Oil woes cause US rethink on Iraq sanctions

By KIM DIXON WASHINGTON Sunday 24 September 2000

The US may be losing its grip on decade-long international sanctions imposed on Iraq, as higher oil prices tempt once-staunch backers to reconsider their effectiveness.

In the latest sign of a rift, the US and the UK objected to a decision by French officials to allow a medical relief flight to Baghdad today without getting permission first from the United Nations sanctions panel. It was the first Paris-Baghdad flight in a decade.

"The US hopes this doesn't happen again, but I don't have any confidence in that," said James Cunningham, the American delegate on the Iraq sanctions committee.

As oil prices hit a 10-year high this week of more than $37 a barrel, France's move showed that more nations are expressing discontent with the constraints on Iraq, the fourth-largest oil producer in the Organization of Petroleum Exporting Countries.

"The sanctions endured so long because we had economic good times," said Kenneth Allard, an international security analyst at Stratfor, an Austin, Texas-based consulting firm. "But with oil prices rising, it becomes economically important to bring Iraqi production on line."

Iraq is trying to escape the international sanctions imposed after it was driven from Kuwait in 1991 by a U.S.-led military coalition that included several Arab countries. Those penalties, aimed at compelling Iraq to eliminate any arms, limit Baghdad's oil sales and direct oil revenue to purchases of food and medicine.

If sanctions were lifted, over the long term, foreign investors would flood Iraq - increasing its capacity to produce oil, which would reduce prices, analysts said.

"I would guess Iraq could increase its oil production by 1 million barrels a day within a year," said Raad Alkadiri, an analyst at the Petroleum Finance Company, a consulting firm that advises oil and gas companies, banks and governments.

France has joined China and Russia in signaling skepticism about the sanctions. The three abstained in December 1999 from a UN Security Council resolution ordering Iraq to resume its compliance with weapons inspections suspended after the US and UK launched air strikes against the country in December 1998.

And the French representative to the UN, Jean-David Levitte, said he was told by Russian officials that they would send another plane to Baghdad tomorrow. Russia has repeatedly urged the end of the sanctions and sent a plane to Baghdad last week with 10 oil experts on board.

Earlier this week, US officials told Congress that Iraq isn't likely to exacerbate the oil shortfalls by cutting its supply. Iraq this week urged other oil producers to resist pressure from the US to boost output further, the Iraqi news agency said.

President Bill Clinton today ordered the release of 30 million barrels of crude from the US emergency reserve in an effort to boost supplies.

"Certainly the way that the oil-for-food program has developed it has given Saddam a significant amount of leverage of his sanctioners," said Meghan O'Sullivan, an analyst at the Brookings Institution.

Opposition to the sanctions on Iraq has also been increasing both overseas and within the US amid reports that children there are dying for lack of food. UN Secretary-General Kofi Annan asked the Security Council earlier this month to consider modifying sanctions imposed on authoritarian governments to avert harm to civilians.

Yet the US, the world's biggest oil consumer, blames Iraq's policies for any suffering borne by children or the poor there, and remains firm in its defense of the sanctions.

"We contain Saddam through UN sanctions which severely limit the resources needed to reconstitute weapons of mass destruction," Edward Walker, assistant US Secretary of State for near eastern affairs, told the Senate Armed Services Committee earlier this week.

Under the sanctions, Iraq can sell oil for food and medicine, yet the funds go through the United Nations.

Without the sanctions, Saddam would have control over Iraq's oil revenue - estimated at $20 billion this year alone - or a third more than its total before the Persian Gulf War, Walker said.

- BLOOMBERG

http://www.theage.com.au/bus/20000924/A14280-2000Sep23.html

-- Martin Thompson (mthom1927@aol.com), September 23, 2000