Saturday, October 28 3:33 AM SGT

ENERGY MATTERS Special: Iraq's Oreo Plan On Sanctions By David Bird A Dow Jones Newswires Column

NEW YORK (Dow Jones)--We probably heard wrong, but, then again, we may be on to something.

When Iraq issued its warning that it may bring crude oil exports to a screeching halt, we thought Saddam Hussein was demanding payment be switched from dollars to Oreos.

But the issue didn't turn out to be that black and white: Iraq was talking about euros.

For those unfortunate enough to live in parts of the world where Oreos aren't sold, here's a primer - the Oreo is a chocolate cookie "sandwich" filled with vanilla creme that's been American kids' food of choice since 1912 - a lot longer than the euro has been around.

Every kid knows there's only one way to an eat an Oreo - unscrew the two halves and eat the creme first.

In a way, Iraq's latest move to bristle against the United Nations sanctions with the euro twist is a part of a long-standing strategy that could be called the Oreo Plan - dismantle the coalition slowly and careful and try to get at the creme inside.

Payment in Oreos would not only put a new twist on the humanitarian "oil-for-food" plan, but would be another attempt to politicize or monetize Nabisco Holdings Corp.'s (NA) famous cookie.

For ages, Oreos have been the sought-after currency of school lunchroom barters and the name may even have its origins in the French or Spanish root ('or') for gold.

Oreos were among the first items shipped out to U.S. military facilities set up in Saudi Arabia during the Gulf War. A crewman aboard the USS Carney, intercepting Iraqi oil-smuggling ships in the Gulf, spoke of sharing Oreos with detainees in a news story a couple years back.

Ben Cohen, half of the gourmet ice cream team of Ben and Jerry, testifying before a Senate committee last year, piled up Oreos to illustrate a comparison of U.S. military spending with that of other countries. It took 28 Oreos to represent the Pentagon's budget, compared with just six for Russia, four for China. Iran, Libya, North Korea, Cuba and Iraq combined added up to just one-and-half Oreos.

At a rate of 10.6 cents per cookie, a barrel of $25 Iraqi crude would cost about 235 Oreos, or 29.86 euros, at a rate of 83.65 cents per euro.

Concerns Over Short Term Supply Halt

Oil traders and buyers of Iraqi crude are worried that the current situation between Baghdad and the U.N. may result in at least a short-term disruption of oil exports.

Iraq has regularly tried to tweak aspects of the sanctions plan to its liking and the latest move is designed by Saddam to remind the U.S. - just prior to the presidential election - that he's still on the scene. Industry rumors abound of Iraq demanding under-the-table payment of 10 cents to 15 cents a barrel for the right to lift oil under the U.N. plan.

Baghdad, within its rights, has put in place port fees of about $25,000 for tankers loading under the plan. The fees are payable in Iraqi dinars, not dollars. ("The joke is that you need to charter two ships - one to bring in all the dinars and the other to load the oil," says an Iraqi contract holder.)

With Saudi Arabia holding insufficient spare capacity to cover Iraq's scheduled 2.4 million barrels a day of crude exports set for 35 days in November and into early December, even a brief loss of Iraqi crude could send prices rocketing.

The U.N., for its part appears to have no problem with switching the account from dollars to euros, but for some bureaucratic questions of who would pay resulting transaction fees. The U.S. says it isn't bothered by the move, noting the U.N. holds the oil-sale purse strings no matter what currency is inside.

But Iraqi contract holders see a potential "Trick-or-Treat" scenario for tankers sailing into oil loading facilities on Halloween next Tuesday.

Will Tankers Be Loaded Beginning Wednesday?

With November loadings set to begin Wednesday, oil executives say they are concerned that tankers could show up in port and be denied the right to load because letters of credit aren't accepted.

Iraq's State Oil Marketing Organization, or SOMO, has told buyers that from Nov. 1, they have to set up a letter of credit with the U.N. in euros. But the U.N. tells the buyers that only dollar-dominated letters of credit are acceptable.

Oil buyers could then find themselves not only without the oil, but faced with high costs related to chartering the empty tanker.

Some Iraqi buyers wonder if the dispute is being orchestrated to buy Iraq more time to load what is an ambitious export program next month. "The thinking is if there is any delay at the start of the month, the U.N. could add more days at the end," says one buyer.

Still others say SOMO is operating as normal and a political decision - not any oil-loading issues - is driving the dispute.

In the meantime, Saddam keeps the market guessing and hopes - like the Oreo - that sanctions eventually crumble.

http://asia.biz.yahoo.com/news/asian_markets/article.html?s=asiafinance/news/001028/asian_markets/dowjones/ENERGY_MATTERS_Special__Iraq_s_Oreo_Plan_On_Sanctions.html

-- Martin Thompson (mthom1927@aol.com), October 27, 2000

Answers

Typical Saddam -- seven days before an election? What else should we expect?

-- RogerT (rogerT@c-zone.net), October 28, 2000.