Clinton administration officials last week defended the United Nations oil-for-aid program for Iraq, claiming it was not deflating the world oil market.
They testified at a joint Senate Energy Committee and Foreign Relations Committee hearing that had been requested by oil-state senators.
The administration currently is supporting an increase in the $5.25 billion worth of oil that Iraq is allowed to sell every 6 months.
Independent U.S. producers have blamed much of the drop in world oil prices on the fact that the U.N. allowed Iraq to increase its output to 2.5 million b/d from 500,000 b/d during the past 2 years under the program.
Policy defendedEnergy Sec. Bill Richardson maintained that raising the ceiling on Iraqi exports would not impact prices significantly.
He said the Energy Information Administration has identified four factors behind the drop in oil prices the last 2 years, and Iraq is only one of them. The others are the Asian economic crisis, warmer-than-normal winters, and increased production from some Organization of Petroleum Exporting Countries members.
Richardson said Iraq's exports of 2.5 million b/d earns it about $3 billion every 6 months, well below the current $5.2 billion ceiling set by the U.N.
"Iraq's ability to increase its production is limited and is not expected to go up measurably this year. As a result, EIA believes that whatever effect Iraqi production has had on prices has already occurred, because Iraq cannot increase oil production much more over the next year or two. EIA believes that increases in this ceiling, under current circumstances, will not have any additional significant price effect."
Richardson said, under U.N. supervision, Iraq has imported $2.75 billion worth of food, over $500 million worth of medicine, and $400 million worth of supplies for water, sanitation, electricity, and education. As a result, the average food ration for an Iraqi citizen has risen to 2,100 calories/day from 1,275 calories in 1996.
Richardson said U.S. support for the program has helped the U.S. preserve the U.N. coalition behind the sanctions. And he said it has proven the U.S. opposes Saddam Hussein and not the Iraqi people.
Richardson said he is working "to alleviate the economic harm that low oil prices have caused to our domestic oil production. But I also believe it is important that Iraq's oil revenues be used to relieve the suffering of the Iraqi people, rather than by Saddam Hussein for his own criminal purposes."
Sanctions structureThomas Pickering, Undersecretary of State for political affairs, said a third of the Iraqi oil revenues are used to pay claims arising from Iraq's occupation of Kuwait and the U.N. costs for the oil-for-aid program. The U.N., not Iraq, controls all the revenues, and a U.N. committee examines all contracts for humanitarian goods.
Pickering said the U.N. is considering increasing the ceiling on oil sales due to "concerns regarding the shortfall in revenues needed for humanitarian purchases."
He added that the U.S. continues to negotiate with Turkey, Jordan, and Syria to encourage them to limit the smuggling of crude and petroleum products from Iraq.
Iran has limited smuggling through its territorial waters "to near zero," said Pickering, and after the U.S. military bombed part of Iraq's Basra refinery last December, smuggling in the gulf has been reduced "to a trickle."
ReactionsSenators strongly attacked the administration's stand.
Sen. Jesse Helms (R-N.C.), the foreign relations chairman, saw no reason to raise the oil sales ceiling.
"According to the U.N. itself, distribution rates are largely under 50%. In other words, plenty of food gets in, it just sits in warehouses."
Helms also said Saddam Hussein was able to smuggle and sell $250 million worth of petroleum products last year for his own personal coffers.
Sen. Frank Murkowski (R-Alas.), the energy committee chairman, said Iraq reportedly is moving 50,000 b/d of oil into Turkey, 50,000 b/d through small ships transiting the Persian Gulf, and 100,000 b/d to Jordan. He said Iraq's latest request for materials under oil-for-aid included $300 million for oil equipment, $409 million for an electricity network, and $120 million for trucks, railway system repair, and construction of food warehouses.
Sen. Don Nickles (R-Okla.) claimed, "The very fact that Iraq is contributing 2 million b/d more into a soft market" has had a large impact on world oil prices.
Sen. Jeff Bingaman (D-N.M.) said the State Department should have considered the domestic impacts of increased Iraqi production, and measures to offset them, before the U.S. oil industry reached its present crisis.
Murkowski said, "We're importing 600,000 b/d of Iraqi crude at the same time we're bombing Iraq. Is Saddam Hussein our enemy or not? We're propping up the regime of a despot."
Richardson disagreed. He said, "The sanctions are keeping those oil revenues away from Saddam Hussein, not propping him up."
He added, "The best way to help the domestic oil industry is to build demand by helping the Asian economies recover."
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