Global Policy Forum

By Edith M. Lederer

Britain has made a new proposal to try to reverse a precipitous drop in Iraqi oil exports that fund the U.N. humanitarian program for Iraqi civilians, Western diplomats said Wednesday.

The British proposal would change the current system of pricing Iraqi oil at the end of every month to allow companies on a "Green List" advance notice of prices. U.N. officials, Iraq and Russia blame the delayed pricing policy for a 25 percent drop in Iraqi oil exports this year, which has created a revenue crisis for the humanitarian program.

The problem began in late 2000 when the Iraqi government introduced illegal surcharges as high as 50 cents on every barrel of oil as a way of partially circumventing U.N. control over its only source of hard currency. The proceeds from Iraqi oil sales are the main source of revenue for the 5-year-old U.N. humanitarian program to alleviate the suffering of Iraqi civilians living under sanctions imposed on Iraq after its 1990 invasion of Kuwait. It allows Iraq to sell unlimited quantities of crude oil to purchase food, medicine and other humanitarian goods.

At the insistence of the United States and Britain, the Security Council committee monitoring sanctions against Iraq has since October set oil prices at the end of every month - rather than the beginning - to prevent Iraq from taking advantage of fluctuations in the oil market to impose an illegal surcharge.

Washington and London maintain the so-called retroactive pricing policy has worked in cutting illegal payoffs to Saddam Hussein's government. But both countries have expressed readiness to consider alternatives that would have the same effect and address the concern of critics who contend that the policy has created undue uncertainty in the oil market and discouraged traders and oil companies from purchasing Iraqi oil.

The British proposal, circulated Tuesday to the 15 members of sanctions committee, would create a dual system for pricing Iraqi oil: Traders on a "Green List" would be told the price of Iraqi crude before it was loaded while companies not on the list would continue to learn the price they would pay after they had already picked up the oil.

Two weeks ago, France proposed setting oil prices every two weeks and adopting stricter standards for traders.

The sanctions committee discussed the French proposal late last month but members were divided and no agreement was reached. The committee is expected to take up both the French and the British proposals at a meeting on Thursday, diplomats said.

The big question is how Russia, Iraq's closest ally on the Security Council, will react. In the past, Russia has blocked proposals that would set criteria for oil companies.

At the heart of the British proposal is an effort to tighten controls on the more than 1,000 oil companies from some 83 countries that are currently registered with the United Nations to purchase Iraqi oil through the oil-for-food program.

The vast majority are little-known oil traders which Western diplomats contend are more inclined to pay kickbacks to Iraq than larger, more established international oil companies.

Britain said it expects many of the companies currently involved in buying Iraqi oil to meet standards of respectability, experience, and standing in the industry to qualify for the "Green List."

Under the British proposal, Iraqi's State Oil Marketing Organization would submit prices to the sanctions committee, which would set the oil price for a month. That price would be available to those on the "Green List." Other companies would be subject to delayed pricing.

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