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Iraq: Would Baghdad Shut Off Oil In Dispute With UN?

Iraq and the UN are headed toward a showdown this week over Baghdad's demands to gain greater control over its oil revenues. UN officials have called the demands unacceptable, while Iraq has raised the stakes by threatening to cut off its oil exports. But are the Iraqi threats a warning or only a bluff? RFE/RL correspondent Charles Recknagel examines how much flexibility Baghdad does -- and does not -- have in using its oil exports as a political weapon.

Prague, 29 November 2000 (RFE/RL) -- With crude oil in high demand and short supply this winter season, Iraq is seizing the moment to use its oil exports to try to win new concessions from the UN.

The past weeks have seen a flurry of threats from Baghdad to cut off its oil exports under the UN oil-for-food program unless the world body agrees to an ever-changing list of demands.

Early this month, Iraq threatened to suspend all its exports -- about 5 percent of the world's total -- unless the UN allowed it to henceforth sell its oil through the oil-for-food program for euros, the European Union's common currency, rather than for U.S. dollars. The UN agreed, giving Iraq a symbolic victory in drawing distinctions between countries such as the United States -- which takes a hardline on sanctions -- and one such as euro-user France, which favors a softer approach.

Now, Iraq is back with a new ultimatum. It has demanded that the UN permit it to levy a surcharge equivalent to 50 U.S. cents a barrel that would be paid into an Iraqi-controlled account. That would enable Iraq for the first time to get direct access to money from its oil sales, which currently are deposited into an oil-for-food escrow account in New York. Iraq says if the UN does not agree to the deal in the coming days, it will delay or stop pumping its oil altogether.

Such threats get the UN's attention because they have an immediate impact on the world's energy market. Oil industry experts say that the prospects of oil shortages created by Iraq's ultimatums already have helped push the price of oil this season toward $35 a barrel. And they say that if Iraq were ever really to cut off its oil, the price could go above $40.

But analysts are divided over just how ready Iraq is to cut off its exports in order to exert pressure on the UN.

Many analysts say Baghdad would indeed cut off its oil exports because the economic costs to Iraq would be low. Pierre Shammas, a Middle East expert at the Cyprus-based Arab Press Service, puts their argument this way:

"If Iraq cuts off oil supplies, what do they [that is, Baghdad] lose? Well, oil prices will go up at least $2 per barrel. [So,] by the time they resume oil supplies they will have recuperated what they have lost."

Shammas says Iraq hopes -- through repeated showdowns with the UN, backed by cut-off threats -- to progressively nibble away at the sanctions. He says Baghdad has prepared a number of new crises to successively test the UN, beginning with the quarrel over the euro earlier this month and moving immediately into the current crisis over the 50-cent surcharge.

Shammas also says Iraq has already prepared the ground for a third showdown in the coming weeks. That will be over its reopening an oil pipeline to Syria in the middle of this month -- something, he says, Iraq did deliberately without first clarifying whether the pipeline will be included under the oil-for-food program or not.

The pipeline to Syria, which had been closed since 1982, is now reported to be pumping some 150,000 barrels per day. The U.S. and British governments, as well as UN officials, have said Baghdad must include the pipeline under the oil-for-food deal. But Shammas predicts Baghdad will instead fight hard for the pipeline to be excluded.

That possibility raises the question of how long Iraq might cut off its oil exports if the UN refuses to give ground over any of these demands. Shammas says Baghdad feels confident that any shutdown would not have to last longer than a few days before rising oil prices would force a compromise.

"Two to five days on the [world oil] market is a long time. If Iraq is not on the market for five days, there is a lot of panic out there. Can the UN afford to say 'no' to Iraq now and to stop export and have the UN be accused of causing oil prices to go up? Against European, American and Japanese consumers?"

But if Iraq feels it can economically afford to carry out its threats to suspend oil exports, it might not be able to afford some of the political costs which could accompany such a strategy.

James Phillips, a Gulf regional expert at the Heritage Foundation in Washington, says any Iraq-created rise in oil prices could alienate many developing countries that now are sympathetic to easing the sanctions on Baghdad for humanitarian reasons.

"If it [Iraq] tries to manipulate the oil market, it will make just as many enemies as it will friends. For instance, among oil importing states in the Third World that would be badly hurt by the economic impact. That could cost Iraq heavily in terms of votes at the UN."

Phillips says Iraq's long-term goal remains the total lifting of sanctions, and for that it cannot afford to lose any of the support it has built in the international community.

The UN and Baghdad remained deadlocked over the sanctions, which were imposed on Iraq after its 1990 invasion of Kuwait. The lifting of the sanctions is tied to Iraq proving it has no more weapons of mass destruction.

Late last year, in a resolution, the UN offered Iraq the possibility of greater control over its oil revenues if Baghdad allows UN arms inspectors back into the country. But Iraq has so far refused even to talk about readmitting the arms inspectors -- which it barred two years ago -- unless the UN first lifts all sanctions.