News

THE PRACTICAL EFFECT OF THE
IRAQI OIL-FOR-FOOD PROGRAM

By Douglas Scott*

The Markland Group

Note: This paper appeared originally in Disarmament Diplomacy (Issue No. 25, April 1998), a periodical published by the Acronym Institute with headquarters located in London (www.gn.apc.org/acronym).

Despite the fact that it has been operating for many months, there has been very little talk about what the Iraqi oil-for-food program actually means in practical terms. Beyond quoting the bald figures representing the value of oil that can be sold, 2 billion dollars— now increased to 5.256 billion dollars, media reports have offered little else. As a result, there are many unanswered questi ons.

Answers to these questions are presented in the Table appearing at the end of this paper. None of these questions has been dealt with in the media. Nor is the information readily available from the UN. Bearing in mind the fact that the very reason the UN adopted the program was that there was a feeling among the general public that sanctions needed something in the way of humanitarian content, one might have thought that the UN would have been anxious to provide answers to questions such as these and to publish some information as to the meaning of the oil-for-food program in practical terms. Not only has there been no explanatory material published, the UN has been strangely reluctant to divulge information about the oil-for-food program.

Recent developments have made it even more important for the public to have some appreciation of whether the program is generous or only token. Iraq has begun a vigorous campaign to persuade the Security Council to lift the sanctions altogether. Among other arguments, Iraq is making much of the suffering of the Iraqi people (without mentioning the oil-for-food program). Its objective seems to be to divide the Council and isolate the US. As a start, Iraq is hoping to win the support of Russia, China and France.

Support for ending the sanctions is starting to develop in the non-governmental community, at least in the US. The Iraqi American Committee in Los Angeles has launched a "Free Iraq Campaign" in an effort to have Saddam Hussein indicted for war crimes and to get the sanctions lifted.1 Other groups with objectives that include the lifting of sanctions have formed in New York (Iraq Sanctions Challenge) and Chicago (Voices in the Wilderness).2

Another development that is causing more attention to be given to sanctions is the fact that the US appears to be de-emphasizing the military option for dealing with Iraqi problems. It would appear that there are anxious debates taking place within the US Administration on this matter.3 President Clinton recently remarked at a press conference, when speaking of the US military presence in the Gulf, "at some point in the future, I would anticipate some reallocation of our [military] resources."4

It would appear that the US is coming to the conclusion that its critics were correct when they said that the contemplated bombing operations would be useless towards achieving the objective of removing Iraqi obstructions to the inspections.5 In addition, the US may be reassessing the question whether it would be justified under existing UN Security Council Resolutions to launch a military strike against Iraq.6

These developments indicate that there are two opposing forces coming to the fore in relation to the sanctions. There is a campaign to lift the sanctions altogether and at the same time, there is a toning down of the emphasis on military measures which may point to sanctions becoming more important. As sanctions come in for more attention in the coming weeks, it is essential that the public have a more accurate understanding of the strengths and weaknesses of the existing sanctions regime. Vital to this understanding is some reliable information on the practical effect of the oil-for-food program. It is this information that this paper seeks to provide.

The Current Program

The oil-for-food program consists of an arrangement whereby Iraq is allowed to sell a quantity of oil on condition that the proceeds are paid to the UN which will use them partly to pay for food and medicine for the benefit of the Iraqi people and partly for other purposes. In its current form, the program provides that 30% of the proceeds are used to pay compensation for the victims of Iraq’s invasion of Kuwait; about 5% for the inspection expenses of UNSCOM and for certain other UN expenses; and the balance, about 65%, to pay for food, medicine and other humanitarian commodities.

The history of the program goes back to a point shortly after the Gulf War. On 15 August 1991, the Security Council adopted Resolution 706 which provided for the sale of oil to the value of 1.6 billion dollars during the period of 180 days. The program was dependent on Iraqi cooperation, since Iraq would have to produce the oil and would have to be involved in the distribution of the food and medicine. Iraq refused to accept Resolution 706 and three-and-a-half years went by during which Iraq was pressed to accept some alternative scheme.

Eventually, on 14 April 1995, the Security Council adopted Resolution 986 which Iraq, after more months of hesitation, accepted in the latter part of 1996. Under Resolution 986, which is currently in effect, Iraq is permitted to sell oil to the value of 2 billion dollars over a period of 180 days. The first proceeds of the sale of oil were deposited in the UN'’ Iraq escrow account on 15 January 19977. The first shipment of humanitarian commodities entered Iraq on 20 March 19978.

