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Supplement on oil (25/11-3/12/00)


*  Iraq to defend price mechanism, says oil minister
*  Ships refuse to pay Iraqi oil surcharge
*  Iraq strengthens resolve on December oil pricing
*  Iraqi plan threatens winter oil supplies
*  UN says buyers may lift Iraqi oil without price agreement
*  US makes goal to ship 23 mln bbls of emergency oil
*  Oil eases on US and Saudi assurances [small extract]
*  Iraqi oil export suspension looms from midnight [small extract]
*  Iraq: Oil Prices 'Noncompetitive'
*  Iraq halts oil exports [small extract]
*  Iraq Halts Oil Exports as Clash of Wills Continues
*  IEA and US hold the line as Iraq pressures the crude market
*  Why Saddam is flexing his muscles
*  Experts: Iraqi oil move shrewd, calculated
*  'Bully' Saddam theatens to cut off oil supply [small extract]
*  Iraq dispute threatens oil inventories
*  OPEC's Rodriguez says no action planned on Iraq
*  Quick solution to Iraqi dispute unlikely, say diplomats


NEW DELHI, India (AP, 28 Nov) - Iraq does not plan to change its price
mechanism despite a United Nations rejection of Baghdad''s proposal to lower
its oil prices, Iraqi Oil Minister Amer Mohammed Rashid said Tuesday.

``Our plan is to defend our price mechanism ... that we have suggested,''''
Rashid said, reacting to Monday''s decision by the U.N. Sanctions Committee.

Rashid is accompanying Iraqi Vice President Taha Yassin Ramadhan on a
five-day visit to India.

``Our exports in the last few months have averaged around 2.3 million
barrels a day. I am confident of similar levels in December,'''' Rashid

Iraq produces some 3 million barrels of crude oil a day.

The U.N. Sanctions Committee decided Monday that Iraq couldn''t price its
oil below fair market value, as Baghdad had proposed, leading to fears that
exports may be threatened.
The U.N. Sanctions Committee on Iraq agreed with an assessment last week by
U.N. oil experts that the prices Baghdad submitted for December oil exports
were too low and could not be approved.

Iraq needs U.N. approved prices to export its oil each month.

Diplomats at the U.N headquarters in New York said Monday the U.N. oil
overseers would try to negotiate a new pricing mechanism with Iraq''s State
Oil Marketing Organization before the end of the week. Iraq was able to
continue exporting oil last month when its price formula was approved after
the start of the month.

The below-market prices that Iraq submitted are believed to be Baghdad''s
attempt to compensate buyers of its crude for a surcharge of 50 cents a
barrel Iraq wants them to pay into an Iraqi-controlled bank account,
diplomats said.

HoustonChronicle, Nov. 29, 2000

NEW YORK (Reuters): Oil loadings in Iraq plunged Wednesday as customers
withdrew vessels after refusing to pay a surcharge Baghdad is demanding on
its crude exports, oil traders said.

Iraq is demanding a 50-cent-per-barrel surcharge on oil beginning Friday.
The country's State Oil Marketing Organization is not loading vessels that
do not pay the surcharge, oil traders said.

"We had a vessel in the (Gulf) port of Mina al-Bakr, but the vessel was not
loaded by Iraq, so we took it out from the port," one customer said.

Western ships have rejected Iraq's demand on the basis that it would
contravene U.N. sanctions, which limit Iraq's oil sales revenues.

Times of India, 30th November

DUBAI (Reuters): Iraq is fortifying defence of its December crude oil
pricing, making a break in export flows virtually inevitable from Friday.
The United Nations on Monday rejected the pricing as too low.

"Our minister put things very clearly yesterday," an Iraqi oil official told
Reuters on Wednesday. "We are sticking with our original price proposal."

Oil Minister Amer Mohammed Rasheed told reporters in India that Baghdad
would defend its price formulae ahead of a December 1 deadline. At the same
time, Rasheed stressed that Baghdad wanted to avoid an interruption in
export sales of some 2.3 million barrels per day (bpd) under the U.N.
oil-for-food deal.

Iraq has asked the U.N. to extend current eighth-phase oil sales volume from
the six-month tranche's December 5 expiry to January 15 in order to avoid an
export gap.

Industry sources reckon Baghdad still has nearly 80 million barrels of
unlifted crude oil contract volume remaining during the eighth phase. "It is
not our intention to stop exports," the Iraqi oil official reiterated. "But
we submitted the price mechanism and the United Nations rejected it."

