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Iraq: Baghdad Reportedly Resumed Oil Sales

News reports today say Iraq has resumed exporting oil, some two weeks after cutting off sales in a conflict with the UN. But it is unclear if Iraq is continuing to demand companies pay a surcharge -- the issue which touched off the dispute.

Prague, 13 December 2000 (RFE/RL) -- Iraqi officials told the Reuters news agency today they are again loading oil onto tankers in the country's Gulf port of Mina al-Bakr.

The report -- not yet officially confirmed -- was supported by statements from India's national oil company, IOC. The company told reporters one of its ships has started taking on a million-barrel cargo of Basrah light crude in the same port.

The apparent restart of Iraqi oil exports comes after Baghdad earlier this week (Dec 11) said it will renew the UN-administered oil-for-food program for another six months.

But the export resumption still leaves unclear whether Baghdad has now renounced its demands that oil companies pay it a per-barrel surcharge.

That demand was at the heart of Iraq's conflict with the UN which led to the export stoppage two weeks ago (Nov. 30). Baghdad cut off its oil sales under the oil-for-food program to enforce its insistence that the UN permit it to levy a 50-cent (that is, half-dollar) surcharge which would be paid into an Iraqi-controlled account.

There were indications as recently as yesterday that Iraq was still asking ships at Mina al-Bakr to pay a surcharge of at least 40 cents a barrel. India's IOC told reporters it had been approached by officials for the payments but that it was refusing their demands because they would violate UN sanctions.

RFE/RL spoke with oil industry expert Gerald Butt of the Middle East Economic Survey, or MEES, to learn why Iraq has been so insistent about demanding surcharges. The Cyprus-based MEES is a weekly trade journal which closely follows the oil industry.

Butt says Baghdad has long sought to find companies which would agree to make the payments because -- as a violation of UN rules -- they would represent an important psychological victory in its battle to erode the sanctions.

And, according to Butt, Iraq has good reasons to hope individual companies can be lured into sanctions busting. MEES reported this month that several oil companies discreetly started in October and November to pay at least 10 cents per barrel directly to Iraq to assure favorable relations with Baghdad.

But such small payments fall well short of Iraq's goal of a 50-cent, or at least a 40-cent, surcharge which would be sizeable enough to be seen as a direct challenge to the sanctions.

Butt says that some companies are willing to continue secretly paying low amounts like 10 cents. But he predicts few will prove ready to risk publicly paying the larger surcharges.

"Most of the companies will refuse to pay that 40-cent surcharge because it has become a kind of public issue. Now, if they are paying what effectively is an under-the-counter bribe of a small amount -- well, that's a different matter. Some are (paying), some are not. [But] no company is going to publicly do something that is so blatantly in contravention of sanctions."

That means if Baghdad has indeed now started again to export its oil, it is likely doing so without having obtained the kinds of surcharges it had sought.

Oil industry analysts say that any resumption of Iraq's exports would most likely be motivated by Baghdad's recognition it cannot afford to go long without its oil-for-food sales if it is to maintain its revenue levels. And that is despite its efforts to develop alternative income sources from oil smuggling. Butt says:

"Iraq is benefiting from high prices as much as anyone else. It's selling some oil outside the auspices of the UN but not enough to maintain its income level."

The oil industry expert also says Baghdad now recognizes its strategy to press the UN and oil companies to agree to the surcharge by cutting off exports has failed. Instead of forcing prices up, the export stoppage has seen oil prices drop as the United States and others have reassured buyers they would compensate for any Iraqi shortfalls by tapping their own reserves. Butt explains:

"Where [Baghdad] miscalculated up to now is that when the oil exports stopped the price of oil didn't go up. It actually went down because the markets had factored in a kind of Iraq crisis already. And there is indeed plenty of oil in the market. So that's where it went wrong."

But the analyst says any lull in Baghdad's latest battle with the UN and oil companies over surcharges will only be a temporary one. He predicts Iraq will soon move to other strategies to try to push trading partners to bust the sanctions.

"Everything they are doing at the moment should be seen in the context of a realization on Baghdad's part that sanctions are not going to be lifted and therefore they are doing all they can to undermine the embargo. And in that context you have got the opening of the oil pipeline to Syria, talk of a pipeline to Lebanon, increasing exports to Turkey that don't come under the oil-for-food program, encouraging flights to come to Baghdad, and so on."

The analyst says the coming months are likely to bring new maneuvering on the part of Iraq. But for now, he adds, it is impossible to predict exactly what Baghdad's next move will be.