Resolution 986 was intended to provide an exception to the original sanctions resolution, which was adopted by the Security Council immediately after Iraq’s invasion of Kuwait (Resolution 661, 6 August1990). Even before Iraq’s acceptance of the Resolution 986, it was permitted under the original sanctions resolution (661) to import food and medicine without restriction, but since it was prohibited from selling oil, it lacked the foreign exchange necessary to buy these items. Prior to the sanctions, Iraq depended on the sale of oil for 85% of its foreign exchange9.

Under Resolution 986, Iraq is permitted to earn substantial quantities of foreign exchange but with the proviso that the UN collects all the proceeds. The UN deducts 35% for the purposes noted above and uses the balance to buy food and medicine. The decision as to what portion of the funds should be allocated to which particular category of food and medicine is made jointly by the UN and Iraq. The Resolution contemplates "arrangements or agreements" whereby the Secretary General and Iraq settle on a plan setting out the manner in which the funds are to be spent10; this plan later became known as the Distribution Plan.

Resolution 986 stipulated that the program would expire 180 days after its entry into effect unless renewed by further resolution of the Security Council. The program has been renewed twice (Resolutions 1111 and 1143); Phase III of the program is now in effect and is due to expire on 3 June 199811.

The Revised Program

On 20 February 1998, the Security Council adopted Resolution 1153 which extended Resolution 986 for 180 days but altered the maximum value of Iraqi oil permitted to be sold during that period from 2 billion dollars to 5.256 billion dollars. Resolution 1153 provides that it is to enter into effect when a new Distribution Plan has been approved12, which is expected to occur around the beginning of June so as to coincide with the expiry of Phase III. In the meantime, Phase III of the current program under Resolution 986 remains in effect.

Resolution 1153 recognized that additional information was needed as to the question whether Iraq had the physical capability to produce and export the quantity of oil authorized in the Resolution. The Secretary General was therefore requested to dispatch a team of experts to Iraq to survey the condition of its machinery and equipment for producing and transporting oil13. On 15 April 1998, the team'’s reportwas, submitted to the Security Council with a letter from the Secretary General14. The report concluded that Iraq’s machinery and equipment for producing and transporting oil was so dilapidated that it was in no position to export more oil than its current level of exports. The document goes on to advise that, with an expenditure of 300 million dollars for repairs and refurbishment, it might be possible for Iraq to export at a level sufficient to yield 4 billion dollars over a period of 180 days. This particular point is not stated explicitly in the Secretary General’s letter or in the accompanying executive summary of the team’s report, but the Secretary General seems to have adopted this conclusion in his recommendations to Council. His letter recommends that Council authorize the expenditure of 300 million dollars for repairs and improvement and that Council adopt the figure 4 billion dollars as the maximum "authorization" for the 180-day period following the expiry of Phase III,15 which occurs on 3 June 1998.16

As of this writing, the Security Council has not yet considered the Secretary General’s recommendaton for an "authorization" of 4 billion dollars. When it does, the Council will decide on two matters. Since it will have received additional information as to Iraq’s needs for producing and transporting oil, the Council will use that information to settle on whether the Secretary General’s figue 4 billion dollars should be adjusted. More significantly, the Council will decide what status this figure should have; it would appear that Council has two options on the matter. It could alter the figure 5.256 billion dollars representing the maximum value of oil that can be sold so as to be read 4 billion dollars (or whatever figure Council settles upon).

Alternatively, Council could leave untouched the figure for the maximum value of oil that can be sold (5.256 billion dollars), but approve a distribution plan that would show 4 billion dollars as the total amount to be spent during the phase covered by Resolution 1153. (The Distribution Plan for Phase III, for instance, is essentially a budget showing the amount to be spent for each of the various categories of foodstuffs, medical supplies and other humanitarian commodities; it is available on the Internet at www.un.org/Depts/oip/dplan/dp.main.htm.) If the Security Council were to select this option, it would thereby be affirming the maximum value of oil sales at a level that takes no account of the information received by Council in the report it had requested — a rather anomalous approach, but it seems to be under serious consideration. By the time this paper appears in print, no doubt the Security Council will have chosen its course.

Is There Anything Left Of The Sanctions?

