Iraq-UN Oil Price Dispute Bankrupts


Evelyn Leopold

May 29, 2002

With a new overhaul of U.N. sanctions about to begin, a senior U.N. official said on Wednesday the Iraq-U.N. humanitarian program was nearly bankrupt because of an oil-pricing dispute with the United States and Britain. "Without funds, the whole exercise will be meaningless," said Benon Sevan, the U.N. undersecretary-general in charge of the program after briefing the U.N. Security Council. He said at least $2 billion more in revenue was needed.

Under the oil-for-food program, which includes the new sanctions regulations, Iraq can sell oil in order to buy food, medicine and a host of supplies to ease the impact of the embargoes, imposed when Baghdad invaded Kuwait in August 1990.

Iraq stopped shipping oil for a month earlier this year to protest Israeli-Palestinian violence, costing the program $1.2 billion in oil revenues. Iraq's oil revenues are put in a U.N. escrow account out of which suppliers of goods are paid. But still ongoing is Iraq's dispute with Britain and the United States on setting the price of crude oil, resulting in an average reduction in exports of some 500,000 barrels a day or another $1.2 billion over the past six months, Sevan said.

The United States and Britain want to reduce the number of small trading firms buying Iraqi oil, contending they are making illegal payments of 20-30 cents a barrel directly to the Iraqi government, outside the U.N. program. Consequently, both nations insist Iraq set prices retroactively to ensure they conform to world rates. Iraq, which denies it imposes a surcharge, says this system is scaring away customers.

"Unless the question of the pricing mechanism ... is resolved urgently, all other efforts and decisions taken to expedite the approval of humanitarian supplies for Iraq may unfortunately remain academic," Sevan told the council.


The new sanctions regulations, approved by the Security Council earlier this month, take effect on Thursday but will not be totally in place until July 15. They aim to expedite civilian goods to Baghdad but at the same time require reviews by U.N. officials and Security Council members of supplies on a 300-page list that could have military uses. But Sevan raised apprehensions that some of the goods on the list could endanger the program if the council did not approve them, such as laboratory equipment used in hospitals.

"It is not enough to say medicines will flow in freely if certain items for hospitals are kept out," he told reporters. "We will not be able to achieve our objectives unless all parties approach it with the proper spirit."

Baghdad objects to the new sanctions procedures or any change in the complicated program it said has inflicted untold harm on its population. But it implicitly accepted the new regulations by renewing on Tuesday the 1996 oil-for-food program for another six months, until Nov. 25, Sevan said.

Sevan briefed the council on the new procedures, which require all contracts to go to two U.N. disarmament commissions to see if they are banned outright or are on the new list. If they are on the list, the council's sanctions committee reviews them. If they are not, Sevan's department expedites the goods.

Previously, the United States was virtually the sole guardian of blocking supplies it suspected of having military uses, with a council committee having control over a large variety of contracts. The new system gives more power to U.N. officials and disarmament agencies.

Ideally, these procedures are to be completed within 30 days, providing suppliers have submitted required information. Currently, the United States has blocked $1.3 billion worth of contracts, some of them for years. A number of them will have to be released under the new system.

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