The U.N. and oil prices

The United Nations is right to pursue all diplomatic possibilities for bringing Iraq President Saddam Hussein to heel before the U.S. and U.K. take military action against him. It is wrong, however, to propose wrecking the oil market on behalf of the country Saddam has terrorized into submission.

When U.N. Sec.-Gen. Kofi Annan departed for Baghdad last week, he left behind a hand grenade under the oil market. Unsatisfied with humanitarian aid available from oil sales exempted from U.N. sanctions, he wants to hike allowable revenues to $5.26 billion every 180 days from $2 billion at present.

Market turmoil

With prices at recent levels, the proposal would shove 2.2 million b/d into a glutted market, blind to price. Within limits of its production capacity, Iraq could raise volumes to offset whatever damage falling prices did to its U.N.-sanctioned revenues.

Because of the way it's structured, the U.N.'s so-called oil-for-food program thus could create more turmoil in the oil market than anything since the Saudi netback pricing deals that harpooned prices in 1985-86. Is that what Annan wants? If so, he needs a quick reminder of who the bad guy is in this dangerous drama.

There are two things wrong here. One of them is the revenue guarantee in the oil-for-food program. Single-mindedly applying dollar targets, the U.N. lets Iraq export any volume of oil to achieve its goals, regardless of market conditions. That has been a potential problem since the program began in 1996 (see Editorial, Feb. 12, 1996, p. 17). But even last year, when Saddam used humanitarian oil sales to assert sovereignty, suspended exports for several months, then finally produced 2 million b/d to make up the revenues, the market was able to absorb the gush.

That was then. Now, members of the Organization of Petroleum Exporting Countries are playing chicken with production, demand is reeling from the Asian financial shock, inventories are zooming, and crude prices are sinking. What has been just a potential market problem now looks all too real. And Annan wants to more than double its effect.

That's ridiculous. It wasn't oil producers in Kuwait, Texas, Russia, or Saudi Arabia who made the Iraqi people suffer; it was Saddam Hussein. It is Saddam, not oil producers outside of Iraq, who needs to be punished. At the very least, the U.N. should put the oil-for-food program on a volumetric basis and make Saddam face the price risks that the market demands even of participants who do not use profits to sustain regimes of personal privilege and mass terror.

The other thing wrong in Annan's approach is the overextruded humanitarianism that too often characterizes U.N. behavior and too frequently yields perverse consequences. In a Feb. 2 press conference, the secretary-general insisted that there be "no linkage between the discussion of humanitarian issues and the crisis we are trying to contain," meaning the military buildup. No linkage?

"Basically," Annan explained, "what we are trying to do is to improve the calorie intake for the Iraqi population from about 2,000 to 2,450 (calories) per person per day." Those 450 daily calories are a subject Annan might usefully have shoved under Saddam's moustache during his visit to Baghdad. But he acts too absorbed in his program to have worried much about who takes responsibility for what.

Lack of cooperation

In his press conference, Annan noted that the U.N. "did not get the kind of cooperation we had expected from the Iraqi authorities in the preparation of the plans" for the oil-for-food program. So take that, oil producers everywhere but Iraq!

If Annan can straighten up Saddam and keep the U.S. out of a military campaign to which-at this writing-it has shown insufficient commitment, he will deserve international praise and a place of honor in diplomatic history. Through last week, however, his performance, by too blithely penalizing the good guys, had not been encouraging.

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