Two salient facts emerge from the figures appearing in the Table:

By the time this paper is published, the Security Council will have made its decision on the Secretary General’s recommendation referred to above for an authorization of 4 billion dollars. This decisions will likely be made sometime before the expiry of Phase III on 3 June. The decision will either reduce the ceiling in Resolution 1153 to 4 billion dollars (or thereabouts), or it will leave the ceiling at 5.256 billion and merely approve the spending budget at 4 billion dollars (or thereabouts). If the Security Council decides in favour of the second option noted above and accordingly leaves untouched the 5.256-billion-dollar figure, the result will be that, when Iraq is eventually able to refurbish its infrastructure so as to export oil at that level, the value of food that will be available to Iraq would appear to be in excess of its needs. As a result, there will be a substantial surplus to be spent on the purchase of a variety of other items. (2.1 billion dollars, which is substantially more than the amount allocated for food.17) If the Council decides in this way, one result will be that, when the time comes to renew Resolution 1153 in December 1998, it will be difficult to reduce the figure 5.256.

Obviously, the revised program, when it comes into full operation, will represent a significant dilution of the sanctions regime. Even with the program at the 4-billion-dollar level, the regime would appear to have significantly less potency than it had when it was first imposed in 1990. The reason is that the key element of the regime is the blocking of oil exports. Some might say that that element will be virtually eliminated once the 4-billion scheme becomes operational. Indeed, some might question whether there will be any real potency whatever left in the sanctions regime. Conceivably, there may be some who argue that the sanctions have been weakened to a point where they are no longer worth keeping afoot. There could be calls to abandon the whole sanctions regime purely on the basis that its benefits do not measure up to the trouble it causes.

Upon closer examination, however, it is apparent that the sanctions regime in its new format has retained much of its former potency. Evidence of its continuing strength is to be seen primarily in the fact that Iraq is currently demanding the permanent lifting of the sanctions. Iraq’s Deputy Prime Minister, Tariq Aziz, in a letter to the Security Council on 22 April 1998 demanded that the sanctions be lifted "immediately and without any new restrictions or conditions".18 On 25 April 1998, one of Iraq’s important journalists, Salah al-Mukhtar, in a front-page editorial, described by Reuters, wrote "we are adamant on breaking the embargo this year if it is not lifted by the Security Council. America and others have to choose between lifting the embargo or storms that are impossible to control, like past events have proven, which will get rid of all the putrid symbols."19

One of the reasons that Iraq finds the sanctions regime so objectionable, even in its diluted form, stems from the fact that, under the oil-for-food program, the UN controls the manner in which most of Iraq’s foreign exchange earnings are spent. The UN insists on approving every contract for the purchase of the humanitarian commodities. Iraq finds this extremely annoying and is making every effort to persuade the UN to relax this requirement. The UN has been engaged in countless meetings and has issued reams of paper reporting on these meetings — all dealing with the objections put forth by Iraq to the procedures adopted by the UN for administering the oil-for-food program. Iraq is obviously annoyed, frustrated and humiliated by the fact that the UN exercises so much control over its daily life.

It must be remembered too that Iraq is losing 35% of the proceeds of its oil sales — the portion siphoned off by the UN mostly to pay compensation to the victims of the evasion of Kuwait.

The conclusion is clear that the sanctions, even with the allowance under the oil-for-food program, are still a potent instrument.

The Nature of Iraqi Sanctions

The sanctions against Iraq possibly differ from other sanction regimes in that the primary focus is upon blocking exports and much less attention is given to blocking imports. The only direct measure to block imports consists of Security Council rulings that require member States to enact regulations to prevent their citizens from selling or supplying items to persons in Iraq or representing Iraq. But there are few border controls to prevent items from crossing into Iraq.

Instead of measures operating directly, imports are targetted indirectly — through blocking exports of oil which has the effect of substantially reducing Iraq’s sources of foreign exchange. Without foreign exchange, a country is unable to pay for its imports, which makes them impossible to obtain unless the country can find friends abroad who are willing to sell on credit or provide loans, both of which are prohibited under the Iraqi sanctions.

Iraq is still able to earn relatively small amounts of foreign exchange by smuggling goods across its borders. Some of these smuggled exports consist of oil, but always in small quantities (except for shipments of diesel oil to Turkey — a problem that should be investigated). Bulk shipments of oil, however, have been blocked altogether. The UN has found it relatively easy to accomplish this, partly by commissioning a naval blockade in the Gulf20 which blocks shipments by tanker from Iraq’s ports on the Gulf, and partly by arranging with Turkey to close the pipelines between Iraq and the Mediterranean. Under the oil-for-food scheme, bulk shipments of oil have started again but under UN control.

