Iraq stops exports in fight for oil revenues

Iraqi oil exports ground to a halt yesterday after Baghdad insisted that buyers of its crude pay a surcharge outside the terms of the United Nations oil-for-food programme.

Shippers said there had been no oil loaded at Iraq's Turkish outlet of Ceyhan or the Gulf port of Mina Al Bakr since late on Thursday, ahead of Iraq's December 1 deadline for the payments.

Turkey said the flow of oil through the pipeline that feeds Ceyhan from Iraq's northern Kirkuk oilfields had been stopped by Baghdad. Iraq watchers said Baghdad was trying to regain direct control over some of its oil revenues as part of its efforts to escape 10-year-old UN Gulf War sanctions.

"This is Iraq's first inroad into trying to chip away at core sanctions, mainly the control over oil revenues," said Raad Alkadiri of Washington's Petroleum Finance Co. Iraq sells about 2.3 million barrels a day under the UN's humanitarian exchange, 5 per cent of world oil trade, and traders said a lengthy outage could put fresh pressure under high oil prices.

International Energy Agency (IEA) Executive Director Robert Priddle said the development "should not be exaggerated." Major oil producing countries had declared their readiness to meet serious shortages and some held significant stocks close to consumer markets, he said.

But the IEA, which controls emergency inventories among 24 industrialized nations, was ready to step in "very quickly" if necessary, Priddle added. Many tankers have turned away empty from Iraqi outlets in recent days. Buyers said Iraq had insisted customers pay the 50-cent surcharge for December oil direct into an Iraqi bank account, in contravention of UN sanctions.

Iraq blamed the UN for the stoppage, saying the world body's rejection of Baghdad's proposals for December oil pricing had prevented customers from loading. "Iraq is determined to stick by its stand and its rights," said a spokesman for the Iraqi oil ministry, quoted by the official Iraqi news agency.

The ministry said it wanted dialogue with UN oil-for-food overseers to convince them of the "realities" of the situation. But the UN, confirming the suspension, said yesterday that Iraq's state oil marketing organization (SOMO) had failed to respond to contacts.

The UN earlier this week rejected Iraq's proposal for December price formulas. Traders said the prices were placed low enough to make room for a 50-cent surcharge. UN rules mean oil sale revenues go straight into an escrow account in New York where Iraqi purchases of humanitarian goods must be approved by a UN sanctions committee.

Diplomats at the United Nations said Iraq's halt of oil exports looked likely to last longer than was expected just a few days ago. "I don't expect a quick solution to this current situation," a Western diplomat said. The UN on Thursday told traders of Iraqi oil that even without a new price
formula they could continue to lift crude, but the world body gave no directions on the issue of the 50-cent surcharge.

Dealers, though, said it was clear that by paying direct into an Iraqi account they would be breaking sanctions. "No one's risked it yet, but that's not to say someone might try it - perhaps someone working for a Russian or Chinese contract holder," said one Iraqi lifter.

Both Russia and China are sympathetic to Iraq's demands for the lifting of sanctions and both countries have Iraqi oil export contracts under the oil-for-food programme. But neither has made any indication that it might be prepared to turn a blind eye to payments direct to Iraq.

Several tankers still were at anchor outside Mina Al Bakr yesterday, some of them working under Russian contracts, but impatient charterers left the Mediterranean port Ceyhan deserted. Iraq's Gulf rival Saudi Arabia, Opec's biggest producer, has said it would step in to fill any significant export gap.

U.S. Energy Secretary Bill Richardson said Thursday that Washington could tap government inventories if necessary. Kuwait said yesterday that Opec was in consultation for possible collective action to counter Iraq's decision to suspend its oil exports.

Kuwaiti Oil Minister Sheikh Saud Nasser Al Sabah said in a statement sent to Reuters that his country "is in consultation with other Opec members to take possible collective steps to limit any negative impact on the oil market due to Iraq's decision."

He did not elaborate and officials among other Opec member countries said they knew of no direct OPEC contacts on the issue yet. Opec's next meet is scheduled for January 17. Analysts however said that Iraq's production shortfall could not be quickly offset by increased supply elsewhere.