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11/29 08:16 Iraq Warns of `Consequences' If UN Rejects Oil Sales Formula By Sean Evers

New Delhi, Nov. 29 (Bloomberg) -- Iraq's oil minister warned of unspecified ``consequences'' should the United Nations stand firm in a dispute over the price of the nation's oil exports next month, a move that may result in a stoppage of exports.

``We have no intention to interrupt exports, but if the UN doesn't agree to our price formula, then they have to bear the consequences,'' Iraq's Amer Mohammed Rasheed said in a telephone interview from India and declined to comment on what those consequences might be. Iraq will ``explain to the UN again the reasons for the formula,'' he said.

The UN last week asked Iraq to clarify its proposed prices for oil sales starting next month, saying the charge appeared to be too low. The Middle East Economic Survey has reported Iraq plans to impose a 50-cent surcharge on each barrel sold and deposit the funds into bank accounts outside of UN control, which the UN has said violates sanctions.

Oil prices have soared some 30 percent this year to more than $30 a barrel, partly on concern of a heating oil shortage in the U.S. this winter. Iraqi oil sales may stop if the UN and Iraq don't agree on a new price formula.

Iraq's oil exports are controlled by the UN under sanctions imposed on Baghdad after its 1990 invasion of Kuwait. The oil revenues are used to buy food, medical supplies and replacement parts for the Iraqi oil industry.

Iraq Ready to Defend Price

The third-biggest producer in the Organization of Petroleum Exporting Countries, Iraq, has explained ``all of the parameters of our price mechanism and is prepared to defend it,'' Rasheed said.

The government of President Saddam Hussein has stepped up its efforts to erode the 10-year-old trade sanctions, which forbid Iraq to channel its crude revenue outside of the UN program, analysts said.

``Iraq figures it would be the beginning of the end for the oil-for-food program if it could force a crack in the system by just taking 50 cents a barrel,'' said Mohammed Abduljabbar, an oil analyst with the Petroleum Finance Co. ``Still, Iraq has to be careful not to shoot itself in the foot as it has succeeded in slowly eroding support for the sanctions by using more diplomatic methods.''

Flights from Europe and other Arab states have ignored a UN air embargo on Iraq and landed in Baghdad over the last two months. Egypt, the most populous Arab state, and Iraq have exchanged ambassadors for the first time in 10 years, and Syria has agreed to import Iraqi crude outside the parameters of the UN.

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-- Martin Thompson (mthom1927@aol.com), November 29, 2000