Saddam's empty oil threat

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Saddam's empty oil threat

By Roula Khalaf - Dec 13 2000 00:00:00

You can always count on Saddam Hussein to make a wrong move when his luck is picking up.

As the Iraqi president's rehabilitation in the Arab world was gathering steam and support for the 10-year-old United Nations sanctions was fast eroding, he turned off the flow two weeks ago of Iraq's 2.3m barrels a day of oil exports.

His aim was to provoke an oil crisis and wrest control of Iraq's oil resources from the UN. However, his oil weapon proved an empty threat, as prices lost more than $5 a barrel.

Yet the controversy sparked by Iraqi demands that oil buyers pay a 50 cent surcharge into a special bank account unsupervised by the UN has not been a complete setback.

It satisfied Iraq's strategy of keeping sanctions in the headlines. It also led the UN to accept an Iraqi demand for the allocation of some funds out of the UN-monitored oil-for-food programme for the running of the local oil industry.

Iraq's next move is unclear. Although it has indicated that the crisis has been defused, it has yet to resume exports, amid reports that it continues to require companies to make an under-the-table payment, now reduced to 40 cents.

Some analysts say Baghdad could simply be delaying an embarrassing climbdown. Others, however, believe Iraq is determined to pursue a full assault on sanctions.

This would mean raising pressure on buyers to agree to an illegal surcharge while hoping a longer disruption in sales would drive oil prices up.

Most companies, however, are loath openly to contravene UN sanctions. And, in the current climate of oil prices, they have no reason to pay a higher-than-market price for Iraqi oil.

In any case, Iraq's behaviour is its most blatant effort to undermine the sanctions.

"The Iraqis are in the process of testing the boundaries of where sanctions lie. They misperceived the oil market but they got concessions out of the UN and they have consistently been getting concessions," says Raad al-Kadiri, analyst at Petroleum Finance in Washington.

The UN security council passed Resolution 1284 a year ago, calling for the return of UN arms inspectors and promising a lifting of sanctions when key disarmament tasks are fulfilled. But Baghdad has refused to comply, insisting the US would never agree to end the embargo.

Mr Saddam has nonetheless taken advantage of the carrots in the resolution, including the lifting of the ceiling on oil sales. Increased oil exports have led to a rise in smuggling. The expansion in revenues also has helped Iraq lure Arab and western businessmen to Baghdad, with the promise of large commercial contracts under the oil-for-food deal.

Bolstered by the attention and by the divisions over Iraq policy in the UN security council, the Iraqi leader's challenges have become more serious in recent months, with the aim of gaining direct access to Iraq's oil money. Under UN rules, all funds in the oil-for-food programme are controlled by the UN.

In the Baghdad trade fair in November, the largest since sanctions were imposed, Baghdad asked companies to break the sanctions and sign contracts outside the oil-for-food deal. Later that month, it made clear it was preparing to reopen a pipeline to Syria to sell oil outside the UN framework.

Iraq has been helped by a favourable regional and international environment. The US has been eager to avoid a showdown with Baghdad during a presidential election year. So it has not pressed for a return of UN arms inspectors. Meanwhile, the collapse of the US-sponsored Middle East peace process has accentuated anti-US sentiment in the Arab world.

Officials have not lost all hope of rescuing UN resolution 1284. They insist the core sanctions remain in place and Iraq's gains are marginal.

True, Iraq controls only a tiny fraction of the more than $20bn in oil sales expected for this year. And it agreed to start a dialogue with the office of Kofi Annan, the UN secretary general, in January on ways to restore relations. But Mr Saddam is unlikely to change his position on the UN resolution or drop efforts to shatter the embargo unless he is assured that the next US administration will have a softer policy on Iraq.

"Part of Iraq's strategy is to show the security council that if nothing is done on Iraq policy, the sanctions will simply crumble," says a western official.

"The nightmare situation would be that sanctions erode, there are no inspections, and the security council does nothing - the credibility of the UN would then be at stake."

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-- Martin Thompson (mthom1927@aol.com), December 13, 2000


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