WATCHING THE WORLD BUYING OIL FROM IRAQ

With Roger Vielvoye from London United Nations Sec. Gen. Javier Perez de Cuellar has taken the first--perhaps the easiest--step toward extracting war reparations from Iraq. The U.N. Security Council has agreed in principle that reparations will come from a charge on Iraqi oil exports once they resume. It asked the secretary general to establish the mechanism for financing a fund from which Kuwait and Kuwaiti companies and individuals will be compensated for war losses.

May 13, 1991

3 min read

United Nations Sec. Gen. Javier Perez de Cuellar has taken the first--perhaps the easiest--step toward extracting war reparations from Iraq.

The U.N. Security Council has agreed in principle that reparations will come from a charge on Iraqi oil exports once they resume. It asked the secretary general to establish the mechanism for financing a fund from which Kuwait and Kuwaiti companies and individuals will be compensated for war losses.

He has submitted a lengthy set of recommendations for organizing and administering the fund but has thrown back to the Security Council the hot issue of how a share of Iraqi oil revenues will be diverted to the fund.

DECIDING THE LEVY

The 15 members of the Security Council will make up the governing council of the fund and in this capacity will have to decide the percentage levy on Iraq's oil exports.

At one end of the spectrum, the U.S. is known to favor placing as much as 50% of revenues in the fund, although it might agree to a lower figure if President Saddam Hussein is ousted and a new regime appears in Baghdad.

The U.K. is looking for at least 25% of revenues, a level that finds favor among most of its European Community partners who equate this figure with the amount of money Saddam was spending on arms purchases before embarking on the invasion of Kuwait.

However, Yemen, a long time supporter of Iraq, probably backed by Cuba and India, will want a more moderate figure--certainly not more than 10%.

Even if governing council members can forge a diplomatic solution to this diversity of views, they will still have to agree on the mechanism to divert revenues into the fund.

The secretary general has come up with five options, all of which need to be carefully studied by any company planning to buy Iraqi oil when the embargo is lifted.

The first option relies on Iraq paying the agreed percentage into the fund in dollars based on the value of the oil on the day of export. Payment would be made within 30 days after the crude leaves Iraq.

Another suggestion is an escrow account into which Iraq would deposit in advance lump sum payments based on required quarterly or semiannual contributions. These payments would be reevaluated periodically.

Alternatively, an agent of the fund would take a physical share of exports and sell the oil on the open market.

OTHER OPTIONS

The fund also could be designated as either the sole or cobeneficiary on the bill of lading or other title document and any letter of credit issued. The fund would retain its share of proceeds and send the remainder to Iraq.

Finally, an escrow account, provided with the privileges of a central bank or other international institution, could be the beneficiary on a bill of lading or other title document.

The secretary general also reminds the Security Council that all these options will require cooperation by Iraq and strict supervision of crude and product exports. He suggests that proper monitoring procedures be established.

Whatever action is taken, buying oil from Iraq will be a complex business.