Global Policy Forum

High Oil Prices Fatten


By Jane Arraf

July 24, 2000

Higher oil prices on international markets are allowing Iraq to increase the amount of money it can spend on food under the United Nations oil-for-food program. Baghdad has set aside $7 billion of oil sales revenue to buy food, medicine and other humanitarian supplies during the next six months.

It's the highest amount since the U.N. began allowing Iraq's oil-for-food program in 1996, and $2 billion more than Iraq earned during the previous phase of the program.

The U.N. instituted oil-for-food program to ease the effects of sanctions it imposed on Iraq after the Iraqis invaded Kuwait in 1990. On June 8, the U.N. Security Council renewed the program for another six months. Since its inception, Iraq has sold $25.3 billion worth of oil.

$7 million per day

Although Iraq is expected to earn at least $7 million per day in U.N.-sanctioned oil sales in the coming months, Baghdad is allowed to spend only part of its oil revenue. About 30 percent must be targeted for U.N. costs and compensation for the Kuwaiti invasion.

U.N. Secretary General Kofi Annan in a June 10 report had said Iraq's oil revenue was adequate to reduce malnutrition and improve the health of the Iraqi people. Iraq's plan to spend the $7 billion must first be approved by Annan, who blames the hardships not on sanctions but on the Iraqi government's poor management of the funds.

Reports: Children bearing the brunt

The private charity group Save the Children reported on Monday that although malnutrition among children and child mortality levels were slowly improving in U.N.-administered northern Iraq, they were worsening in central and southern areas controlled by Baghdad.

A July survey by the U.N. Children's Fund (UNICEF) estimated that about 500,000 children younger than 5 have died in Iraq since sanctions were imposed. Baghdad said it intends to use some of the money to increase farm production and to slightly increase food rations distributed to Iraqis to try to meet U.N. dietary recommendations.

Other troubles

But malnutrition is only a part of Iraq's troubles, according to one national official, who claimed that increased food rations would not fix the entire situation.

"...the amount of food will have no effect on the population's life as long as there is no good water available or there is no efficient sewage system," said Iraqi Trade Minister Mohammed Madhi Saleh.

Iraq blasts Saudi oil policy

This summer's rise in international oil prices has been blamed on lower supplies, most of which are supplied by the world's largest oil cartel, the Organization of Petroleum Exporting Countries (OPEC).

Saudi Arabia, a member of OPEC and the world's largest oil exporter, announced this month that it would try to drive down prices by as much as $5 per barrel from the then-current level of $30 per barrel by increasing its output by 500,000 barrels a day. Iraq's

oil minister reportedly has blasted Saudi Arabia for costing Baghdad potentially higher revenues. The Saudi decision to pump more oil has "caused huge financial losses for the Iraqi people, which may exceed $1.5 billion this year," Oil Minister Amer Mohammed Rashid was quoted Saturday in the government newspaper al-Jumhouriya.

Despite Rashid's accusation that the Saudi's output increase was hurting Iraq, Baghdad announced this month that it would increase its own production from its current 3.1 million barrels per day to between 3.3 million and 3.4 million barrels.

Rashid on Monday also complained again to the U.N., accusing the United States and Britain for delaying the approval of items Iraq wishes to import to help its ailing oil production and export facilities. Under the sanctions, all imported oil equipment to Iraq must be approved by the U.N. Sanctions Committee, of which both the United States and Britain are members.

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