The United Nations and the US are expected to continue negotiating over the next few weeks possible updates to the UN's Iraq oil-for-aid humanitarian program, industry and diplomatic sources said Apr. 23. In the short term at least, the country or organization that controls future oil revenues will also play a decisive role in Iraq's political and physical reconstruction.
The 7-year-old UN oil-for-aid program is currently the only legal mechanism to export Iraqi oil. It expires June 3.
US officials are hoping to resolve legal issues before that time.
But resistance from some UN.Security Council members, most strenuously from Russia, could delay oil exports until summer.
Negotiations continue
US diplomats are cautiously optimistic the matter may be resolved within a few weeks; analysts say Russia and its fellow council members France and Germany are motivated to settle the short-term export question in order to move on to even tougher negotiations regarding potentially lucrative, longer-term investment deals. But until the US clarifies what its own expectations are in the oil sector, nothing will get settled, analysts predict.
Although a vocal opponent of the US-led military action in Iraq, France Apr. 22 said it would agree to the US's call for an immediate suspension of economic sanctions provided the UN is allowed to continue controlling oil revenues, at least in the short term.
But even with France's unexpected support, diplomatic obstacles remain.
Russia continues to insist that the UN certify there are no weapons of mass destruction before sanctions are lifted.
Meanwhile, US officials argue that given Saddam Hussein no longer runs Iraq, there is no reason to continue economic sanctions. And they have suggested they will move forward without UN approval if necessary to move the reconstruction process forward.
US officials earlier this month hinted that under international law the US, without the express blessing of the UN, has the authority to sell about 9 million bbl of Iraqi oil now in storage at the Turkish port of Ceyhan in order to help pay for reconstruction projects. But now the Bush administration has softened that stance. On Apr. 22 it called on its allies to donate funds to rehabilitate key sectors of the Iraqi civil infrastructure until the oil revenue question is resolved.
"The exact timing of all this is not worked out and remains to be decided. But clearly one has to make sure that the Iraqi people are able to benefit from the Oil-for-Food program, as they have in the past, and that they are also able to come over and take charge, themselves, of all these matters," noted a Department of State spokesman. "So how those things are synchronized, coordinated—whatever—is one of the issues that has to be looked at."
Prior to the war about 60% of the Iraqi people got their sustenance via oil-for-aid.
" You have to make sure that as you adjust these things that they continue to get the food. You have to deal with issues of markets. You have to deal with issues of oil sales and purchases and things like that, the DOS spokesman said..
All I would say is there are some things that need to be worked out, but there is no fundamental reason to have any sanctions on Iraq at this point other than a few normal controls on sales of weapons."
US Congress
The US Congress may also try to play a role, although the White House will surely try to discourage lawmakers from interfering. Some conservative Republican leaders have criticized the UN's management of Iraqi oil revenues since the Clinton administration. Last year, then-Sen. Frank Murkowski (R-Alas.) sponsored a provision included in a Senate comprehensive energy bill that banned Iraqi oil imported into the US via the oil-for-aid program. The White House later publically opposed the provision during negotiations with the House. In a June 28, 2002 letter, Sec. of Energy Spencer Abraham told lawmakers: "Were the United States to cease participation in this humanitarian program, it would work against our efforts to bolster Security Council consensus on Iraq. Such a ban would likely afford Iraq the opportunity to seek more illicit oil sales and revenues outside of UN control."
The energy bill, along with the Iraqi oil provision, later failed. But some Republican leaders continue to maintain that the UN cannot be trusted to oversee the program. They say past evidence suggests there were too many loopholes, allowing Iraqi President Saddam Hussein to enrich himself and to purchase illegal weapons. Past statement from DOS have indicated that while the program has not been flawless, it still serves a primary objective to provide food and medicine to the Iraqi people.
Nevertheless, some analysts and economists are urging US policymakers to reject a UN role completely for future oil revenues. One idea calls on the World Bank to help create a new way to distribute oil revenues in a fair and equitable manner, similar to what the bank did with the Chad-Cameroon pipeline project.
Other analysts, such as Steven C. Clemons, executive vice-president of the nonpartisan New America Foundation think tank, say policymakers should consider an oil revenue sharing model similar to what is done in Alaska. He calls for an independent board that oversees dividing some income among the country's six million households. An independent, nonpolitical board could oversee Iraq's estimated $20 billion in annual oil revenue. The principal would be untouched and investment gains used to rebuild infrastructure. A portion of the money would also go toward dividends to each Iraqi.
"These payments would make a huge difference to families in a country whose per capita gross domestic product rests at about $2,500," Clemons wrote in an opinion piece in the New York Times.
This model is already gaining political acceptance in Congress with some senators from oil-producing states considering a nonbinding resolution that would call on the White House to consider such a policy in its reconstruction plans.
But some analysts and US policymakers say that even considering an Alaska model now is premature, given that Iraq has a staggering amount of debt, pegged at $400-$600 billion, that still must be addressed.
Yet, clearly, the White House is under pressure not to install or support a new government that simply exploits the country's oil wealth for a small privileged class; that is an outcome that is too predictable among most oil-rich countries and would be especially dangerous in Iraq.
Any future oil revenue model that includes a share approach for the general population is good, but it shouldn't be so large it creates a welfare mentality, noted one former government energy economist who spoke on condition of anonymity.
Small, individual payments, along with a microloan program and careful restrictions that emphasize infrastructure spending may be a good first step, the economist said. But the road ahead will be a long one.
