May 31, 2002
Two weeks after revamping the U.N. program that allows Iraq to use oil proceeds for humanitarian goods, the Security Council is under growing pressure to tackle a dispute that has drained over $1 billion in revenue to fund it.
The oil-for-food program was created in 1996 to alleviate the suffering of Iraqi civilians living under sanctions imposed on Iraq after its 1990 invasion of Kuwait. It lets Iraq sell oil to buy food, medicine and other goods for its people. At issue is a method of pricing the oil being sold by Iraq. Under the policy, the Security Council committee monitoring the sanctions approves prices for Iraqi oil retroactively at the end of each month. The United States and Britain have pushed the policy to prevent Iraq from taking advantage of market fluctuations to impose an illegal surcharge on its oil customers.
But Benon Sevan, the U.N. official who heads the oil-for-food program, said the practice has sharply reduced the oil revenue that funds the program and threatened the effectiveness of newly adopted measures aimed at improving the delivery of humanitarian goods to Iraqis.
"Unless the question of the pricing mechanism for setting the price of Iraqi crude oil is resolved urgently, all other efforts and decisions taken to expedite the approval of humanitarian supplies for Iraq may unfortunately remain academic," he told the Security Council on Wednesday.
Sevan said the retroactive pricing policy has reduced Iraqi oil exports by about 25 percent and cost the oil-for-food program an estimated $1.2 billion since December. Iraq has also blamed the policy for the drop in its exports.
But some Western diplomats contend that the retroactive pricing policy has helped prevent Iraq from diverting oil-for-food money into government coffers where it could be used to rebuild Saddam Hussein's military and weapons of mass destruction programs.
"The problem is the surcharge, not the pricing policy, and we're determined to keep going with it," a British diplomat said on condition of anonymity Thursday.
The U.S. General Accounting Office said in a report Wednesday that Iraq has illegally earned at least $6.6 billion since 1997 - $4.3 billion from oil smuggling and $2.3 billion in illegal surcharges on oil and commissions from commodities contracts. A U.S. official said Washington's aim is to make it difficult for Iraq to collect illegal money, but added that the Security Council needs to consider whether the retroactive pricing policy can be improved.
A six-month extension of the oil-for-food program took effect Thursday, two weeks after the Security Council adopted measures designed to ease the flow of humanitarian goods while preventing Saddam from importing items with potential military use.
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