watching Government Iraqi oil exports still at issue

With Patrick Crow
from Washington, D.C.

Five years after the start of the Persian Gulf war, Iraq again says it wants to talk with the United Nations about the sale of a limited volume of oil.

The U.N. has refused to allow unlimited Iraqi oil exports until the regime of Saddam Hussein destroys its weapons of mass destruction. Iraq has shown no sign that it will agree to that.

But the U.N. has offered to allow Iran to sell as much as $2 billion worth of oil during 6 months to pay for food, medicine, and humanitarian supplies. It renewed and expanded that offer last April.

Impasse

The U.N. offer requires some of the proceeds from the humanitarian oil sales to be used to compensate Kuwaiti victims of the war and assist the Kurdish minority in northern Iraq.

It requires oil exports to be sent through a pipeline across Turkey rather than through the Persian Gulf.

Iraq has steadfastly rejected the offer for limited oil sales, although it has tried to negotiate a better deal several times in the past few years.

It maintains that acceptance of the U.N. resolution would waive important rights of sovereignty. It basically wants the full export sanctions lifted.

Last week, Iraq wrote U.N. Sec. Gen. Boutros Boutros-Ghali that it wanted to talk about the sale of oil. Detailed contents of the letter were not released, and Iraq later insisted it has not changed its position regarding U.N. Resolution 986.

Boutros-Ghali has been urging Iraq to accept the resolution, which does not allow Iraq to negotiate the terms under which oil would be sold-only the implementation. The U.S. and its Persian Gulf war allies maintain they will not accept any changes in the terms.

Price shock

Prospects of limited Iraqi oil exports have periodically sent shock waves through world oil markets, and last week was no exception. All the oil futures markets registered price drops.

For example, the New York Mercantile Exchange's February prices for light crude fell to $17.75/bbl from $18.78 in 1 day, one of the largest declines for crude oil futures since the Persian Gulf conflict.

There is no reason for oil traders to hit the panic button so quickly. Even if Iraq accepts the U.N.'s terms, it still could be months before extra production reaches markets.

But it is oil that members of the Organization of Petroleum Exporting Countries dread. Many of those countries have been struggling to increase-or at least maintain-market share in recent years.

A bigger headache would set in if the U.N.'s trade sanctions were fully wiped out. Iraq has said it is capable of exporting about 2 million b/d, increasing to 3.5 million b/d within 2 years and ultimately 6 million b/d.