The UN sanctions committee began meeting on October 30th to discuss Iraq’s proposal to conduct all oil transactions in euros, or any European currency, rather than in dollars, and to establish a new escrow account in euros at the Banque Nationale de Paris (BNP) in New York to be used for the deposits of proceeds from the oil-for-food program.
The committee is to consider a ten-page report by UN staff, a copy of which was obtained by Oil Navigator, detailing the implications of the proposed currency swap for the oil-for-food program.
The report found that Iraq would have to reduce the price of its crude oil by around 10 cents a barrel in order to offset conversion costs incurred by its customers, amounting to a reduction in the value of oil of $83 million, assuming current export levels of 2.3 million b/d.
The report also suggested, given that short-term investment rates have generally ranged between 1.5-2 percent lower for Euro investments than for US dollar investments since the inception of the euro, interest income would be reduced and that the oil-for-food program would likely incur additional costs from purchasing humanitarian goods in euros.
In terms of the legality of the proposal, the report found that resolution no. 986 and subsequent resolutions “clearly provide that any oil contract should be reviewed to determine, inter alia, whether the conditions of payment envisaged in the letters of credit ‘are in conformity with the existing market practice.’”
Iraqi Trade Minister Mohammed Medhi Saleh denied on October 30th that the proposed currency conversion would prove costly to Iraq, saying that: “I do not know how they calculate it, but basically it will be cheaper for us to trade in Euros.”
An Iraqi oil official said also on October 30th that Baghdad will continue to accept payment in dollars for the first few days of November, reassuring the markets that Iraq will not follow through on its threat to halt exports for the time being. - (oilnavigator)