Global Policy Forum

Iraq is expected to suspend oil exports in coming days due to a revenue dispute with the United Nations, depriving world markets of 2.3 million barrels a day, the Middle East Economic Survey (MEES) said Monday. "Iraq's current strategy is to try to establish independent accounts outside the control of the UN, while the (UN) sanctions committee affirmed informally on November 18 that it would not be able to do so," the industry newsletter said. "MEES soundings indicate that until this problem is resolved, a disruption of Iraqi oil exports can be expected."

Iraq, which has been under sanctions since it invaded Kuwait in 1990, is authorised to export crude in six-monthly phases under UN control to finance imports of essential goods for its 22-million population. The current phase runs out on December 5.

Ahead of the renewal, Baghdad has informed clients they have to pay a premium of 50 cents per barrel into an account outside the control of the United Nations from December 1 and warned that contracts would otherwise be scrapped. Such direct payments would amount to a violation of the sanctions regime.

International oil companies (IOCs) have turned down Iraq's demand of the 50-cent payments "for commercial and legal reasons" and the UN overseers have rejected its proposed price formula for December "because it is below market levels", MEES said. It said the companies were to be compensated for the premium through heavily-discounted prices under the Iraqi proposal.

The Cyprus-based newsletter said however that several IOCs had discreetly started in October and November to pay 10 cents per barrel directly to Iraq, outside the UN escrow account set up for Iraqi oil revenues.

MEES outlined several other areas of dispute between the United Nations and Iraq, which has launched a concerted campaign to erode the sanctions regime through its oil dealings and resumption of air links with the outside world. Baghdad has imposed a port fee since summer of between 10,000 and 15,000 dollars for tankers loading at Mina al-Bakr on the Gulf. "The money is to be deposited with a company in Jordan," again outside the escrow account, MEES said. In another complication, Baghdad has asked the sanctions committee to extend the current phase of the oil-for-food programme to January 15, apparently to meet its existing sale commitments, it said.

"The oil industry will be watching anxiously this week as Baghdad and the UN face off over the oil price formula, the reopening of the Iraq-Syria pipeline ... and the question of regular commercial flights," MEES said. Iraqi President Saddam Hussein, whose country's oil exports to Syria outside UN control were expected to be priced at a modest 20 dollars a barrel, was "playing his oil card to the maximum at a time of tight oil markets", it said. Iraq already has "over 11.5 billion dollars of funds in the escrow account which it can call upon without exporting oil. This is approximately equivalent to a full year of imports of humanitarian supplies," MEES noted.

Last week, an official newspaper in Baghdad renewed Iraqi warnings of a suspension of exports, insisting the sanctions committee lifts its curbs on Iraqi import contracts. "We, the Iraqi people, are thinking seriously that ... we should stop exporting oil, at least until the 661 (sanctions) committee releases the 'on-hold' Iraq contracts so that we can benefit from our exported oil," said the Baghdad Observer.