Iraq Starting Euro Oil Contracts The Associated Press, Sat 28 Oct 2000

UNITED NATIONS (AP) B Iraq will start signing contracts with its oil customers in euros on Wednesday, its U.N. ambassador says B part of a campaign to stop using dollars, the ``currency of the enemy'' B despite U.N. calls to hold off on the move.

Baghdad wants bank account in the European currency set up to hold profits from oil sales that the United Nations oversees instead of the dollar account currently used.

But a U.N. Treasury Department report called the change ``cumbersome'' and said it could cost millions of dollars in currency conversions and lost interest revenues that could otherwise be spent on humanitarian goods.

That prompted a U.N. request for Iraq to postpone the move until details are worked out and the issue is studied further.

Ambassador Saeed Hasan insisted Friday that no delay is necessary, dismissing the treasury report as ``exaggerated.''

Iraq, which exports about 2.2 million barrels of oil a day, has threatened to halt exports beginning Wednesday if its proposal for a euro account isn't accepted B a warning that has spooked the oil market.

On Friday, Hasan said exports may be disrupted if the U.N. oil overseers who review contracts through the oil-for-food program reject the euro-denominated contracts that Iraq plans to submit beginning Wednesday.

``In my view, that is the only reason'' for a disruption, Hasan said.

The United States and Britain, which take the hardest line against Iraq in the Security Council, have said they will not oppose creation of a euro-based account but said details need to be resolved. Diplomats said Friday that the proposal would likely go ahead.

The United Nations already has a dollar-based escrow account at the French bank BNP Paribas in New York to receive payment for oil exported by Iraq through the U.N. oil-for-food program.

The program allows Iraq, under sanctions for its 1990 invasion of Kuwait, to sell its oil provided the proceeds are used to buy humanitarian goods for its 22 million people.

The U.N. treasury report said that if the change to a euro account were made, the program would have to swallow currency conversion costs that would amount to at least 10 cents a barrel, since oil would continue to be priced in dollars.

New staff would be needed to chart the fluctuations of the euro, and the aid program's finances would be exposed to greater risks on investments because of the euro's volatility, the report said. The common currency is trading at about 84 cents to the dollar, about 28 percent off its value when it first launched back in January 1999.

Interest rates on euro accounts are almost 2 percentage points lower than on dollar accounts, meaning the program would lose about $185 million annually in interest on a $10 billion account, the report found.

Hasan acknowledged interests rates may be lower for euros but said transaction costs would be minimal since Iraq would buy its humanitarian supplies in euros, not dollars. Many suppliers of humanitarian goods destined for Iraq through the U.N. program are European.

Copyright 2000 Associated Press. All rights reserved.

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-- Martin Thompson (mthom1927@aol.com), October 28, 2000