CovertAction Quarterly . Spring-Summer 2000 (# 69)
(CAQ: 1500 Massachusetts Ave nw #732 Washington DC 20005.
info@covertaction.org.,   www.covertaction.org

      "U.S. Using UN program to steal Iraq's oil"  :By Lee Siu Hin
--

The United States, and some of its allies, has been benefiting from
one of the biggest oil schemes in history: the theft, every year, of
billions of dollars of below-market price petroleum from Iraq under
the United Nations "oil-for-food" program.  Because of the sanctions,
Iraq has been forced to sell its oil far cheaper than the
international market price. (See Figure One.) This is one of the
reasons the U.S. wants to maintain the UN sanctions against Iraq
indefinitely and why its warplanes still patrol Iraq's airspace,
bombing at will.

Oil prices collapsed just as Iraqi production had begun to go up
after Phase I of the oil-for-food program resulting in a $60 billion
loss to other oil producers - "from Kuwait and Saudi Arabia down to
Texas stripper-well owners." This is a major explanation for the 60
percent oil price collapse in 1998 to $8 a barrel - the cheapest oil
since the 1970s oil crisis.

In an obvious move to rebound from the drop in price, OPEC Countries
took action to cut production in March 1999.  Now the price of crude
oil is astronomically high (it reached $31.77 per barrel on March 2)
The surge in oil prices was suddenly further spiked by Iraq's
decision November 24, last year, to stop production rather than
capitulate to the terms of the Security Council resolution, which had
extended the oil-for-food program for a mere two weeks.  This
situation changed on December 10, when the UN Security Council voted
to extend the program for six more months.

Then, on December 17, the Security Council passed another resolution,
1284, with three of the five permanent members, China, Russia and
France, abstaining.  The resolution set up a new UN Monitoring,
Verification, and Inspection Commission (UNMOVIC), replacing the UN
Special Commission.  Its mission is to continue searching for
chemical, biological and ballistic missiles, joined by the
international Atomic Energy Agency which is to continue looking for
nuclear programs.  Subsequently, UN Secretary-General Kofi Annan
appointed Hans Blix as executive chairman of UNMOVIC,
Resolution 1284, while purporting to lead to lifting sanctions, is
actually more stringent than the previous one.  Under the old
provisions, the embargo was to have ended when the inspectors
declared Iraq free of weapons of mass destruction.  Under the new
resolution, the sanctions will merely be suspended.

Resolution 1284 lifts the cap on how much oil Iraq can sell, which
had been set at $5.26 billion every six months in recent phases of
the program.  Yet all other controls, including the deposit of Iraq's
oil revenues into an escrow fund, are to stay in place under the
resolution.

Iraq has adamantly rejected this resolution because it reinstates
the inspections, which have been extremely intrusive and proved to be
used for U.S. spying.  Furthermore, the brutal sanctions, which have
caused untold suffering of the Iraqi people, are to continue.

Under the program, Iraq often has not even received a substantial
portion of the humanitarian goods approved by the UN. These
provisions have been held up on one pretext or another.  Indeed, the
U.S. blocks many contracts for humanitarian supplies to Iraq and
openly acknowledges that it is currently blocking $1.3 billion worth
of contracts.

Meanwhile, early in February, Hans von Sponeck, chief of the UN
humanitarian program in Iraq, resigned under pressure following his
public criticism of the - UN sanctions and the oil-for-food program,
which he said did not meet even the most basic needs of Iraq's 22
million people.

Since 1997, UN Resolution 986 had allowed Iraq to sell a specific
dollar amount of crude oil to buy food and medicine.  For the first
three six-month phases, the Security Council set a ceiling of $2
billion on oil exports for each phase.  From Phase IV until the
current phase, the ceiling was increased to $5.2 billion.  Thirty
percent of the resulting revenues must pay so-called reparations.

The money from the sale of the oil is held in an account and
dispersed by the UN under the program, to purchase food, medicine,
and other humanitarian goods as well as spare parts for the Iraqi oil
industry.

