Baghdad may be ready for oil for food compromise

FOR the first time since the imposition of economic sanctions in August 1990, Iraq appears ready to accept a limited sale of oil in lieu of an easing or lifting of the sanctions regime.

Yesterday a seven member Iraqi delegation of technocrats, led by Dr Abdel Amir al Anbari, a former Iraqi ambassador to the UN, opened negotiations at UN headquarters on a package which would involve the sale of $2 billion worth of oil over six months.

The proceeds would be used to buy urgently needed food and medical supplies. And to make this export deal more attractive, the UN has agreed that it could be renewed for an additional six months, raising the level of exports to $4 billion in a year.

According to a source in the authoritative Nicosia based oil journal, Middle East Economic Survey, Baghdad has been compelled to negotiate because of powerful external and internal pressures.

On the international scene, the US and its allies have made it clear that the sanctions regime would not be eased or lifted in the foreseeable future. On the other hand, malnutrition and a lack of basic medical supplies have created strong internal pressures on the regime of President Sad dam Hussein to compromise.

These pressures have been fed by the falling standard of living of ordinary Iraqis who now depend on government rations for 70 per cent of their nutritional requirements. But even rations of rice, flour and oil have failed to provide for the most vulnerable members of the population - babies, pregnant women and new mothers, children under five and the elderly - 20 per cent of whom have been estimated by local UN agencies to be malnourished.

Iraqis were so eager for relief from their dire situation that when it was reported two weeks ago that the government was considering the UN package, popular expectations pushed up the value of the Iraqi currency from 3,000 dinars to the US dollar to 550 dinars. This rise has itself become a factor compelling Baghdad to reach an accommodation.

Thirty per cent of the oil revenues would go to the UN fund to compensate victims of Iraq's invasion of Kuwait and another substantial sum to pay for UN operations in Iraq.

More than half the revenue would be deposited in an escrow, or holding account, and used toe buy food and medical supplies, subject to the approval of the UN committee overseeing Iraqi imports. Supplies would be distributed to the Iraqi population under UN supervision. Fifty one per cent of the oil must be exported through the pipeline crossing Turkey, which would be paid transit dues from revenues.

Baghdad has previously rejected this package on the ground that it violated Iraqi sovereignty but it would appear that Iraq is no longer in a position to say no.

The Irish Times source says, however, that Iraq's acceptance would inevitably drive down the price of oil since none of the major Arab oil exporters (notably Saudi Arabia, which assumed the Iraqi export quota) would be prepared to cut production to sustain the price of crude.

And since the Iraqi oil sale has been defined in terms of income rather than quantity of oil exported, the price would continue to fall until the full $2 (or $4) billion was absorbed by the market, however low the price had fallen.

In the short term, Iraq's acceptance of the UN package would bolster the Baghdad government internally and place Iraq at an advantage over other oil producers by giving it a guaranteed income while the income of the others would be subject to price fluctuations.