Global Policy Forum

Oil Traders See No Major Break


By Peg Mackey

November 9, 1999

London - Oil executives setting off for Baghdad to secure new crude oil contracts are confident of at most only minor disruptions in Iraqi exports when the current humanitarian oil sales scheme ends on November 20. "The feeling is the transition into the next phase should be fairly seamless," said a major lifter of Iraqi barrels. "But with Iraq selling 2.3 million barrels per day (bpd), even a minor logistical hiccup could make prices blip up."

Western diplomats said the 180-day United Nations "oil-for-food" programme would be renewed regardless of whether the U.N. was able -- before the sixth phase expires -- to pass an omnibus resolution easing sanctions once the world body decides Iraq has complied with weapons inspections.

A rollover would be enacted via a U.N. technical resolution, set in play during the final hours of the current oil sales tranche, said the diplomats. They expect Baghdad to continue to participate in the humanitarian oil sales scheme.

Raising the current $5.26 billion revenue ceiling has not been discussed, but could be handled later in the phase, the diplomats said. The U.N. allowed Iraq to sell $8.3 billion of oil during the current six-month tranche, but only after boosting the original $5.26 billion target on humanitarian grounds.


In anticipation of a seventh U.N. oil sales phase, those companies gearing up to lift Basrah Blend from the Iraqi Gulf port of Mina al-Bakr have already quietly put ships on subs for dates after November 20, said traders. Chartering in the Mediterranean to load Kirkuk from the Turkish Mediterranean port of Ceyhan is expected to start next week.

Some oil traders also expect the U.N. to allow Iraqi state oil marketer SOMO to push any outstanding volume from the sixth phase beyond November 20 to keep barrels rolling.

Aside from getting shipping in place, oil companies are also preparing volume recommendations to present to SOMO for the seventh phase. A number of executives are due to head for Baghdad next week, said market sources. "There are some big lifters out there who aren't shy of showing us what they think they're getting from SOMO," said one trader.

Although companies are jostling for volume, the Iraqi oil marketer -- as in previous phases -- is unlikely to sign contracts until the U.N. and the Iraqi government give the green light to renewal of the oil-for-food programme.


If Baghdad approves a seventh phase, Iraq looks set to stick with its practice of awarding companies from countries which are most supportive in the U.N. Security Council, namely major powers Russia, France and China, said industry sources.

Russian firms are expected once again to garner the lion's share, said traders. During the current oil sales phase, 17 Russian companies accounted for nearly 140 million barrels -- more than 35 percent -- of overall Iraqi contract volume of some 380 million barrels approved by the U.N., said industry sources. And Transneft, the Russian state pipeline operator, even has plans to open an office in the Iraqi capital to facilitate its operations, said an industry source.

Iraq's list of 10 biggest crude oil lifters for the current phase includes: Russia's Zarubehzneft, LUKoil , Actec, Nafta Moskva and Alfa Eco; France's TotalFina and Elf ; China's Sinochem and China Oil and Turkey's Tupras.

Traders with U.S., British and Japanese companies were speculating as to whether SOMO would award them their own direct crude oil contracts. Except for U.S.-based Coastal, Baghdad struck off all companies from the United States, Britain and Japan in August 1997, apparently for political reasons, said industry sources.

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