Prior to Iraq's invasion of Kuwait in 1990, Iraq was producing over 3 million barrels per day (bbl/d) and exporting 2.8 million bbl/d.
Following Iraq's invasion of Kuwait, Iraqi oil exports were prohibited by United Nations (UN) Security Council Resolution 661.
In April 1995, the UN Security Council passed Resolution 986, which allows limited Iraqi oil exports for humanitarian and other purposes. Iraq actually began exporting oil under Resolution 986 in December 1996.
Proceeds from the program are used to pay compensation for Gulf War victims, pipeline transit fees for Turkey, funding for UN weapons monitoring activities, costs of operating the Iraqi oil industry and paying Iraqi oil ministry employees, and provision of UN-approved goods to Iraq.
In December 1999, with Iraq steadily increasing its oil export revenues, the UN Security Council voted (Resolution 1284) to remove any limits on the amount of oil Iraq could export.
Since 1995, the Iraqi Oil-for-Food program has been extended several times, beginning on December 4, 1997 (the eighth, six-month phase ran through December 5, 2000).
On December 5, 2000, the UN Security Council voted to renew the Oil-for-Food program for another 6 months, but a dispute over pricing formulas (Iraq proposed below-market prices for December oil, with the difference being made up in payments directly to Iraq, outside of UN control) led Iraq to significantly slow its oil exports.
As of December 12, 2000, the dispute had not yet been resolved, with buyers balking at paying Iraq's surcharge demand.
Some Iraqi oil reportedly continued to reach markets, while significant volumes accumulated in storage tanks at the Turkish port of Ceyhan.
In March 2000, the U.N. Security Council agreed to double the spending cap for oil sector spare parts and equipment (under Resolution 1175 of June 20, 1998), allowing Iraq to spend up to $600 million every 6 months repairing oil facilities.
U.N. Secretary General Kofi Annan had warned of a possible "major breakdown" in Iraq's oil industry if spare parts and equipment were not forthcoming.
The United States has said that the $300 million should be used only for short-term improvements to the Iraqi oil industry, and not to make long-term repairs.
Iraq claimed in August 2000 that 508 contracts were on hold or pending approval by the United Nations. Of this total, 440 were "held" by the United States, according to Iraq's oil ministry.
Iraqi officials repeatedly have stated their hopes that U.N. Resolution 986 will lead to a complete lifting of all U.N. sanctions against Iraq.
In anticipation of the eventual complete lifting of sanctions, Iraq already has signed potentially lucrative oil and gas deals with companies from Russia, France, China, and dozens of foreign oil companies from a wide variety of countries have been in discussions with the Iraqi government.
In order for the U.N. sanctions to be lifted, Iraq must meet the requirements of U.N. Security Council Resolution 687 (paragraph 22), which provides that the oil embargo will continue until Iraq meets all U.N. conditions, including destruction of all weapons of mass destruction such as nuclear, chemical and biological weapons.
Over the past several years, repeated Iraqi failures to satisfy U.N. conditions have led to confrontations between Iraq and the United Nations.
On August 5, 1998, Iraq announced that it was suspending cooperation with UNSCOM and its weapons inspectors in Iraq, and on October 31, 1998, Iraq went even further, vowing to cease all cooperation with U.N. arms inspectors and monitors unless the 8-year-old U.N. embargo was lifted.
In late August 2000, a spokesperson for the UN Monitoring, Verification, and Inspection Commission (UNMOVIC) said that it was ready to send a new arms inspection team into Iraq.
UN arms inspectors have been absent from Iraq since December 1998, just prior to U.S.-British airstrikes.
On August 24, 2000, Iraq's Deputy Prime Minister, Tariq Aziz, said that "Iraq will not cooperate" with UNMOVIC, which the United Nations created in December 1999 to replace the former UN Special Commission (UNSCOM) on Iraq.
Under the UN resolution creating UNMOVIC, UN economic sanctions could be lifted if Iraq fulfills various conditions, including cooperation with UNMOVIC.
There have been persistent reports that Iraq has been smuggling significant volumes of crude oil and products (recent reports indicate as much as 300,000 bbl/d, more than three times previous estimates), through Turkey, Jordan, and Syria via truck; through Iran (and onward to Pakistan and India) along the Gulf coast and via Qeys Island off Iran's southern coast; and to Dubai with the use of small tankers sailing from Umm Qasr.
Press reports also have estimated that these illegal shipments may have provided the Iraqi government with as much as $2.4 billion in revenues outside the UN "Oil-for-Food" program.
In April 2000, the U.S. Navy stopped a Russian tanker, the Akademik Pustovoit, which it suspected might be smuggling Iraqi oil.
The United Nations later determined that around 20 percent of the vessel's gas oil cargo (which Shell said it owned) was of Iraqi origin.
Sanctions appear to have eroded significantly in recent months, with several countries (Syria, Iran, UAE, Egypt, etc.) upgrading or reestablishing relations with Iraq.
On August 17, 2000, Saddam International Airport was symbolically reopened, and since then, dozens of flights have landed there despite the official "no-fly zone" over Iraq.
In late August 2000, Venezuela's President Hugo Chavez met with Saddam Hussein, a move that was strongly condemned by the United States.
Meanwhile, on November 20, 2000, Iraq reportedly started oil exports (to Syrian refineries) of 150,000 bbl/d through the Iraq-Syria pipeline, closed since 1982.
As of early December, 2000, the United Nations was considering whether or not to authorize this oil export route as part of the "Oil-for-Food" program.
Iraq reportedly aims to increase oil shipments through this pipeline to 200,000 bbl/d beginning in January 2001. In addition, plans for a new Iraq-Jordan pipeline were announced in early November 2000.
In early November 2000, more than 1,500 companies from 45 countries (including Russia, France, and Germany) attended a trade fair in Baghdad.
Finally, the United Nations agreed on October 31, 2000, to authorize Iraqi oil payments in euros, instead of dollars. Iraq had threatened to stop exporting oil unless this demand was met.
Source:United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)
