Iraq has hardened its refusal of any changes to the UN sanctions regime by cutting off for a month all of its oil exports under the world body's oil-for-food program. The cut-off period matches a UN decision to take a month to debate new U.S.- and British-backed proposals for so-called "smart sanctions" to ease restrictions on Iraq importing civilian goods while tightening controls upon military-use items. Baghdad hopes the oil cut-off will drive up oil prices, placing pressure on the major powers to back away from the new sanctions proposals. But now it appears that strategy may fall short as other OPEC producers this week signaled they are ready to pump more to make up for the Iraqi stoppage.
Prague, 7 June 2001 (RFE/RL) -- For all the players in the latest dispute over the UN sanctions against Iraq, one month seems to be the magic figure.
The UN Security Council on June 1 unanimously approved a one-month extension of the world body's oil-for-food program under current terms to give itself time to consider a resolution that would strengthen the sanctions regime.
The resolution aims to ease humanitarian objections to the sanctions by making it easier for Iraq to import commercial goods, while tightening restrictions on military-related materials. At the same time, it would increase UN control over Iraq's revenues by pressing neighboring states to end oil smuggling.
The U.S. and British backers of the resolution are now trying to convince Russia and China to adopt the idea of so-called "smart sanctions'" even though both countries -- along with France -- have previously called for easing or lifting sanctions completely on humanitarian grounds.
This week, Iraq has responded with a month's postponement of its own. On Monday (June 4) Baghdad stopped exporting oil under the oil-for-food program to match the UN's time for debate and to underline its demands for a complete end to all sanctions. Iraq also promised to cut off all oil exports indefinitely if the smart sanctions resolution is approved.
The Iraqi stoppage puts pressure on oil prices and upon Iraq's partners in OPEC to decide how to respond in order to keep prices stable. But on June 5, the oil cartel also decided it needed a month before making any decisions. The group said it would meet again on July 3 to review the situation, but indicated it would be prepared to raise supplies to counter the Iraqi shortfall. By week's end, oil dealers seemed reassured enough to keep benchmark prices below $30 a barrel.
The chain-reaction of one-month delays guarantees that nothing conclusive in the latest showdown between the UN and Iraq will occur before early next month. And it leaves both sides to spend the coming weeks carefully weighing how much they can press the other before committing themselves to a final position.
Still, this week's statements by OPEC officials that they would consider raising supplies suggest that Iraq's strategy of cutting off oil exports could have little immediate impact on the debate at the UN Security Council.
OPEC Secretary-General Ali Rodriguez said on June 5 that the cartel is ready to increase output if necessary to keep oil prices stable. He told reporters that "if the situation in July requires more supply, we will increase the supply."
Oil industry experts say increasing supply is something OPEC could do effortlessly. Former Kuwaiti Oil Minister Ali Al-Baghli told Radio Free Iraq this week that Saudi Arabia alone has a surplus capacity of at least two million barrels per day (bpd). Iraq had been delivering some 2.1 million bpd to the world market in recent months. Al-Baghli says:
"Saudi Arabia has a production capacity of approximately 10 million bpd but is now producing over 7 million bpd or perhaps about 8 million bpd, so it is certainly capable of producing more. Other countries, too, have an extra production capacity. For instance, Kuwait has somewhere between 250,000 and 300,000 bpd of extra production capacity."
Saudi Arabia and Kuwait have remained strong opponents of Iraqi President Saddam Hussein since a U.S.-led coalition drove Iraq out of Kuwait in the 1991 Gulf War. This week Riyadh accused Iraq of staging 11 raids on Saudi border outposts in recent months and said it "would take whatever measures it deems appropriate to protect its borders."
Analysts say that with alternative oil suppliers ready to make up the Iraqi shortfall -- and to profit from it -- Iraq's oil weapon seems to have lost some of its potency. But few expect Baghdad to soon abandon its strategy of squeezing the market.
Regional expert Pierre Shammas of the Arab Press Service in Nicosia, Cyprus, tells RFE/RL that Baghdad could well continue its oil stoppage for several months. He says Baghdad hopes that OPEC will do the bare minimum to keep prices down, with the result that prices will still creep up enough to pinch the United States as it copes with an energy crisis this summer.
"Iraq is trying to benefit the most from the energy crisis in the United States this summer. And it is pressuring the United States and, of course, the UK as well. OPEC will give just enough because they like prices high. So, the pressure is on from the Iraqi side and will be kept on in the coming months and that will put the U.S. in a -- shall we say -- difficult position."
Shammas says that Iraq does not believe that it can ever successfully pressure the United States and Britain to lift all the sanctions. But Baghdad believes its pressure can help weaken the Security Council's resolve to take stronger actions against it.
The analyst says that any lack of resolve at the UN helps Iraq in two ways.
First, it gives more time for world opinion to turn against any sanctions regime on humanitarian grounds. And second, it gives Baghdad more time to continue smuggling oil -- a business which oil experts say has made the Iraqi regime more financially secure now than at any time since the sanctions were imposed during the Gulf crisis of 1990. Shammas says: "Iraq wants to preserve every drop of oil which it smuggles or sells outside the UN framework. [And that] ranges between 275,000 to 330,000 barrels per day, which comes to over $2 billion per year. Iraq actually financially is in a much, much better situation now than at any time since the embargo was imposed."
He continues: "The suspension [of legal Iraqi oil exports] may last more than one month and that, however, does not affect Iraq financially. Iraq gets less than 40 percent of the UN-monitored sales and so long as it is getting 100 percent of the sales that are not accounted for by the UN and it has the money unused [in a UN oil-for-food escrow account], it is financially all right."
A UN report last month said that some $4 billion are sitting in Iraq's oil-for-food escrow account in New York without yet having been earmarked for spending on humanitarian supplies. Some $3 billion more have been earmarked but not yet spent, as the UN sanctions committee has delayed approving contracts to assure Iraqi imports have no military uses.
All revenues for Iraq's legal oil sales go into the escrow account to be used solely for Iraqi purchases of humanitarian supplies, to pay Gulf War reparations, and to cover UN administrative costs associated with Iraq programs.
Iraq most recently cut off its oil exports for 12 days at the end of last year, triggered by Baghdad's demands that the UN allow it to collect a surcharge of 50 cents on each barrel it exports through the oil-for-food program. Iraq wanted the surcharge to be paid into a solely Iraqi-controlled account.
That crisis ended with the UN refusing the Iraqi demand and Baghdad resuming its oil exports. But Baghdad is reported to still be attempting to impose surcharges on oil buyers and finally eliminating those surcharges is one of the goals of the new smart sanctions proposals.