US wants changes to UN oil-for-aid contracts

The US is urging the United Nations to consider shortening the contract cycle of the Iraq oil-for-aid program to 15 days instead of 30 to make it harder for Iraq to circumvent tight revenue controls that give the country little say in how petrodollars are spent. Iraq opposes changes the monthly contract cycle.

Aug. 24, 2001

2 min read

By the OGJ Online Staff

WASHINGTON, DC, Aug. 24 -- The US is urging the United Nations to consider tightening the contract terms of the Iraq oil-for-aid program to make it harder for Iraq to circumvent tight revenue controls that give the country little say in how petrodollars are spent.

The program directed over $17 billion toward relief measures in Iraq last year. Under the program, the UN, not Iraq, controls how the money is spent. A special UN committee now approves oil contracts on a monthly basis.

The UK earlier this month sought to change that timetable to every 10 days so that the contracts would better mirror the ups and downs of the world oil market. US officials say they favor a slightly longer time frame of 15 days so that oil company traders have more time to schedule tankers.

The US and the UK say changes are needed because Iraq has tried to funnel funds away from the aid program. The US and UK allege Iraq's oil company sets its crude prices at below market prices and then tries to force buyers to give them "surcharges" to make up the difference.

"Such payments outside of the UN-controlled Oil-for-Food sales system are a violation of UN Security Council resolutions. The funds can be used by Iraq to develop its military capability; that is why we have felt it necessary to control those funds and set up the oil-for-food program and the UN-controlled oil sales system," a State Department spokesman said Aug. 22.

In April the department wrote to a number of major oil companies who export Iraqi crude via the UN program, warning them to be sure their purchases are not tainted by payment of a surcharge Iraq had been reportedly demanding.

The UN program has also come under criticism in the US Congress. Sen. Frank Murkowski (R-Alas.) has sought to ban US companies from buying Iraqi crude purchased under the UN program.

He argued that America should replace oil from Iraq with domestic sources. The US imports about 1 million b/d of Iraqi crude.

Opponents of the Murkowski plan say banning US imports will not affect the volume Iraq sells through the UN program; they also argue some US refineries are optimized to run on Iraqi crude specifications.