Iraq's oil price formula rejected

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Iraq's oil price formula rejected By Carola Hoyos, United Nations Correspondent Published: November 27 2000 20:51GMT | Last Updated: November 27 2000 23:27GMT

The United Nations rejected Iraq's oil price formula for December, renewing concerns that the country could interrupt its oil exports.

Iraq and the UN's sanctions committee must come to some sort of an agreement before December 1 to avert a temporary halt in the 2.3m barrels of oil Iraq exports each day.

Diplomats say Iraq has suggested prices 50-60 cents below the fair market value of its crude in an attempt to get its customers to pay 50 cents a barrel into an account outside the UN's control.

In its boldest attempt to undermine sanctions since their inception in 1990, Iraq earlier this month demanded that its customers pay a 50 cent premium on each barrel of oil or risk losing their contract. The premium makes Iraqi oil uncompetitive against similar Russian crudes unless Baghdad drops its official selling price, analysts say.

But siphoning up to $400m (£285m) a year into an unmonitored Jordanian account blatantly breaches sanctions, under which the UN controls and monitors what Iraq does with its oil revenues.

Whether Baghdad is willing temporarily to halt oil exports in its attempt to gain greater control of its finances will be made clear by its next move, which diplomats insist must be to suggest a higher price for its December shipments.

Waning international support for the sanctions has emboldened the Iraqi regime in its challenges to the decade-old controls.

Baghdad last week told the UN it was preparing to export oil to Syria, although neither country has sought the approval of the organisation's Security Council.

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

Answers

UN Panel Says Iraq's Oil Prices Too Low Monday November 27, 4:06 PM EST By Bernie Woodall UNITED NATIONS (Reuters) - The U.N. Security Council's sanctions committee on Monday rejected as too low Iraq's proposed oil prices for December, leading to fears Baghdad's exports may be delayed next week, diplomats said.

Iraq proposed the lower selling prices for its crude oil grades so it could include a 50-cent per-barrel surcharge outside the U.N. program and still keep its oil competitive, oil industry analysts said.

But the committee agreed with an assessment last week by the U.N. oil experts that the prices Baghdad submitted for December exports were too low, the diplomats said.

U.N. officials were waiting to see if Iraq's State Oil Marketing Organization (SOMO) would submit amended prices in time for the sanctions committee to approve them by Friday. The current price mechanism expires on Thursday.

Iraq submits its pricing each month for U.N. approval. If no new formula is submitted and approved by Friday, Iraq could halt its oil exports. In October, however, Iraq continued oil flows even though its pricing formula was approved after the first of the month.

Baghdad has been pressing the United Nations and buyers for a surcharge of 50 cents a barrel it wants paid into an Iraqi-controlled bank account. The lower prices were assumed to be an attempt to compensate buyers of crude.

Under the humanitarian or oil-for-food program Iraq can sell as much crude as it likes, with oil customers paying into a tightly controlled U.N. escrow account.

The revenue is used to purchase food, medicine and other supplies to alleviate the impact of the sweeping sanctions imposed when Baghdad's troops invaded Kuwait in August 1990.

With oil prices rising, Iraq has put forth a number of measures to allow it to control at least part of its revenues, a provision included in a December 1999 resolution on condition Baghdad allows U.N. arms inspectors back into the country.

Iraq has refused to do this since the weapons experts left shortly before a U.S.-British bombing raid in December 1998, saying it needed a clearer path than U.N. resolutions spell out for the end of the stringent sanctions.

Baghdad has also proposed that some of the surcharge monies go to Palestinian victims of the nearly two-month old violence with Israelis, a measure the council is bound to reject.

In related developments, an advisory board of commissioners to the new U.N. weapons inspection agency, the U.N. Monitoring, Verification and Inspection Commission, met on Monday to complete a new report on the agency's preparedness to resume arms inspections.

Diplomats also said the United States and France were nearing agreement on how to standardize notifications for countries flying aircraft into Iraq.

Washington is expected to accede to Paris' demands that notification rather than permission is needed for the flights but will get some other concessions in return, they said.

Dozens of countries, mainly from the Arab world, have sent planes to Baghdad over the past two months to protest the decade-old sanctions. The parade of aircraft was begun by France on Sept. 22, which allowed a plane to go to Baghdad on short notice and without committee approval.

©2000 Reuters Limited.

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


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