Global Policy Forum

The United States and Britain are deliberately trying to choke off Iraqi oil sales under the U.N. oil-for-food deal by overpricing the crude, a senior Iraqi oil official said on Thursday. The official said the two countries are pushing United Nations oil overseers who set monthly prices for Iraqi crude to inflate levels and drive away business -- especially in the United States, Baghdad's single biggest customer. ``The motive is very clear,'' the official said. ``The United States and Britain are pressuring the oil overseers to set high prices so our customers have a very difficult time lifting.''

Iraqi oil sales to the United States have plunged to 300,000 barrels per day (bpd) from 800,000 bpd last year -- a decline traders link in part to uncompetitive prices set by the U.N.

Levels are set to shrivel further as Iraq and its customers say prices set for U.S.-bound shipments in July have pegged the crude far above current market value. The U.N., led by London and Washington, routinely delays approval for Iraqi oil prices until after barrels load in a bid to ensure levels are not set below market value -- a tactic designed to thwart Baghdad's illicit surcharge on oil sales. Iraq slapped an illegal 25-30 cent fee on its oil sales in November 2000 in a bid to divert funds from U.N. supervision and recently cut its request to 10 cents in a bid to boost exports.

Iraq and its customers have long complained the U.N. policy, so-called retroactive pricing, has created price uncertainty for lifters and shrunk exports.

State marketer SOMO now has taken the unprecedented step of writing two official letters of complaint to the world body on behalf of its lifters. ``We have done what we could to be fair to our customers,'' the Iraqi official said. ``Based on our own assessments, the July prices are over the market.''

Baghdad's original prices for July crude shipments to the United States were rejected by the U.N. and then revised higher by 15-35 cents. Iraq says it ``had no choice but to submit such prices, which were suggested by the (U.N) oil overseers after long discussions,'' according to a letter SOMO chief Ali Hassan sent to the Iraqi sanctions committee which controls Iraq's oil revenues.

COMPLAINTS FALL ON DEAF EARS

But Iraq's price complaints are likely to fall on deaf ears. ``There is nothing to suggest we are going to review the U.S. prices for July,'' a U.N. diplomat told Reuters.

Customers have often said the U.N. has pushed Iraq to set U.S. prices too high, part of a U.S./UK effort to squeeze out kickbacks, but they said the latest levels -- judged to be 70 cents over the market -- were unjustifiable.

Several contract holders are prepared to fight for more competitive levels. ``The prices for July show a complete misinterpretation of how the market works,'' said one lifter. ``In my book, there is no way these levels can be legitimized.''

Some traders see more than market forces at work at the U.N. ``We are all for fair market value -- and we've even learned to live with retroactive pricing to a degree -- but there is clearly another agenda at work here,'' said a buyer. ``They have already destroyed the European market through retroactive pricing and now they are trying to kill off the United States.''

The ongoing pricing dispute has knocked down total exports of Iraqi crude to 1.2 million bpd this year, slightly more than half of the country's sustainable rate. Reduced exports have created a $2.2 billion shortfall in U.N. controlled humanitarian funds for the Iraqi people under the oil-for-food deal, imposed in 1996 as an exception to sanctions.