A New Breed of Sanctions

With the oil-for-food program in place, the sanctions regime has been transformed. It no longer involves an outright prohibition of oil exports. Instead, the regime now depends on a system of controlled exports, under which 85% of the country’s export earnings are administered by the UN and must be spent in accordance with the requirements of the UN. Under this new version of sanctions, the UN is able to achieve a measure of targeting so that the suffering caused to the general populace is substantially reduced while the political leadership is still saddled with annoying and humiliating controls.

The next turning point in the saga of the oil-for-food program will come in November. The date of expiry for Resolution 1153 is likely to be about the first day of December.21 At some point before December, the Security Council will have to decide what to do about renewing Resolution 1153. A decision will have to be made on the ceiling — the maximum value of oil that can be exported during Phase V. In the period leading up to the time for making that decision, it does not appear likely that Iraq will have the physical capacity to pump more than 4 billion dollars worth of oil, so that that figure will likely be the effective limit until November. But if the Security Council decides in May in accordance with the second option noted above, the approved ceiling will be 5.256 billion dollars. A judgement will then have to be made whether to reduce the ceiling below 5.256 billion dollars or to allow Iraq to escalate to that figure as and when its pumping capacity permits it to do so.

Much will depend on Iraq’s behaviour over the next six months.

* Douglas Scott is president of the Markland Group. Information on the Markland Group can be seen on its web site at www.hwcn.org/link/mkg. Mr. Scott is the author of "Memorandum on the Question Whether Existing Security Council Resolutions are Sufficient to Authorize the US to Take Military Action Against Iraq" published on the Internet in March 1998: www.hwcn.org/link/mkg.index2.html He is the co-author (with Walter Dorn) of "The Compliance Regime Under the Chemical Weapons Convention -- A Summary and Analysis" in Treaty Compliance -- Some Concerns and Remedies, eds.: Canadian Council on International Law and the Markland Group (London, Kluwer Law International, 1998). The views expressed in the paper are those of the author.

1 Iraqi American Committee, P.O. Box 41164, Los Angeles, CA 90041, U.S.A.
e-mail: [email protected] .

2 "Americans, Flouting UN Embargo [sic] Organize Relief For Iraqis", New York Times, 23 April 1998, p. A11.

3"No Time to Tone Down." by Jim Hoagland, New York Times, 23 April 1998. "Pentagon Wants Troops Cut in Gulf," Associated Press, 28 April 1998 quote d on the Internet at http://search.washingtonpost.com/wp-srv/WAPO/19980428.

4 Press Conference, 30 April 1998, reported in Iraq News, 1 May 1998, a newsletter published by Laurie Mylroie: [email protected].

5 For a collection of these criticisms, see "Memorandum on the Question Whether Existing Security Council Resolutions are Sufficient to Authorize the US to take Military Action Against Iraq", Appendix 7, by Douglas Scott; available on the Internet at www.hwcn.org/link/mkg/index2.html.

6 On this point see "Memorandum on the Question Whether Existing Security Council Resolutions are Sufficient to Authorize the US to take Military Action Against Iraq" ;, by Douglas Scott; available on the Internet at www.hwcn.org/link/mkg/index2.html.

7 UN Publication: "Implementation of Security Council Resolution 986 — Chronology" ww w.un.org/Depts/oip/chron.htm.

8 Idem

9 Cambridge Energy Research Associates, Cambridge Massachusetts.

10 Resolution 986, para. 3 and 13.

11 Resolution 1143, para. 1.

12 Resolution 1153, paras. 1 and 5.

13 Resolution 1153, paras. 12 and 13.

14 UN Doc. S/1998/330.

15 UN Document S/1998/330, Annex, paras 27 and 28.

16 Resolution 1143, para. 1.

17 This figure is derived from adding the figures in boxes 3B, 4B and 5B and deducting the total from figure in box 1B.

18 "Iraqi Again Threatens To Halt Arms Inspections.", New York Times, 24 April 1998, p. A3.

19 Quoted in Iraq News a newsletter published by Laurie Mylroie: [email protected].

20 Resolution 665, 27 August 1990.

21 Resolution 1153 specifies that it expires 180 days after entry into force which is likely to be 3 June.