The official stopped short of blaming the world body for any potential halt
in Iraqi oil sales under the U.N. oil-for-food programme.

"We don't want to put it that way," he said.

Western diplomats said on Tuesday that Iraqi barrels cannot be exported
without an approved pricing plan, which could cause oil sales to grind to a
halt from Friday.

Customers of Iraqi crude oil are expecting a shortfall in flows in any case
next month, after several lifters reported that oil marketer SOMO had cut
their volumes apparently following the companies' refusal to cough up
Baghdad's newly-imposed 50-cent per barrel surcharge.

"Under these conditions, Iraqi oil is off limits," said a Western oil
executive. "And now we cannot count on Iraqi supply."

The Iraqi oil official said SOMO had not cancelled any crude oil liftings.
He declined to say whether exports in December would continue to run at
current levels.,3604,404858,00.html

by Brian Whitaker, and Luke Harding in New Delhi
The Guardian, Thursday November 30, 2000

A new confrontation between Iraq and the UN has raised the spectre of oil
supplies being disrupted this winter.

Baghdad's aim is to divert about $420m (£300m) a year from the oil-for-food
programme controlled by the UN and put the money directly into the regime's

To that end it is ostensibly cutting its oil price but asking customers to
pay a premium of 50 cents for each barrel into a special bank account in
Jordan, with the implied threat that contracts will not be renewed if they
fail to do so.

The UN sanctions committee has rejected this plan, but talks on an
alternative mechanism are continuing.

In the absence of an agreement this month, legitimate oil supplies from Iraq
- which currently exports more than 2m barrels a day - could begin to dry

Some western diplomats believe Iraq is bluffing and would not, if it came to
the crunch, be willing to halt oil exports for the sake of gaining more
control over the money. But because prices in the petroleum market are
currently high, Iraq has accumulated a cash cushion of around $11bn that
would allow it to withstand a period without exports. Last night, Iraq and
India announced a deal which Iraq's vice-president, Taha Yassin Ramadhan,
hailed as a sign that the UN embargo against Baghdad had lost its meaning.

"We will sell oil to any country which wants to buy it," he said on a visit
to New Delhi.

Under the agreement Iraq will increase its oil supplies to India and India
will export surplus wheat to Iraq and help Iraq to upgrade its oil
refineries and explore its oilfield at Tubah in the south.

It is believed that the deal is a fixed-price commitment for at least 20


UNITED NATIONS (AFP, 30th November) - - With the world facing an imminent
halt to Iraq's oil exports, the UN said Thursday that buyers could take
delivery of Iraqi crude without paying for it until a dispute over the price
is resolved.

The announcement came hours before a reported threat by Iraq to halt daily
exports of about 2.3 million barrels of oil was due to take effect at 2100

Diplomats said Iraq had asked the UN to price its oil below market rates in
order to absorb a surcharge which it has reportedly asked customers to pay,
in breach of UN sanctions.

"At at this point there is no agreed pricing mechanism for the month of
December for the sale of Iraqi oil," UN spokesman Fred Eckhard said.

"However, loadings of oil can continue without a pricing mechanism but until
there are UN approved prices, no payments can be made for the oil lifted,"
he said.

"Once there is an agreed pricing mechanism," he said, "payments including
for the oil already loaded can resume into the UN-controlled Iraq escrow

The account contains revenue from Iraq's oil sales, 66 percent of which is
available for imports of necessities under the oil-for-food programme set up
by the UN four years ago to alleviate the impact of sanctions.

The authoritative Middle East Economic Survey (MEES) said Iraq intended to
halt its oil exports from midnight Baghdad time (2100 GMT) on Thursday
unless buyers agreed to pay a surcharge of 0.50 dollars a barrel.

Revenue from Iraq's oil exports is expected to exceed 10 billion dollars in
the current 180 day phase of the oil-for-food programme, which ends on

But MEES noted that there is more than 11 billion dollars in the escrow
account with BNP Paribas bank in New York, and said the financial cushion
enabled Baghdad to talk tough.

World demand for oil is currently 76 million barrels a day, but the market
is tight and some analysts believe that if Iraq turned off the taps, the
price of oil would soar.

