.

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