Roundup: Iraq Tussles with UN Over Oil Pricing Mechanism

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Last updated at: (Beijing Time) Monday, June 17, 2002

Roundup: Iraq Tussles with UN Over Oil Pricing Mechanism

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Iraq has rekindled its persistent dispute with the United Nations over the oil pricing mechanism fixed by the U.N. Sanctions Committee, of which the United States and Britain have been two dominant members.

Iraq has warned that the U.N. oil-for-food program, in effect since 1996 to allow the sanctions-stricken country to sell oil and use part of the proceeds to buy food, medicine and other essentials, could stop completely.

The alarm bell was raised by Iraqi Oil Minister Amir Muhammad Rashid at a press conference on Saturday, when he pointed the finger at the U.S. and British representatives at the U.N. Sanctions Committee for deliberately delaying the approval of Iraq's oil prices.

Consequently, oil customers have been reluctant to load Iraqi crude because under the U.N. retroactive oil pricing system, they do not know Iraq's oil prices beforehand, Rashid said.

According to Rashid, Iraq's oil exports have plunged to 1.7 million barrels per day (bpd) early this year and to 1.5 million bpd in May, a far cry from the normal rate of 2.1 million-2.2 million bpd before last October.

Iraq's oil sales, supervised by the U.N., normally flow at some 800,000 bpd from the Turkish Mediterranean port of Ceyhan and 1 million-1.4 million bpd from Iraq's Gulf port of Mina al-Bakr.

Iraq's oil exports in June are expected to be only 1.1 million bpd, one of the lowest levels in years, Rashid said.

"If this retroactive pricing mechanism continues, we expect the (oil-for-food) program to stop completely," Rashid said, warning that a 4-billion-dollar gap in Iraq's oil revenues might be caused for the current phase of the U.N. oil-for-food program.

Iraqi Foreign Minister Naji Sabri Ahmed raised the same issue in a letter to U.N. Secretary-General Kofi Annan on June 12 and urged the U.N. chief to intervene to ensure a "correct and legal" oil pricing system.

Iraq was still waiting for the approval of last month's oil pricing formula, Ahmed complained.

Previously, Iraq sent a total of three letters to the U.N. and urged the world's leading body to address the issue of retroactive pricing formula.

The retroactive pricing formula, insisted by the United States and Britain, is set at the end of the month instead of the beginning of the month to eliminate Iraq's ability to collect alleged illicit surcharges from its oil traders.

The U.N. began to fix Iraq's oil prices retroactively after Iraq allegedly imposed illicit oil surcharges on its oil customers from December 2000.

Under the sanctions slapped on Iraq since its 1990 invasion of Kuwait, Iraq is not allowed to receive any of its oil revenues, all of which go into an escrow account with the French bank BNP-Paribas and are distributed by the U.N. to Iraq's suppliers to pay for food, medicine and other goods approved by the U.N. under the oil- for-food program.

In its bids to get round tight U.N. control of its oil proceeds, Baghdad was widely reported to levy a 50-cent surcharge a barrel on its customers from December 2000 and meanwhile offered a discount to clients to compensate for the surcharge.

The United States and Britain, two major forces behind the continuation of the sanctions on Iraq, have cried foul play and accused Baghdad of violating the sanctions regime. Baghdad, however, has steadfastly denied requesting any extra fees.

The retroactive pricing mechanism, thrusted into place by the United States and Britain since last year, has led to bitter Iraq- U.N. accusations against each other as well as several disruptions of Iraq's oil exports.

Iraq's oil sales ground to a halt once again early this month and Iraq blamed the tough retroactive pricing system for the interruption.

Meanwhile, the office administering the U.N. oil-for-food program said in a report issued on June 11 that Iraq's oil exports shrank from 15.3 million barrels to 2.6 million barrels during the week ending on June 7.

Iraq earned only an estimated 60 million euros (some 55 million dollars) in revenues, a sharp drop from the 355 million euros (some 333 million dollars) in the previous week, the report said.

Iraq has repeatedly charged that the United States and British delay in approving its oil prices was politically motivated and meant to "hamper Iraq's oil exports and undermine the oil-for-food program," while the two U.N. Security Council permanent members maintain that this scheme is to clamp down on Iraq's ability to collect some 10-40 cents of illegal premiums a barrel outside the U.N. system.

Observers pointed out that as Iraq's oil exports have remained sluggish, as the U.N. oil-for-food program is facing a fund shortfall of 2.28 billion dollars, and as there is no alternative to the oil-for-food program as long as the sanctions in place, both Iraq and the U.N. must make efforts to resolve their dispute over the retroactive pricing mechanism to ensure Iraq's oil sales and avert the possible collapse of the oil-for-food program, the lifeline for Iraq's 22-million population struggling under decade- old U.N. sanctions.

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