MEES quoted the Iraq State Oil Marketing Organisation (SOMO) as telling
clients that the surcharge must be paid into a bank not controlled by the
United Nations.

UN officials and diplomats said that would violate the sanctions which the
world body imposed on Iraq after it invaded Kuwait in August 1990.

Iraq has not notified the UN about the surcharge, and diplomats said it
would be rebuffed if it did so.

But they said the surcharge was apparently disguised in SOMO's proposed
December pricing formula, which it sent to the sanctions committee on
November 22.

Eckhard recalled that on the same day, the UN oil overseers advised the
committee that SOMO's proposals did not represent fair market value.

The price of oil on world markets fluctuates constantly. When Iraq submits
its monthly pricing formula, it asks the UN to sell its oil at a fixed
discount below the fluctuating price of benchmark oils.

Iraq has two main types of crude, known as Basrah Light and Kirkuk, which
are sold on three main markets: Europe, the United States and the Far East.

UN officials said that the proposed price of Basrah Light on the European
market for December was 4.55 dollars below the price of Brent North Sea oil,
compared with 4.10 dollars for the first half of November.

The price of Kirkuk crude proposed by Iraq was 3.50 dollars below Brent,
compared with 3.30 dollars in November, they said.

Hoover's, November 30, 2000 18:02
by Tom Doggett

WASHINGTON, Nov 30 (Reuters) - U.S. Energy Secretary Bill Richardson said
Thursday the Clinton administration has reached its goal of shipping 23
million barrels of emergency oil from the Strategic Petroleum Reserve by the
end of November.

The department actually surpassed its goal, delivering 23.207 million
barrels of the crude to energy companies in an effort to boost oil product
supplies this winter.

The total includes a final 450,000-barrel shipment that was scheduled for
late on Thursday.
"We beat the clock and we are waging a fight with Old Man Winter, and we are
winning," Richardson said.

The shipments are part of the Clinton administration's plan to loan 30
million barrels of emergency oil to energy firms, who will then refine the
crude into heating oil and other petroleum products.

The remaining 7 million barrels of reserve oil will be shipped in December,
as scheduled, Richardson said.

BP Amoco has received the most deliveries of reserve crude - 6.151 million

The other companies that have taken the government oil are Marathon Ashland
(4.655 million barrels); Hess Energy Trading (4.435 million barrels); Equiva
(2.507 million barrels); Morgan Stanley Dean Witter (2.009 million barrels);
Vitol (1.803 million barrels); Elf Trading (975,000 barrels) and Valero
Energy (672,000 barrels).

Most of the shipped oil has come from the reserve's West Hackberry site in
Louisiana, which holds "sweet" crude that is easier for refiners to process
because it contains less sulfur.

The U.S. may have to dip into the emergency stockpile again.

Richardson said the Clinton administration was ready to tap the U.S.
reserve, if necessary, to counter a cut-off in Iraqi oil exports.

Iraq has threatened to halt its exports of crude oil if the United Nations
does not accept a new price formula for the country's December oil

"We're ready to do it quickly," he said, when asked how fast the Energy
Department could move the emergency stockpiled oil into the market.

It would take about 15 days to get the oil out of the reserve and into the
market, according to the department.

by David Buchan and Gillian O'Connor, Mining Correspondent
Financial Times, December 1 2000

Oil prices in New York and London eased on Thursday after assurances from
the US and Saudi Arabia that they would act to counter any halt to Iraqi

On the New York Mercantile Exchange, January crude was trading at $33.82 a
barrel by the close, having hit a high of $35.10.

In London, January Brent was down 80 cents at $31.88.




By Thursday, most ships that had been queueing for oil at Iraq's outlets
Mina al-Bakr on the Gulf and Turkey's Ceyhan terminal had turned away.

The Iran Seva and the Sea Song were expected to finish loading Kirkuk crude
from Ceyhan later on Thursday evening.

A customer still hoping to start loading Basrah Light crude at Mina al-Bakr
on Friday said it had been informed that no oil would be available.

Iraq's oil marketer SOMO has provided no loading programme for December and
most of its customers already have found alternative supplies.

Iraq pumps about 2.3 million barrels daily, 5% of world exports.


