$600m oil protocol with Iraq key weight in Kingdom's economic balances

Published November 2nd, 2000 - 02:00 GMT

Jordanians are looking on with both enthusiasm and anxiety at Prime Minister Ali Abul Ragheb's three-day visit to neighbouring Iraq.  

 

The premier's visit, the first by an Arab prime minister since Iraq's 1990 invasion and occupation of Kuwait, is regarded as the solidification of political ties that have been volatile over the last decade.  

 

The gesture is in tune with the will of the Jordanian street, which has regarded Iraq sympathetically since the UN imposed crippling economic sanctions on the country.  

 

A key item on the official agenda is a review of the annual $600 million oil protocol between the two countries by the Jordan-Iraq Higher Committee — a key weight in the Kingdom's economic balances.  

 

The meeting coincides with rising world oil prices, that have brought niggling worries that the government may not be able to secure the same favourable treatment from Iraq that it has enjoyed for a more than a decade and that has helped keep the price of oil and gas within the reach of a population of modest incomes.  

 

Jordan, reliant on Iraqi crude and derivatives to meet nearly 100 percent of her energy needs, last year renewed its protocol agreement to receive 4.8 million tones of oil (35 million barrels), half of it free and half at a preferential rate, with a ceiling of $19 per barrel.  

 

But, last year's agreement was not struck easily. Talks last December collapsed as Iraq sought a six dollar per barrel price increase commensurate with an increase in crude prices throughout 1999.  

 

The preferential rate has typically hovered around $5 per barrel less than world prices. Today, the per barrel world price of crude, $32, towers over the $19 ceiling.  

 

Officials and economists have worried that any narrowing of the $600 million protocol — which includes a $300 million trade protocol — or any cut in the discount in Jordan's oil bill may force the government, at the end of the year, to hike oil prices and would result in substantially widening the Kingdom's seven per cent budget deficit.  

 

Ahead of today's visit, officials in Jordan were reluctant to discuss the prospects of protocol negotiations, although industry experts and economists said there were causes for optimism that Jordan would not be disappointed by the new deal.  

 

“Politics and energy are parallel discussions,” said one energy sector expert who asked not to be named. “According to my estimation, Iraq is looking for more than just increasing its oil income. [Jordan] is taking the issue of Iraq around the world. Iraq can see that [Jordan] wants to help their case, so [the oil protocol] boils down to what's mutually beneficial.  

 

 

“For their own political reasons, [Iraq] is interested in supporting Jordan and the government,” he said.  

 

Jordan has been one of few countries to champion the Arab cause in both the Arab world and Western capitals, calling for an end to a sanctions regime that has gravely punished Iraqi citizens, mostly children, and in the past two months has shored up words with action.  

 

His Majesty King Abdullah during last week's Arab summit in Cairo told Arab leaders in no uncertain terms that the situation of Iraq was a challenge that required “serious attention.”  

 

“Now the time has come to put an end to Iraq's suffering,” he said. “Our nation is no more able to endure the continued suffering nor to accept what is being committed against the Iraqi people in the form of the embargo and the threat to Iraq's territorial unity and sovereignty.” 

 

In September, a Royal Jordanian airbus transported Cabinet ministers, parliamentarians and medical aid to Baghdad in the first humanitarian flight from Jordan since sanctions were imposed, while the Kingdom has requested permission from the UN for the resumption of regular commercial flights between the two capitals.  

 

Earlier in October, Jordan ended its contract with Lloyd's Register, the British firm that monitors Iraq-bound goods in the Port of Aqaba. 

 

Jordan has contended that the Lloyd's inspections have severely crippled the Kingdom's trade with its largest bilateral trading partner, already damaged since the sanctions were imposed a decade ago.  

 

Jordan also was scheduled to begin importing Iraqi sulphur for use at the Jordan Phosphate Mines — a decision taken in spite of US objections.  

 

“For these reasons, I don't think that the prime minister of Jordan is going there for anything less than a protocol that would look favourably on Jordan. I see that it is purely a political decision on behalf of Iraq,” said one senior economist. 

 

In other signs that Iraq was willing to be flexible, observers noted the announcement on Monday by Iraqi Oil Minister Amir Mohammad Rasheed that the country was ready to construct an oil pipeline to the refinery in Zarqa. Rasheed said Baghdad had completed plans for the section of the proposed $350 million pipeline that would lay in Iraqi territory.  

 

“Maybe we will see new terms of the trade protocol,” he said. “It may increase” in favour of Iraq, which has advocated a drastic increase in the protocol — a measure the Central Bank of Jordan has resisted to protect foreign currency reserves and to prevent any widening of the balance of imports and exports.  

 

However, he said, the best that officials can hope for is a deal similar to this year's, still leaving room for concerns about how to cover the costs of the Kingdom's fuel bill.  

 

“If we say [the price] increases per barrel by one dollar a day, and that we import roughly 100,000 barrels per day, then we are talking about $35 million, and this is going to influence the deficit,” the economist said.  

 

It could also threaten the Kingdom's prospects for hoped-for and needed economic growth, and with it, opportunities to alleviate staggering unemployment of 14 per cent.  

 

Officials estimate that this year, the economy could grow at three per cent, although economists in the private sector have criticised the “optimism” of this figure.  

 

The government has committed to not raising the price of oil before the end of this year, but commitments to the IMF and World Bank also compel the Kingdom to rein in the budget deficit, which is likely to mean the rising cost of oil and gas is going to be delivered to the public at one time in a not so distant future.  

 

An IMF team, in cooperation with the Ministry of Finance, is presently reviewing the Kingdom's energy pricing strategy, and early next year is expected to review oil prices in Jordan.  

 

“That [study] helped the government buy time,” said the economist. “But the present prices of oil already command an increase because they are based on 1999 prices. The government [in 2000] chose not to deliver the cost to the consumer.” 

( Jordan Times )  

By Amy Henderson  

 

 

© 2000 Mena Report (www.menareport.com)

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