The United States on Friday backed a British plan to tighten procedures for pricing Iraqi oil, raising prospects of a new clash with Baghdad at the UN in the wake of a failed UK proposal in July to create "smart" sanctions.
According to the Washington Post, Iraq and Russia oppose any effort to impose changes on a system that diplomats allege has allowed Baghdad to rake in an illegal 10- to 15-cent surcharge on every barrel of oil it sells.
"In principle, we don't like any change in the existing scheme," Gennady Gatilov, Russia's deputy representative to the United Nations, was quoted by the daily as saying. "Oil exporters will experience difficulties in signing and fulfilling contracts."
The British move came within two months of its failure to obtain support for a plan to change the 11-year-old Iraqi sanctions regime.
The move failed because of what the UK called the "unjustified, negative and national" opposition shown by Russia.
If adopted, the reforms would have included scrapping the embargo on trade with Iraq while tightening controls to prevent crude oil smuggling and illegal arms imports in addition to technology.
Iraq suspended oil exports for a month while the Security Council discussed the British proposals.
The Arab country also pressed neighboring Turkey, Jordan and Syria to oppose the plan, which were dubbed “smart sanctions.”
Under the United Nations' "oil-for-food" program, Iraq is allowed to export as much oil as it desires. But the revenue must go into a UN account and be spent under UN supervision, to purchase humanitarian supplies and to pay compensations to parties claiming damage because of the Iraqi invasion of Kuwait in 1990.
Iraq complains that the program has failed to meet the basic needs of the Iraqi people.
According to diplomats, Iraq has tried to set artificially low prices on its oil and to favor buyers who are willing to pay secret surcharges into offshore bank accounts, circumventing the United Nations' control over Iraqi oil revenues. US and British officials allege the illicit proceeds have been used to purchase weapons and luxury items for Iraq's ruling elite.
The Western media have highlighted reports of new palaces allegedly built for President Saddam Hussein.
At present, Iraq and the United Nations jointly set oil prices every 30 days. But Baghdad also has been permitted to negotiate reductions in its prices whenever the world price for oil drops, ensuring that traders can earn enough of a profit to pay kickbacks.
Britain proposed last week that Iraq and the United Nations set prices every 10 days, making it more difficult for Baghdad to exploit fluctuations in the market. Britain also used its veto power on the UN committee that monitors Iraqi oil sales to prevent Iraq from setting new prices.
The US initially balked at supporting its most important ally, citing concerns that the British plan would disrupt the global oil trade. But the Bush administration assured Britain Friday that it would back a compromise plan to set prices for 15-day periods.
However, AFP quoted diplomats as saying the same day that Britain had agreed to postpone to next month a change in the way the UN sets the official price of Iraqi oil, so sales can resume under present conditions until August 31.
A British diplomat told the agency London would agree to an official price for September only if the price-setting interval were cut from 30 days to 15 days, said the agency.
Iraq had been without an official price since Tuesday.
"The United States has come round to our way of thinking, and we have accepted the August price until the end of the month so as not to disrupt the flow of oil," the diplomat said, cited by the agency.
One UN official said the lack of an agreed price had no immediate effect on exports under the United Nations oil-for-food program, but traders could be put off if uncertainty persisted.
According to the agency, Iraq at present sells about two million barrels a day, a volume large enough to cause severe disruption if supplies were halted in a tight market.
Under current arrangements, independent oil overseers recommend an official price to the Security Council's sanctions committee every 30 days after consultations with Baghdad's state oil marketing organization (SOMO).
Council resolutions say the official price must reflect "a fair market value" of Iraqi crude, but the market fluctuates daily, if not more often.
"That allows unscrupulous traders to make excessive profits and gives them a margin to make illegal surcharge payments to the Iraqis," the British diplomat told AFP on condition of anonymity.
"We haven't got a photograph of a brown envelope going under the table, but everyone in the industry knows it is happening, and we have clear, unshakable evidence."
The diplomat acknowledged that Britain had resorted to "tough tactics" when it said it would accept this month's price only to August 21, but said other council members had rejected appeals for consensus too – Albawaba.com
© 2001 Al Bawaba (www.albawaba.com)
