middle east and africa

Iraq beefs up oil price to beat sanctions By Carola Hoyos in New York, Ruth Sullivan in London and Hillary Durgin in Houston

Published: November 17 2000 16:49GMT | Last Updated: November 17 2000 17:11GMT

In its boldest attempt to undermine United Nations sanctions since their inception in 1990, Iraq is trying to strong-arm its oil customers into paying an estimated $400m a year into an Iraqi account outside the UN's monitoring system.

Iraq's state-owned oil company, Somo, which exports 2.1m barrels of oil a day, has told its customers to pay a 50 cent per barrel premium into an account in Jordan or risk losing their contracts.

"This would be a breach of sanctions not only Iraq must take account of, but any trader unwise enough to respond," said Jeremy Greenstock, the UK's ambassador to the UN.

Diplomats and industry analysts say they expect some companies will break sanctions so as not to jeopardise their relationship with Baghdad. Iraq not only exports 5 per cent of the world's crude oil but also has the world's second largest proven oil reserves, which international companies are lining up to tap into once sanctions are lifted.

"I don't believe that all secondary sources would refuse, because they would break even or even lose money to have access to Iraqi crude," said Antonio Szabo, president of Stone Bonds, a Houston-based energy consulting company, referring to companies that buy Iraqi crude from middlemen.

One European oil company contacted by the Financial Times declined to say how it was tackling the problem.

International support for the sanctions is waning and the political vacuum in Washington has emboldened Iraq in its quest to escape the UN's controls without having to fulfil its demands.

Under UN resolutions Iraq must allow weapons inspectors back into the country who must certify that it has destroyed all its weapons of mass destruction before the UN Security Council will remove its sanctions.

Last month, Syria announced it would begin to buy Iraqi crude oil directly, without the UN's approval. However diplomats say the pipeline between the two countries is not yet working, as it is in a poor state of repair.

European and Arab countries have sent more than 50 flights to Baghdad in the past few months, helping to break the isolation of Saddam Hussein, Iraq's president, and forcing the UN to revise its procedures.

Iraq has also managed to reduce the percentage of its revenue that goes to paying its war debts and has forced the UN to allow its customers to pay for its crude oil in euros rather than dollars. This was a protest at Washington's tough stance in favour of continued sanctions.

"Iraq's way is to push its way out of the box it's been put in, and it will try any way it can to do it," said Peter Gignoux, head of Salomon Smith Barney's energy desk in London.

Iraq has also launched an offensive at the UN to get E1.50 per barrel of its crude oil wired to a local account so that it can pay for the maintenance of its oil industry.

Diplomats did not immediately dismiss the idea as long as the UN monitors Iraq's expenditure of the money.

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-- Martin Thompson (mthom1927@aol.com), November 17, 2000