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Compensation and Oil Industry

Below Russia lobbies to reduce Iraq's Compensation Fund payments from 30% of Iraq's oil revenues to 

Note that on 15 August 1991 the SC passed Resolution 705 (S/Res/705, 15 August 1991 
<>).  Resolution 705 accepted the Secretary-General’s 
recommendation that Iraq’s compensation payment should “not exceed” 30% of Iraq’ annual oil 
revenues (para. 2).  Thereafter, the UN subtracted for the Compensation Fund 30% of Iraq’s oil 
revenue <>.   

Before reading the article, please note the following excerpt and thesis:

According to UN Security Council Resolution 687 (S/Res/687, 3 April 1991, paragraph 19) "the 
appropriate level of Iraq's contribution to the fund...[must take] into account[:]

* the requirements of the people of Iraq"

Additionally, "Iraq's payment capacity as assessed in conjunction with the international financial 
institutions taking into consideration[:]

* external debt service

* ...the needs of the Iraqi economy" 

Even though 687 asks the Secretary-General to "develop and present...mechanisms for determining the 
appropriate level of Iraq's contribution to the fund based on a percentage of the value of the 
exports of petroleum and petroleum products from Iraq," (para. 19) compensation payments should not 
be based on a percentage of Iraq's oil revenues.

Given that compensation requirements must consider "the requirements of the people of Iraq", Iraq's 
"external debt service" and "the needs of the Iraqi economy," until Iraq meets the people's 
requirements, makes substantial debt payments and economically recovers, the Security Council (SC) 
ought to altogether suspend compensation payments. 

However, if the "oil-for-food" program is still in place, the SC will not suspend compensation 
payments, and the SC will not fully account for Iraq's economic condition and debt obligations, it 
should still establish a payment threshold based on a sum, not a percentage.  UN and non-UN 
agencies can work together to assess Iraq's actual civilian/infrastructural needs.  Then the 
agencies will calculate how much it will cost (in $US) to sufficiently fund the Program so that it 
can meet those needs.  If, during a given phase, Iraq earns more oil revenue than the threshold 
sum, then the SC can allocate part or all of the remaining revenue to the Compensation Fund.

Currently, the UN subtracts for the Compensation Fund 30% of Iraq’s oil revenue, regardless of 
civilian/infrastructural needs, the condition of Iraq’s oil industry or how little oil revenue Iraq 
may generate.  Iraq has certainly benefited from high petroleum prices, but oil prices fluctuate 
and will eventually drop.  Iraq’s barrels per day production capability and the Iraqi oil 
industry’s condition is the most important revenue generation factor and UN-appointed petroleum 
experts state that barrels-per-day production will decline.  According to the 20 March 2000 “Report 
of the Group of United Nations Experts Established Pursuant to Paragraph 30 of the Security Council 
Resolution 1284 (2000)”  <>: 

“The lamentable state of the Iraqi Oil Industry has not improved.

The level of oil exports during phase 7 will decline from the level of 2.2 million barrels per day 
achieved in phase 6, to a level of between 1.8 to 1.9 million barrels per day.

A further production decline of between 5% to 15% per annum is forecast unless the delivery of 
spare parts and equipment is immediately accelerated.

The oil transportation infra-structure has not been improved during the last two years. 

Insufficient spare parts and equipment have arrived in time to sustain production.

The issues of pollution and safety have not been addressed”. (“Executive Summary, Main Conclusions) 

(Thesis-A. Rahman and N. Hurd)


Russia suggests easing Iraq's reparations burden
August 23, 2000
Web posted at: 11:00 PM EDT (0300 GMT)

UNITED NATIONS (Reuters) -- Russia has floated a proposal to reduce from 30 percent to 20 percent 
the proportion of the proceeds from Iraq's "oil-for-food" sales earmarked for reparations stemming 
from its 1990 invasion of Kuwait, Security Council sources said on Wednesday. 

Russian U.N. envoy Sergei Lavrov was also said to have urged, during closed-door council 
consultations, a review by the council of the operations of the Geneva-based U.N. Compensation 
Commission, which reviews and pays out claims for reparations. 

Under the U.N. "oil-for-food program" that began in December 1996 Baghdad is allowed to sell 
unlimited quantities of oil to buy food, medicine and other civilian necessities to help offset the 
effects on ordinary Iraqis of sanctions imposed after its invasion of Kuwait. 

Since the start of the programme, 30 percent of the proceeds from the sale of Iraqi oil is 
automatically siphoned off into the U.N.-administered reparations fund. 

Lesser amounts are used to administer the "oil-for-food program" and to meet other costs related to 
the Gulf war. This includes scrapping Baghdad's weapons of mass destruction, though U.N. arms 
inspectors have been barred from Iraq for nearly two years. 

The council sources said Lavrov raised the reparations issue informally in challenging a $21.5 
billion claim by Kuwait for lost oil production and sales during Iraq's invasion and seven-month 
occupation of the emirate. 

If the percentage of Iraqi oil proceeds earmarked for reparations was ever reduced to 20 percent, 
the difference would presumably become available to buy more food and other civilian supplies for 
the benefit of Iraqi civilians. 

Russian and French representatives in Geneva have held up a decision by the Compensation Commission 
on the Kuwaiti claim, on which a panel of arbitrators has recommended awarding $15.9 billion. 

Kuwait's claim will be considered again when the commission's governing council, which has the same 
15-nation membership as the Security Council, next meets in Geneva from Sept 26 to 28. 

The council sources said Russia's move for a review of the operations of the Compensation 
Commission was supported by France, China, Ukraine and Tunisia. 

The United States, Britain, Canada and the Netherlands were said to have argued that the Security 
Council should not pronounce on specific reparations claims, which should be left to the technical 
body -- the Compensation Commission -- established for that purpose. 

Russia's moves on the reparations issue represents another front in a campaign aimed at easing 
curbs placed on Iraq since its attack on Kuwait. 

Russia, together with China and France, has been pressing for the easing of sanctions in force for 
the past 10 years. It also campaigns vigorously against "no-fly zones" patrolled by United States 
and British warplanes to prevent the Iraqi army from attacking Kurdish dissidents in northern Iraq 
and Shiite dissidents in the south. 

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, 
rewritten, or redistributed.

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