Joint Hearing Committee on Foreign Relations
Committee on Energy and Natural Resources, U.S. Senate
Wednesday, March 17, 1999

Thank you, Chairman Helms, Chairman Murkowski and other Members of the
Foreign Relations and Energy and Natural Resources Committees for this
opportunity to testify on our Iraq policy. I am pleased to be here
today with Undersecretary Pickering to discuss with you the
"oil-for-food" program and its role within our Iraq policy. I want to
make a few brief opening remarks and then ask Undersecretary Pickering
to amplify the foreign policy context and explain the changes that
have taken place during the life of the program and those that are
being considered.

I know a key concern for the Committees is whether we should raise or
lower the amount of oil Iraq is allowed to export. As Secretary of
Energy, I share the concerns raised in this country over the impacts
of low oil prices on domestic oil production. I recognize there are
those who do not want us to increase the amount of oil Iraq is allowed
to produce because of concern that it will further depress prices.
However, I do not believe that raising the ceiling will have a
significant impact on prices. In addition, I have sought to address
the concerns of our domestic industry through a package of
initiatives. I would be happy to describe these in more detail here if
it would be helpful.

Let me explain why raising the ceiling will not cause a significant
impact on prices. First, I will briefly give context for the effect
the re-introduction of Iraqi oil has had on world wide oil prices. The
Energy Information Administration -- an independent office within the
Department of Energy -- has identified four key factors that have
influenced prices over the past two years. The return of Iraqi oil
exports to the world is one factor. The others are:

1) reduced oil demand as a result of the economic crisis in many
countries in Asia,

2) dramatically warmer than normal winters since 1996, and

3) increased production from some of the countries belonging to OPEC,
particularly in 1997.

Because these factors interact in the world oil market, it is
difficult to state precisely how much of an impact each factor

However, you should be aware that Iraq is currently producing at its
full capacity. Right now, Iraq is producing around 2.5 million barrels
per day. That allows it to export approximately $3 billion dollars
worth of oil every six months, well below the current $5.2 billion
dollar ceiling that has been set by the UN Security Council. Iraq's
ability to increase its production is limited and is not expected to
go up measurably this year. As a result, EIA believes that whatever
effect Iraqi production has had on prices has already occurred,
because Iraq cannot increase oil production much more over the next
year or two. EIA believes that increases in this ceiling, under
current circumstances, will not have any additional significant price

Why should we have the oil-for-food program at all? Because our
oil-for-food program is a key component of the Administration's Iraq
strategy. It helps us in three ways:

First, and most important, the program addresses the humanitarian
needs of the Iraqi people. Although the importation of food and
medicine was always allowed under the sanctions imposed on Iraq after
the Gulf war, Iraq was unwilling to take full advantage of the
program. This allowed Iraq to starve its own people and blame the
sanctions for their suffering. Under the oil-for-food program, we have
taken this excuse away from Saddam -- instead using the proceeds of
Iraqi oil sales to feed, clothe and otherwise aid the Iraqi people.
Iraq has imported -- under UN supervision -- $2.75 billion dollars
worth of food, over $500 million dollars worth of medicine and $400
million dollars worth of supplies for water, sanitation, electricity
and education. As a result, the average daily food ration for the
Iraqi population has risen from 1275 calories a day in 1996 to 2100
calories today.

Second, our support for the oil-for-food program has helped us
maintain sanctions imposed on Iraq by the United Nations.
Undersecretary Pickering will expand on this point, but let me say
that we would have a harder time keeping UN sanctions in place and
enforced without this program, and multilateral sanctions are central
to our efforts to contain Saddam.

Third, our concern for meeting the needs of the Iraqi people has been
crucial in getting Iraq's neighbors to support the actions we have had
to take against Saddam. The United States has always said sanctions
are aimed at the current Iraqi regime, not its people. The
oil-for-food program has been -- and remains -- evidence that we take
Saddam's responsibility to feed his population seriously, even when he
does not.

In conclusion, let me repeat that the oil-for-food program is a key
component of the Administration's Iraq policy, and is, therefore, key
to our national security. I understand the concerns some of you have
about the possible impacts this program has on domestic production. I
share your concerns about our domestic oil industry. We must balance
foreign policy objectives against domestic concerns. But, the best way
to help the domestic industry is to increase demand by helping to
re-build the Asian economy and to lower production costs at home. As
Secretary of Energy, I am determined to do whatever I can to alleviate
the economic harm that low oil prices have caused to our domestic oil
production. But I also believe it is important that Iraq's oil
revenues be used to relieve the suffering of the Iraqi people rather
than by Saddam Hussein for his own criminal purposes. We ensure this
result through the combination of sanctions and the oil-for-food
program. I look forward to working and consulting closely with the
members of these committees on both of these important energy and
national security goals.

Thank you for your attention and I look forward to your questions.