The Associated Press, Fri 1 Dec 2000

BAGHDAD, Iraq (AP) ‹ Iraq has decided against raising its December oil
prices because an increase would make its crude oil ``noncompetitive,'' the
official Iraqi News Agency quoted an Oil Ministry spokesman as saying

Iraq's decision came a day after the U.N. sanctions committee said oil
companies can continue loading Iraqi crude onto tankers beyond Friday, but
cannot pay for it until Iraq proposes prices for December that are in line
with fair market value.

The U.N. committee's decision left oil companies uncertain about whether to
continue to fill their tankers after the start of the new month without
knowing when they may be able to sell the oil on the market.

``Iraq is concerned about its wealth and the interest of its people, and
whether the oil is Iraqi or of other nationalities it should be related to
the market and subjected to its conditions,'' said the unidentified Oil
Ministry spokesman. ``Therefore raising the prices of Iraq's oil makes it

The spokesman told INA that raising the price of Iraqi crude would deter
buyers, and said any negative effects from not increasing the price will be
blamed on the Americans and Britons in the committee.

Iraq has been under sanctions since 1990 and needs the sanctions committee
to approve its proposed prices to export oil each month. Last week, Iraq
submitted prices that U.N. oil experts determined were too low ‹ and the
committee rejected them.

``The Iraqi Oil Ministry calls for a dialogue with the buyers and we hope to
make them understand the facts ... otherwise Iraq is determined not to
relinquish its rights,'' said the Oil Ministry spokesman.

Iraq's low price offer was believed to be an attempt to compensate buyers
for a surcharge of 50 cents a barrel which Iraq wants them to pay into an
Iraqi-controlled account. Companies appeared to be unwilling to pay the
surcharge since it would be a violation of the U.N. sanctions, imposed 10
years ago following Iraq's invasion of Kuwait.


The Times, 1st December

The price of crude rose above $32 a barrel today, as Iraq halted oil
shipments amid a payments row with the United Nations.

A barrel of North Sea Brent reference crude pushed up as high as $32.19,
compared with $31.88 at Thursday¹s close.


by William Drozdiak
Washington Post, Friday, December 1, 2000

BRUSSELS, Dec. 1 ­ In a clash of wills with Western powers, Iraq halted all
oil exports today after demanding that buyers of its crude must pay a
surcharge into a government account rather than deposit all money with a
United Nations program that provides food and medicine in exchange for oil.

Baghdad's latest bid to undermine the U.N. sanctions regime, which was
imposed 10 years ago after Iraq's invasion of Kuwait, appeared timed to
extract maximum leverage from a tight world oil market. It comes as the
United States and other Western industrial nations confront the cold-weather
season with some heating fuel stocks at record lows.

Shippers reported that oil deliveries had stopped late Thursday at Iraq's
two key outlets, the Persian Gulf port of Mina al-Bakr and the Turkish
outlet at Ceyhan. As the Middle East's third-biggest producer, Iraq has been
selling about 2.3 million barrels a day ­ roughly 5 percent of the world
market's supply ­ and traders warned that any prolonged suspension could
trigger new upward pressure on oil prices. In London, the benchmark Brent
crude price rose above $32 a barrel, bringing its gain this year to 26

The Paris-based International Energy Agency, which is responsible for
supervising oil stocks among 24 industrial nations, said it was prepared to
take emergency action to coordinate the release of strategic petroleum
reserves in order to keep markets supplied and thwart a further price spike
that could deliver a blow to the weakening global economy.

Robert Priddle, the IEA's executive director, appealed for calm and said
"the importance of this development should not be exaggerated." He said the
suspension in Iraqi exports could be compensated by the release of emergency
inventories or by other major producers, notably Saudi Arabia, picking up
the slack and putting more oil on the market.

"The Saudis, in particular, have said they will make good any loss of
supply, and we would look first to them to do that," Priddle said.

With other large producers pumping flat-out to take advantage of high prices
and heavy world demand, Saudi Arabia is believed to be the only country with
enough excess capacity to plug the gap left by Iraq. Saudi oil minister Ali
Nuaimi said in a recent interview that his country could bolster output by
1.8 million barrels a day within three months if circumstances warranted.

But analysts say the Saudi royal family has been loathe to be perceived as
doing the West's bidding at a time when the Palestinian uprising against
Israel's military occupation has sparked a surge of anti-American resentment
across the Arab world because of what is seen as Washington's indulgent
support of the Israeli crackdown.

