Global Policy Forum

Iraq Oil Stays on Hold, Baghdad Wants Surcharge


By Nadim Ladki

December 11, 2000

Iraq Monday applied the brakes again on the resumption of oil sales under the United Nations' oil-for-food program by insisting on an illegal surcharge.

Just as it seemed about to restart exports, Baghdad told customers they would have to make a payment direct to an Iraqi bank account, industry sources said. To secure cargoes, buyers would have to pay 40 cents a barrel above the prices agreed with the United Nations last week for December sales.

Under oil-for-food, buyers make payments straight to a U.N. escrow account. Iraq wants to regain some direct control over the revenues. Iraqi state oil marketing organization SOMO had renewed a written notice asking for the payment and said verbally that the charge required was 40 cents a barrel.

Iraq's U.N. ambassador Saeed Hasan said Monday that a resumption of Iraqi oil exports was a "technical issue" between SOMO and its customers. "We're not in a rush to sell oil," Hasan added. "If we sell immediately or not will not affect the funding of this program. There is $5.5 billion in the account to keep the program running. It is running without the oil exports."

SOMO said the charge applied immediately to sales from both permitted exports points under the U.N. exchange, Iraq's Gulf port Mina al-Bakr and the Turkish port of Ceyhan, the industry sources said. "No way are we going to be turning a blind eye to this," said a diplomat at the United Nations in New York.

Dealers had assumed that the surcharge, first raised by Baghdad in November, had been quietly dropped after December prices were settled with the U.N. last Friday. Confusing the picture, later Monday, a tanker chartered by state Indian Oil Corp, moved alongside the berth at al-Bakr. But industry sources said the tanker had yet to start loading.

Dealers speculated that India might have been excused the surcharge after the visit in November to New Delhi of Iraq's vice president and oil minister, when an agreement in principle was signed for a wheat-for-oil barter. The continued stoppage helped push Brent oil prices up 98 cents to $27.54 after a $6.50 slump over the past two weeks.


The latest obstacle to oil sales came only hours after official notification by Iraq of its agreement to another six-month extension of oil-for-food, an exception to sanctions in place since Iraq's 1990 invasion of Kuwait.

Iraqi Foreign Minister Mohammed Saeed al-Sahaf relayed Iraq's acceptance in a letter to U.N. Secretary-General Kofi Annan, in which he strongly criticized the United States and Britain. He said they considered the program a permanent fixture and an "alternative to lifting sanctions." But al-Sahaf said he agreed to renew the memorandum of understanding between Iraq and the United Nations another six months so the "ill-intentioned parties" could be exposed, the Iraqi news agency reported.

At the United Nations, Hasan said he signed the memorandum extending the oil-for-food program. The memorandum of understanding which originally set up the program in 1996 "was supposed to be temporary and for six months only, according to a Security Council resolution," Sahaf's letter, carried by the Iraqi News Agency (INA), said. "But America and Britain have dealt and still deal with this memorandum as a substitute for lifting the embargo and its permanent status," it said. "But so that our behavior is not seen as negative and to expose further those with bad intentions, Iraq has agreed to extend the memorandum of understanding ... for another six months," the letter said.

There was also talk among traders that Baghdad might enforce a proposed boycott on the delivery of any of its crude into the United States. Iraqi Trade Minister Mohammed Mehdi Saleh said earlier in December that any company found supplying "hostile states" would be blacklisted.

The U.N. Security Council voted unanimously on Dec. 5 to renew for six months the humanitarian program, the lifeline for 23 million people living under sanctions. The program, first introduced in December 1996, allows Iraq to sell oil under strict U.N. supervision to buy food, medicine, oil equipment and other goods to ease the impact of sanctions in place since Iraq invaded Kuwait in August 1990.

More Articles on the Oil for Food Program
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