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Iraq: UN Officials Refuse New Baghdad Bid For Oil Funds

UN officials have rejected an Iraqi proposal to change prices for its oil sold under a UN program, saying the suggested prices do not reflect fair market value. The proposal marks another attempt by Iraq to gain control of its oil revenues and weaken the UN sanctions regime. RFE/RL's UN correspondent Robert McMahon reports on the latest developments.

United Nations, 29 November 2000 (RFE/RL) -- The Iraqi government and UN officials must come up with an accord on an oil price formula by the end of this week following the rejection of a new Iraqi attempt to gain control of some of its oil revenues.

The deadline for Iraq to submit a new pricing formula is Friday (Dec 1). A failure to meet the deadline could halt Iraqi exports, which average about 2.3 million barrels each day.

But Iraq is unlikely to get approval from the UN Security Council's sanctions committee for any effort to siphon off earnings to an account outside UN control. UN spokesman Fred Eckhard said yesterday (Tuesday) that the committee rejected the Iraqi proposal submitted last week based on the assessment by UN oil overseers that the prices were too low.

"The committee has been unable to accept the oil pricing mechanism for December, as proposed by Iraq. Subsequently, the oil overseers have asked Iraq to submit a revised oil pricing mechanism for December that reflects a fair market value."

Iraq sought the lower selling price so it could maintain a proposed half-dollar per barrel surcharge, which would be sent to an account outside the UN's oil-for-food program. It is estimated that such a surcharge, if accepted by Iraq's oil customers, could add up to $400 million a year for Iraq.

The oil-for-food program allows Iraq to sell unlimited amounts of oil, but customers pay into an escrow account controlled by the United Nations. With the rise in world oil prices, Iraq has proposed a number of measures to allow it to control some of the revenues. It has repeatedly criticized the oil-for-food program as inadequate to its humanitarian needs.

The Security Council's sanctions committee has approved humanitarian contracts worth more than $9 billion during the past two-and-a-half years. But the latest figures from the UN program show the committee has also placed on hold contracts worth more than $2.3 billion.

The United States and Britain are most often responsible for the holds, which are placed on items seen as having possible military uses. UN resolutions allow for the sanctions to be eased and eventually lifted if Iraq complies with UN inspectors seeking to verify that it has eliminated its weapons of mass destruction. Iraq denies possessing such weapons.

Rachel Bronson, an analyst of Iraqi affairs at the New York-based Council on Foreign Relations, tells RFE/RL that the new proposed price mechanism is part of Iraq's ongoing effort to gain more control of its resources.

"What we're seeing now around the revision of oil-for-food is trying to find a way that they can further reduce the precious sanctions."

Bronson does not believe Iraq will halt its oil exports because this would hurt countries such as France, a Security Council member that has repeatedly pushed for efforts to ease the sanctions. But she says Iraqi leader Saddam Hussein still appears to be intent on using the surge in world oil prices to circumvent sanctions.

"He's trying to find other ways to leverage this market, and part of it is he's trying to figure out some fancy way to finance this oil for food that actually puts more (of the European Union's currency, the) euros in his pocket."

The latest move by Iraq comes at a time of weakening international support for the sanctions and Baghdad's emergence from diplomatic isolation. Iraq said last week it was preparing to export oil to Syria although neither country has sought approval from the Security Council.

The council next week is to decide on the renewal for six months of the oil-for-food program. Permanent council members France, Russia, and China have all spoken out recently about the need for the Iraqi sanctions to be eased, but have not dropped the council's basic demand that Iraq allow weapons inspections to resume.

This week, the college of commissioners of the new UN weapons inspection agency -- known as UNMOVIC -- has been meeting in New York to finish the latest report on the group's preparations for making new inspections.