"Right now the attitude of the Saudi leadership is likely to be very
cautious," said Mehdi Varzi, director of oil research at Dresdner Kleinwort
Benson in London. "The Saudis will probably make the case that it would be
more politically acceptable for the United States and other Western
countries to release their strategic reserves rather than have them come to
the rescue."

While the market is acting rather nervous with the approach of winter, given
the low stocks of heating fuel and predictions of trouble for the global
economy, Varzi and other experts say Western governments could minimize the
damage if they do not break ranks and engage in panic-buying.

But they noted that Iraqi dictator Saddam Hussein has managed to transform
his case for lifting sanctions into a major international issue by taking
advantage of the protracted uncertainty of the U.S. presidential election,
the anxieties manifest in global stock markets, and the absence of any early
resolution of the Israeli-Palestinian conflict.

"Iraq could emerge as one of the world's biggest headaches in the coming
year," Varzi said. "With emotions running high in the Arab world and the
United States not thinking much about foreign policy these days, Saddam
seems to be trying to push the world into a major crisis involving oil and


by Matthew Jones
Financial Times, December 1 2000

Promises from the International Energy Agency and the US government that
strategic stocks would be released if needed turned the crude oil market
negative in London afternoon trading, despite Iraq fulfilling its threat to
cease exports.

By 1540 GMT, gains of over 40 cents on the January Brent contract on the
International Petroleum Exchange had been reversed, leaving the contract 6c
lower at $31.82 a barrel.


Analysts said that while Saudi Arabia and other members of the Organisation
of Petroleum Exporting Countries had the capacity to make up the shortfall,
there could be a delay in this reaching the market. The IEA noted some major
oil producers hold stocks close to big consumer markets.

"There will not be a major shortage [of crude oil] but the timing of
delivery will be affected which could mean that prices go up by 50 cents to
a dollar a barrel in the short term," said Manouchehr Takin, a senior
analyst at the London-based Centre for Global Energy Studies.
Iraq exports some 2.3 million barrels of oil a day, about five per cent of
world demand. Under the oil-for-food programme oil revenues go directly to a
UN-controlled account in New York where it is used for approved humanitarian
goods purchases.

by MARTIN SIEFF, UPI senior news analyst

WASHINGTON, Dec. 1 (UPI) - It was only a matter of time before an
increasingly confident and aggressive Iraqi President Saddam Hussein made
his first bold move back onto the world stage.

Now he has done so. And there will be many more where that one came from.
Saddam made that move Thursday, when he boldly turned off Iraq's oil
production and world exports -- a full five percent of the global total. The
Iraqi leader cited as his justification --or excuse -- the refusal of his
customers to pay a 50 percent per barrel surcharge that he had imposed on
them because of continuing United Nations embargoes.

Saddam seems to have chosen his moment well, both in diplomatic and business
terms. World oil prices remain high --around $30 a barrel. They would have
gone much higher if Saudi Crown Prince Abdullah ibn Abdulaziz al-Saud -- the
man Saddam is said to regard as his most serious foe in the Arab world --
had not used the Desert Kingdom's crucial role as "swing" producer for the
world market to stabilize oil prices recently by boosting production.

Winter is coming in the Northern Hemisphere, and it promises to be a colder
one than usual in both Western Europe and North America. Reserves of heating
oil, especially in North America, are unusually low. Also, the United States
appears to be in a state of political paralysis, until the dispute over the
Florida vote count is finally resolved and a new president is finally

Saddam also knows that the next U.S. president still looks likely to be
Texas Gov. George W. Bush, the son of the man who organized the
international coalition against him and masterminded his greatest
humiliation: defeat in the 1991 Gulf War. At least three of the top
officials who worked closely with President George H.W. Bush to defeat
Saddam and drive him out of Kuwait in 1991 are expected to hold top posts
with Gov. Bush too if he moves into the White House on Jan. 20.

Gen. Colin Powell, the former chairman of the Joint Chiefs of Staff, is
expected to be Gov. Bush's first pick as secretary of state. Former
Secretary of Defense Dick Cheney will be Bush' s vice president if his
victory is confirmed. And former Undersecretary of Defense Paul Wolfowitz is
widely viewed as the next Director of the CIA in a "Bush II" administration.

