Wielding the oil weapon

By Salah Hemeid
Oil prices rose slightly on Friday shortly after the international market received a news flash that Iraq had carried out its threat to halt its crude-oil exports from both Turkey's Mediterranean port of Ceyhan and its Mina Al-Bakr terminal at the Arab Gulf.
While the market appeared to react nervously to Iraq's latest challenge to the United Nations over its oil-for-food programme, Baghdad was scoring another point in its decade-long battle with the world organisation to end its political isolation and get the crippling economic sanctions, imposed after its 1990 invasion of Kuwait, lifted.
The Iraqi move came after the UN sanctions committee decided that Iraq couldn't price its oil below fair market value as Baghdad had proposed, apparently in an attempt to bill buyers for its crude for a surcharge of 50 cents a barrel. Iraq wants them to pay the surcharge into an Iraqi-controlled bank account. The committee's decision was in agreement with the assessment of oil market experts that the prices Baghdad submitted for December exports were too low and could not be approved.
Iraq did not announce an official halt of its oil export but a defiant statement by its oil ministry issued late Thursday night accused the American and British members at the committee of blocking exports of its crude by refusing Iraq's new pricing programme. "Iraq is concerned about its wealth and its people's interests. Any pricing of Iraqi oil or any other oil depends on the market and its conditions," said the ministry. "Therefore, the Americans and Britons in the committee are responsible for any negative effects ... and their bad action will rebound upon them," the ministry's statement warned.
Baghdad has apparently timed its move in an effort to extract maximum political gain from the US by causing a maximum disruption in the international oil market. Oil inventories are currently tight, and the United States -- Iraq's chief nemesis -- is preoccupied with efforts to determine its next president. But energy markets seemed to scoff at the Iraqi suspension, as traders anticipated major oil importers would offset any shortfalls in Iraqi crude by pumping oil from their own strategic reserves. United States Energy Secretary Bill Richardson said earlier that Washington would tap the US Strategic Petroleum Reserve to counter any halt in Iraqi exports. Saudi Arabia, the world major oil producer, and Kuwait immediately said that they will boost their output to make up for any reduction in supplies caused by the Iraqi suspension of exports. Soon, January contracts of most kinds of crude plunged 1.12 to 1.30 dollars per barrel indicating that the Iraqi stoppage was a short-term problem and prompting suggestions that Baghdad will eventually back down.
So if the decision to halt exports will not make the eventual downturn in the market, does it make any sense then for Iraq to deprive itself of the badly needed money to buy food and medicine for its citizens? Baghdad, which has begun to break slowly out of its isolation, appeared to have designed the move to bypass the UN oil-for-food programme, launched in 1996 to ease the impact of economic sanctions imposed on the country after the 1990 invasion of Kuwait. Baghdad claims that it has already some 11 billion dollars in the escrow account which the UN has designated to deposit the oil revenues to prevent Iraq from using the money to rebuild its weapons arsenal and it can go several months without exporting any oil. It also complains that the UN sanctions committee is withholding millions of dollars worth of contracts while it takes nearly one third of the revenues to pay for the Gulf war reparations and expenses of the UN operations in Iraq.
Iraq's latest move came amid the intensive diplomatic efforts it has launched to get the sanctions lifted. Deputy Prime Minister Tariq Aziz visited both China and Russia last week to try to convince the two nations, considered Baghdad's closest allies on the Security Council, to help it lift the sanctions. China promised support in ending the sanctions, and condemned US- and British-enforced no-fly zones in Iraqi airspace. Its Foreign Minister Tang Jiaxuan expressed sympathy for sanctions-induced hardships and said that China will continue efforts in the UN Security Council to resolve the issue.
In Moscow, Aziz's next leg, the Iraqi official received similar words of sympathy for the plight of the Iraqi people, but Russia made it clear that Baghdad should cooperate with the United Nations and in particular implement Security Council's Resolution 1284 in order to get the sanctions ended. Press reports later suggested that Foreign Minister Igore Ivanov failed to convince Aziz to accept a modified version of the resolution which Moscow reportedly planned to propose to the Council. Before leaving Moscow Aziz reiterated his government's rejection of the resolution which calls on Baghdad to let the UN weapons inspectors back in Iraq before considering suspending the embargo.
With its new challenge to the Security Council, Iraq is banking on the turmoil in the Palestinian territories, on one hand, and the continuing presidential election crisis in the United States on the other. While the Palestinian uprising has created an anti American sentiment in the Arab world, which supports Iraq's position, the standoff over who will be the next president in the White House helped Baghdad to make further political gains in its efforts to bury the embargo. But as analysts try to look ahead to what the outcome of the Iraqi challenge will be, they caution it is almost impossible to anticipate how events might shape the next steps in the conflict.
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