Global Policy Forum

By Felicity Barringer and Neela Banerjee

As allied armies capture Iraq's centers of power, the market is anticipating a swift resumption of oil shipments from a country that, even under United Nations restrictions, pumped about two million barrels a day. But diplomats and industry experts caution that the optimism, which has driven a 20 percent drop in oil prices in the last three weeks, ignores the complicated political and legal issues that are likely to take weeks, if not months, to untangle.

The basic question is simple: when the fighting ends, who will have the legal authority to sell Iraqi oil? An American-backed authority with no international mandate? Or an authority with the blessing of France, Russia, China, Britain and the United States, the permanent members of the Security Council? "It's not a matter of getting the oil out of the ground," said Raad Alkadiri, a director at PFC Energy, a Washington consulting concern and an expert on the Iraqi oil industry. Addressing the legal and political issues, he said, "is going to take some time, unless the United States is willing to run through this like a bull in a china shop."

At the moment, the United Nations is effectively the trustee of Iraqi oil assets, including the $2.9 billion in oil money currently in a United Nations-controlled escrow fund and the eight million to nine million barrels of oil filling the storage tanks at Ceyhan, a Turkish port on the Mediterranean. Iraq's two largest oil fields are Kirkuk in the north and Rumaila in the south. Rumaila, with about 430 wells, is now under coalition control. The Army Corps of Engineers and Kellogg Brown & Root, a unit of Halliburton, are already on the ground shutting down wells in Rumaila to ensure that pressure does not build up in the wells and damage them, according to Platt's Oilgram News, an industry newsletter.

On March 17, two days before the first bombs hit Baghdad, the bureaucracy supporting the United Nations's stewardship of oils sales — approving prices, authorizing contracts and performing other functions mandated by the Security Council — left Iraq. The Iraqi governmental agency that did the buying and selling, SOMO — the State Oil Marketing Organization — still exists, but without United Nations approval, sales are illegal. Some oil traders said buyers for the oil could be found, even if its ownership were disputed, if the price was low enough. But others said traders would be reluctant to buy any Iraqi oil until the United States and the United Nations agree on who has the authority to sell the oil and collect the proceeds. "Most of us wouldn't want to be involved," said an executive with one trading concern. "We would wonder: `Is this oil mine? Am I able to get clear ownership of it?' And without that, it's possible that no one would buy it."

The issue has received close attention in the Security Council in recent weeks. According to one diplomat, the oil currently in storage in Ceyhan represents 5 to 10 percent of outstanding contracts approved by Saddam Hussein's government. "Even that they cannot lift," the diplomat said, "until they get some green light from somebody legitimate in Baghdad." But, the diplomat added, "If you address the oil problem in context of human needs — as long as the escrow account is the repository for the oil revenues, I assume there will be some inventive schemes" to effectively transfer SOMO's authority to another seller approved by both the allied forces and the Security Council.

The Security Council's authority over Iraqi oil dates back to the end of the first Persian Gulf war, when a ban on Iraqi oil sales was put in place as part of the sanctions intended to force Saddam Hussein's government to disarm. In 1995, in response to growing complaints about the health consequences of the sanctions for the Iraqi population, oil sales, in gradually increasing amounts, were permitted as part of the newly instituted oil-for-food program.

That program has been authorized for six months at a stretch; the current period ends on June 3. But even if the authorization lapses, according to a senior United Nations official, the underlying legal requirements —the United Nations approve oil sales and the proceeds go into a United Nations-controlled account — remain in force. Both Prof. Robert Johansen, a senior fellow at the Kroc Institute for Peace Studies at the University of Notre Dame, and Mark Malloch Brown, the director of the United Nations Development program, pointed out in separate interviews that the Geneva Conventions restrain an occupying power from making long-term commitments, particularly commercial ones, limiting what can be done with Iraq's oil fields.

"Any potential American oil company investing in the modernizing of those fields will need legal assurance that the concessions that it had been granted are secure for a 10- or 20-year horizon, the kind of payback period for the industry," Mr. Malloch Brown said. "An interim American administration not only would not have the authority in international law to make such commitments, but, certainly, any commitments it makes will be disputed by companies from other countries which claim to have pre-existing concessions."

United States government officials have been mute on oil-related issues, sensitive to the perception that the war has been fought not to disarm a rogue government but to get control of the second-largest oil reserve in the world. Administration officials' only comments have been that Iraq's natural resources should be used only to benefit the Iraqi people. Richard A. Grenell, a spokesman for the United States Mission to the United Nations, turned away questions about the legal issues surrounding Iraqi oil, saying, "We're still in a military phase."