Saddam may in part be making his move now rather than in a few weeks to take
advantage of a politically crippled President Clinton during his lame duck
period -- before a more aggressive, energetic, new and potentially more
threatening Bush administration takes over to confront him. It is also
striking that Saddam delayed his moves on the oil price until well after the
actual Nov. 7 presidential vote. Had he taken this action before then, he
knew he would have risked putting the failures and shortcomings of Clinton's
Middle East policies -- especially on Iraq -- into the foreground and
increased the odds that Bush would win the election.

But the biggest factor behind Saddam's bold move does not appear to be
political calculations about possible U.S. responses or the lack of them-or
even the prospects for pushing global oil prices way up-although that latter
point certainly must figure high on his agenda. The Israeli-Palestinian
conflict that has raged over the past two months has demolished U.S.
diplomatic influence in the Middle East, probably reducing it to a lower
level than at any other time in the past quarter-century. And Saddam has
taken full advantage of it. He has now effectively broken out of the
long-crumbling "box" within which U.S. leaders have long claimed to contain

Saddam is now improving his relations with -- and influence on -- Syria and
Jordan, both of whom are ruled by inexperienced young new leaders who have
good cause to fear him. He is a popular hero again throughout the Arab world
for the first time since his shattering 1991 defeat, as he calls for holy
war and mass mobilization to support the Palestinians against Israel.

On Thursday-the same day Saddam announced the halt in oil production-his
longtime, trusted top lieutenant, Deputy Prime Minister Tariq Aziz, visited
Damascus to boost trade and other ties. The two countries pledged to double
their current trade to around $1 billion a year.

That kind of improvement in relations would have been inconceivable when
tough, suspicious old President Hafez Assad was alive. He was Saddam's
greatest political enemy in the world for 30 years, presiding as he did over
a proud and fiercely hostile regime that challenged Saddam's lifelong desire
to be the true, "orthodox" champion of the principles of the Ba'ath Party.

But Hafez Assad died earlier this year, and his inexperienced young son and
successor, current Syrian President Bashar Assad., looks unlikely to be able
to keep the influence and power of more populous, militarily superior and
wealthier Iraq out of his country the way his father did. Saddam is also
making the most of improved relations and influence with Jordan. Young King
Abdullah II is more forceful and appears to be more able than Bashar Assad.
But he too understands the need to deal carefully and respectfully with

On Friday, a Jordanian airliner returned to Amman from Baghdad after
carrying passengers on the first roundtrip flight in a decade. It was
officially described as a humanitarian mission, carrying medicine and other
aid to Iraq. But the widespread sense was that this description was just a
sop to the United States, while the flight in fact marked the resumption of
commercial air links in defiance of U.N.-imposed sanctions.

Saddam almost certainly also enjoys the tacit support of China and
Russia-the two Eurasian giants that have openly displayed their close new
strategic partnership aimed at rolling back U.S. influence. When Aziz
visited Damascus Thursday, he was on the way home from high-level
consultations with Russian and Chinese leaders in Moscow and Beijing over
the past week. Aziz held talks in Moscow Wednesday. It appears inconceivable
that he and Saddam would have risked losing the support of Russia by
stopping their production without clearing it with the Kremlin first.

Also, a new Iraqi "oil shock" that boosted global oil prices would be
welcome news to the Russian government of President Vladimir Putin.

The partial economic recovery that brought him to the presidency and fueled
his popularity over the past year owed more to increasing revenues from
Russian oil exports than to any other reason. Russia can only benefit if the
Iraqi move propels global energy prices higher again.

Saddam's bold oil move may well succeed. But even if it does not, he is
likely to take more aggressive steps after it. He faces a preoccupied and
disorganized U.S. government distracted by a prolonged domestic crisis, and
he enjoys growing popular support and serious influence around the Arab
world with two global powers -- Russia and China -- which are sympathetic to
his aims. That's not a bad position for a man who was supposed to be a
failure, a loser and a global pariah.

by Joseph Boris

WASHINGTON, Dec. 1 (UPI) -- Iraq's self-imposed oil embargo and its latest
challenge to international sanctions was shrewd and calculated, but the
world has prepared -- and this casts doubt on whether the move will succeed,
energy analysts said Friday.

Markets supported that contention: The price of benchmark Brent crude in
London closed at $31.40 today, 48 cents per barrel lower than Thursday,
after rising in early trading.

