Global Policy Forum

By Maher Chmaytelli

Iraq's revenue from oil exports is dwindling fast, curtailing the ability of a UN-supervised program to improve the life of its sanctions-hit population, according to a United Nations official here.

"The only problem we are facing right now and probably it's a very grave problem is the growing oil revenue shortfall," UN humanitarian program information officer in Baghdad, Ali Hamati, told AFP.

"We are ringing the alarm bell," Hamati said. Iraq forecast oil revenues of seven billion dollars for phase 12 of the oil-for-food program, covering the period from May 30 to November 25, but its exports until October 25 generated only 3.8 billion dollars, he said.

According to UN figures, Iraq's revenue from oil sales under the program has been on a downward curve since it peaked at 9.5 billion dollars in phase 8, two years ago.

Introduced in 1996, the program allows Baghdad to sell oil in order to buy food, medicine and civilian supplies, to alleviate the impact of the UN embargo imposed after Iraq's occupation of Kuwait, which lasted seven months from August 1990.

Oil buyers are turning away from Iraq because of a disagreement between Baghdad and the UN committee overseeing the sanctions over oil pricing, periodic halts in Iraq's oil exports, and US threats of war on Iraq.

The disagreement with the sanctions committee "discourages the buyers from approaching Iraq for oil as they do not know how much money they have to pay for the oil they purchase," said the UN official.

The sanctions committee has opted for a retroactive formula of pricing Iraqi oil, under which the buyers pay according to the previous month's average oil price.

This is in order to prevent Baghdad from cashing directly a surcharge imposed on the buyers, not deposited in the UN-supervised oil-for-food escrow account.

"There are reports now saying Iraq has removed that surcharge," Hamati said. Iraq last suspended oil exports in May, intended to exert pressure on the United States to act to end a major Israeli offensive in the West Bank.

"Another factor is political developments," Hamati said, referring to US threats of military action against Iraq to eliminate its alleged weapons of mass destruction.

"The buyers are discouraged because there is a kind of uncertainty whether Iraq will be able to produce and export its oil," and are turning to other producers, he said.

The growing shortfall in revenue is already felt, and it could become "very grave" toward the middle of next year if it continues, he added.

According to the latest report of the UN Iraq programme, issued October 29, there are 1,552 approved humanitarian supply contracts, worth about 3.08 billion dollars, without funds, and which therefore cannot be delivered to Iraq.

The money in the escrow account "is decreasing, it's not empty yet, but if things continue like this maybe we will not have enough money towards the middle of next year," said Hamati.

This would mean that the program would have to restrict itself increasingly to financing food and medical supplies, giving up gradually on improving other sectors, such as education, sanitation, communications and transportation.

"If there is less and less and less money, of course whatever money there is should go first for food," said Hamati.

If a war breaks out in the meantime, the humanitarian program "will continue," he added.

"Now, on how to deal with this, definitely there are always humanitarian contingency plans for times of war, for emergencies.

"We don't have anything materialised so far because we have no indications that any of what you said (war) is going to happen and we still hope that things will be solved diplomatically and politically," he said.

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