Although the UN specified how much Iraq can receive from oil sales
every six months, nowhere did the program specify the selling price
or the amount of oil to be sold, it is up to the international oil
buyers and SOMO-the Iraqi state oil, Company - to haggle over this.
With a gun to its head, Iraq has had no choice but to let
international oil buyers set the price. Since the UN program began,
international oil companies have been able to buy oil from Iraq at a
cheaper price than from any other Gulf oil-producing state.  Iraq has
sometimes sold more, sometimes less, than the allowed amount during
a given phase.  Is anyone asking, which banks are benefiting from
this huge fund of petro-dollars placed in escrow while the people of
Iraq are experiencing indescribable suffering under the sanctions?

OPEC is considering increasing output to bring oil prices down to a
more "acceptable level." But rumors were circulating that if Iraq
were to increase production substantially it could again cause prices
to tumble. OPEC countries and companies raking 'in high profits from
the record prices appear to be extremely reluctant to step up
production, and undoubtedly are watchful about what will happen
regarding Iraq's output.  Banks, which reap a colossal influx of
petrodollars, are sure to be monitoring these developments, as well.
Iraq, which is likely to increase its production, also benefits from
the higher oil prices.  However, it continues to receive considerably
less for its oil than the prevailing market price.

 -- "Oil-for-Food" Scam --

Iraq has consistently refused to sell its oil to U.S., U.K., and
Japanese companies.  "Would you help a person who commits a crime
against your people [by selling oil to them]?" Iraqi oil minister
Amir Rashid asked.  Yet Iraqi oil does end up in the U.S.

Ostensibly the U.S. purchases very little oil from Iraq under the
food-for oil program, but behind closed doors, it has been buying
Iraqi crude through intermediaries-so-called "third-party oil."

Brokers buy Iraqi oil under the program, then resell it to U.S.
companies. As a result, nearly 40 percent of Iraq's oil exports end
up in U.S. refineries.  Larry Goldstein, president of the Petroleum
Industry Research Foundation, said traders in Russia, China, and
Europe are buying Iraqi oil at discounts and restyling it, much of it
to U.S. companies, at prices below the cost of comparable grades of
oil.  Department of Energy figures (Figure Two) also indicate the
companies that have been receiving the oil-Chevron, Exxon-Mobil,
Valero, Clark, and Marathon Ashland.  U.S. oil companies
make billions of dollars profit from this cheaper oil difference
every year. Houston-based Coastal Corp. has been the only U.S. firm
allowed to make direct purchases of Iraq's oil.

"Iraqi oil became a big part of U.S. energy supplies despite an
overall drop in oil imports," according to the American Petroleum
Institute.  Iraq has become the fifth largest supplier of U.S.
imports.  In fact, crude oil imports from Iraq doubled last year,
from 336,000 barrels per day (bpd) in 1998 to 712,000 bpd a day as of
October last year, according to Ronald Planting, the Petroleum
Institute's information and analysis manager.  Yet, as recently as
1996, the U.S. imported no Iraqi oil.

"Iraqi crude... is being priced competitively enough... to become
the fastest growing source of U.S. imports," said Goldstein.  Yet, an
Energy Department spokesman insisted that there was nothing unusual
or remarkable about these imports because they are administered by
the UN's oil-for-food program.

Meanwhile, in a new twist to the story, Iraqi officials have said
that their oil exports under the oil-for-food deal with the UN are
running into difficulty because of lack of spare parts to upgrade its
oil industry.  The UN has allowed Iraq to purchase $300 million in
spare parts every six months to repair its oil industry, devastated
both by the U.S.-led bombings during the 1991 Gulf War and by
subsequent U N. sanctions.  But Iraqi Oil Minister Amir Muhammed
Rasheed pointed out that they have repeatedly complained that-only a
few of the spare parts and equipment then- had contracted to buy from
foreign companies have reached the country and accused the U.S.
of blocking contracts or putting them on hold.  He said hundreds of
contracts were now held up for political reasons.

Iraq's oil production would likely drop 200,000 bpd unless the
Security Council approved contracts for spare parts and equipment,
according to UN Secretary General Kofi Annan.

It is clear that one reason the U.S. wants to maintain the sanction
is to allow the major oil companies to reap huge profits.  Yet the
overriding motivation behind U.S. policies is to retain hegemony over
the oil-rich Persian Gulf.  Above all it is to send an unmistakable
message that any country bold enough to stand up to the U.S. will
reap the same unprecedented and brutal consequences inflicted upon
Iraq.