The market reaction demonstrated confidence among traders that even with the
onset of cold weather, North America and Europe are poised to absorb the
disruption Iraq is seeking. A United Nations panel on Monday rejected an
Iraqi bid to get consumers to pay a 50-cent surcharge directly, rather than
into an escrow account as demanded by the U.N. oil-for-food program that
allows Baghdad to export crude oil and spend the profits on humanitarian

Analysts said it was unclear what specific goal the Iraqis had in mind in
cutting off shipments to its two export terminals - in Ceyhan, Turkey, and
the Persian Gulf port of Mina al-Bakr - but Iraq's long-term effort to get
the U.N. sanctions lifted has been factored into the expectations of world
leaders and oil traders for some time.

"There's no surprise factor here," said Antoine Halff, a New York-based
analyst with the Energy Intelligence Group, noting Iraq's recent success in
challenging the sanctions by accepting flights from abroad and opening an
oil pipeline into Syria.

He said Iraqi President Saddam Hussein was taking advantage of increased
Arab unity in support of the Palestinian uprising against Israel, by forcing
a showdown with the West over the sanctions imposed after Iraq invaded
Kuwait in 1990. On Thursday, Iraq again rejected calls to allow new U.N.
inspections to determine if it has resumed acquiring weapons of mass
destruction; a previous U.N. team left the country in December 1998 when
Iraq stopped cooperating with the inspectors.

"There are the usual divisions within the (U.N. Security) Council, and by
making them confront this issue now, the Iraqis may just be trying to
pressure the council to agree to some more moderate changes to the sanctions
regime," Halff said.

Iraq is the world's No. 2 producer of crude, after OPEC [? ­ PB], whose 11
members include Saudi Arabia and Iran, the two largest producers in the
Middle East. Iraq currently exports 2.3 million barrels per day, about 5
percent of world trade.

But analysts said assurances Thursday from U.S. Energy Secretary Bill
Richardson that the United States is prepared to dip into its Strategic
Petroleum Reserve, and probable production increases by Saudi Arabia, would
enable consumer nations to weather the effects - at least in the short term.
The head of the International Energy Agency, Robert Priddle, said Friday
that the Paris-based group was ready to call on its 25 member countries to
draw down oil from their strategic reserves in order to stave off the
consequences of Iraq's cutoff.

"Major oil producers have declared their readiness to act to meet any
serious shortages," Priddle said.

Under the oil-for-food program Iraq, is required each month to submit
proposed prices for its crude to a U.N. panel of oil market experts from
various countries. On Monday the Iraqis put forth a plan for December
shipments whereby its customers would pay into the U.N. escrow account a
per-barrel price that was 50 cents below market value, to compensate the
buyers for a surcharge paid directly to Iraq that Baghdad recently began
demanding. The buyers, or "lifters," have balked at paying the surcharge
because it violates the sanctions regime, and on Monday the U.N. panel
refused to accept the Iraqi scheme, prompting the cutoff.

The state-run Iraqi News Agency on Friday quoted an Oil Ministry official as
saying the U.N. committee that oversees the sanctions should consider
revising the regime," otherwise Iraq is determined not to relinquish its
rights and stands by its positions."

"They've thought about this carefully, there's no question about that," said
Shibley Telhami, a senior fellow at the Brookings Institution in Washington
and a political science professor at the University of Maryland. "But it's
hard to know what the short-term effect will be. The extent to which the
market has confidence in the remedy is doubtful, but whether (the Iraqi
move) will be consequential is not clear right now. I assume it's all
watch-and-see at the moment."

Jim Placke, director of Middle East research for Cambridge Energy Research
Associates, said this latest flare-up in Iraq's battle against the U.N.
sanctions could merely be a maneuver to gain greater control over its export
sale proceeds or, more ominously, an implication that it will begin
violating the sanctions outright

"My view is that it's a fairly serious development," Placke said. "The core
issue is the continuation of sanctions and whether they're going to have any

For now, the reaction of Iraq's fellow Arab states to a potential shoring up
of world reserves by the Saudis could determine whether Iraq's
anti-sanctions gambit succeeds.

"The Saudis have to be cautious for political reasons - they don't want to
be seen as overtly taking over Iraq's share of the market, because of the
intense opposition to the sanctions in the Arab world," said Guy Caruso, a
senior energy analyst with the Center for Strategic and International
Studies in Washington.

"In a way, it does not sound like a threat (from Iraq)," he said. "But it's
likely to garner sympathy in the Middle East, and it puts the international
community in a position where it has to act, some way or another."

