United States ready to scrap oil-for-food

By David R Sands

WASHINGTON: Iraq’s UN-administered oil-for-food program, created amid rancor among the United States, Russia and France, looks set to expire with even greater discord.

The United States, which long tried to tighten the sanctions and trade controls in the program, now is poised to demand the United Nations scrap the program altogether with the ouster of Saddam Hussein by coalition forces.

Russia and France, which led the fight against US efforts to put teeth into the program while Saddam ruled, are now its biggest fans as their lucrative middleman role comes under threat.

The original thrust of the program — using Iraq’s vast oil wealth to purchase food, medicine and supplies to up to 90 percent of the country’s population — has been all but obscured by power plays over who will have the determining say in the country’s political and economic future.

With oil revenues considered critical to the reconstruction of Iraq and the financial solidity of a new government, the Bush administration argues that ending the convoluted oil-for-food mechanisms and the sanctions on Iraq’s economy is vital. UN Secretary-General Kofi Annan’s oversight authority for the program ends June 3.

An interim management team for Iraq’s oil ministry, to be headed by former Shell Oil executive Philip J. Carroll and reporting to American civil administrator Jay Garner in Baghdad, is expected to be officially announced this week.

But the sudden change of regime in Baghdad has not led France, Russia and other Security Council members to back US plans for a swift termination of the oil-for-food program and a quick resumption of unfettered Iraqi oil production.

“We feel it should be phased out gradually, because we cannot terminate a program that has such significance for such a large proportion of the population,” said Mexico’s UN Ambassador Adolfo Aguilar Zinser, who currently holds the Security Council presidency. The need for some hard decisions on Iraq’s oil wealth was underscored Friday with the resumption of production at the major Jambur oil field near the northern Iraqi city of Kirkuk.

The US proposal, strongly pushed by the Pentagon, would lift all the sanctions imposed on Saddam’s Iraq since the 1991 Persian Gulf war and eliminate virtually all UN oversight of Iraqi oil production and sales.

Future oil sales would go into a new development fund to be run by the interim Iraqi authority the United States and its coalition allies are helping to establish.

France has countered by seeking a “suspension” of most of the civilian sanctions on Iraq, but putting off a complete elimination of the oil-for-food program until the United Nations determines Iraq is free of weapons of mass destruction. Russia, whose giant oil firms signed lucrative exploration deals with Saddam’s fallen regime, floated another proposal that would give Mr Annan continuing authority over new Iraqi oil sales and humanitarian aid, so long as existing deals and contracts are honored.

With multiple accounts, high overhead, a staff of 4,000 Iraqis and international professionals, and a pattern of sweetheart deals built into its very fabric, the oil-for-food program was ripe for manipulation by all sides.

“If you like Enron-style transparency, you’ll love the oil-for-food program,” according to Wall Street Journal Europe analyst Claudia Rosett, who published an extensive expose of the program’s shortcomings and compromises.

Established in 1996, the program called for UN oversight of all Iraqi oil sales, with the proceeds to be used to finance UN-approved contracts for humanitarian aid to Iraq’s citizens and to finance reparations Iraq owes on claims dating back to the Gulf war. Oil revenues went to an escrow account jointly controlled by the Iraqi government and a UN agency that oversaw the awarding of approved humanitarian and infrastructure contracts to international bidders.

The idea was to thwart any effort by Saddam to use the oil money for his military, but the practical upshot was to provide a bonanza for the companies and banks serving as middlemen for the oil-for-food contracts. Russian firms dominated that market, winning 159 contracts, or about 21 percent, of all deals approved in a recent six-month period, UN records show.

French firms picked up 6 percent. No US or British firms were awarded any of those contracts. The US proposal for a complete end to the sanctions would have the added effect of cutting out French and Russian middlemen. —TWT

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