*  Baghdad is campaigning for an end to the no-fly zones
by Middle East analyst Roger Hardy
BBC, Friday, 1 December, 2000

By Anton La Guardia
Daily Telegraph, Saturday 2 December 2000


Now Saddam is again testing Washington's resolve, trying to exploit
America's distraction to break the international fetters. The Foreign Office
has been fighting a rearguard action. It has leaked details of Iraq's
efforts to develop weapons of mass destruction and stories of human rights
atrocities. It has also told of the diversion of funds to government
officials, releasing a satellite picture of a vast resort for the regime's
cronies known as "Saddam City".

But this propaganda offensive only serves to highlight the difficulty the
West faces in trying to exert real pressure on Saddam - the regime enjoys
the good life while the people go hungry and die of disease. However much
the Foreign Office accuses Iraq of "playing politics" with the suffering of
ordinary Iraqis, the UN sanctions are being increasingly called into


Economic sanctions, far from punishing Saddam, are becoming an Iraqi tool to
isolate the United States and Britain, especially in the Arab world.
Tellingly, the West never imposed the same kind of blanket sanctions which
hit ordinary people against Slobodan Milosevic.

The trouble with the Iraqi situation is that America and Britain have become
prisoners of the sanctions policy. After a decade of embargo it will be
impossible to lift it without giving Saddam an overwhelming political


by Myra P. Saefong,, 2nd November

NEW YORK (CBS.MW) -- Iraq has been making waves in the oil market recently.
But its halt on crude-oil loadings at its ports in Turkey on Friday comes at
a time when demand for crude and distillates hit an all-time, October high,
according to Falih Aljibury, OPEC consultant for Banc of America Securities.

Aljibury hosted a conference call for the brokerage Friday that emphasized
the importance of Iraq's disputes with the United Nations over the last
several weeks.

With technical assistance and the proper equipment, Iraq could "easily
produce" 4 million barrels per day, he said, noting that the country is a
"wild card."

"Iraq is not stable. There are political issues that might cause Iraq to cut
its production," Aljibury said.

However, if "you take 3 million barrels out of this tight market, you can
well imagine what will happen to the price," he said.


Despite OPEC's efforts to raise inventory levels, crude supplies remain at
record low levels and oil prices remain in the mid-$30-barrel level,
Aljibury said.

The cartel has raised its production quota four times this year by more than
3 million barrels per day to virtually no avail.

OPEC has managed its production and it is carefully watching the oil markets
to make sure that its production doesn't exceed the demand of the market,
Aljibury said, which could cause a supply glut in the market and drive crude
prices down.

But total petroleum demand for October averaged about 20 million barrels per
day, a record high for any October in the U.S., Aljibury said.

"Economic activities are high; demand for oil and its products are high;
prices are high, yet inventories are at an all time low."

Oil imports averaged over 9 million barrels per day -- a record high for
October and refinery output averaged over 15 million barrels a day, a record
for any October, he said. Yet crude oil stocks totaled "only" 283 million
barrels in October -- that's below the same time of last year, he said.

"Fuel-oil demand has been about 4 million barrels per day," he added, "while
the stock has been 50 percent below that of last year."

The market can't get much help from non-OPEC nations. "There is no non-OPEC
production capacity left," he said. "With such prices and such demand,
everybody would want to sell."

"Economic activities are high; demand for oil and its products are high;
prices are high, yet inventories are at an all time low," he said.

Individual, December 2, 2000  4:57pm

OAXACA, Mexico (Reuters) - OPEC President Ali Rodriguez said Saturday the
oil cartel was not planning any immediate reaction to Iraq's decision to
halt crude exports, and any action would depend on the impact on the

Speaking to Reuters in the southern Mexican city of Oaxaca, the Venezuelan
energy and mines minister said he believed there was an excess of oil supply
on world markets despite the decision of Iraq, which provides 5 percent of
the globe's oil.

``There is a surplus of supply to cover whatever deficit occurs at this
moment. Even with this (Iraq), there will not be a significant deficit,''
said Rodriguez, the current president of the Organization of Petroleum
Exporting Countries.

Rodriguez said he hoped the Iraq situation would be resolved soon, and
recalled that the Middle Eastern nation, which dried up exports Friday, was
among the oil-producing countries committed to OPEC's policy of stable

He added that talks Friday in Mexico City with new Mexican Energy Minister
Ernesto Martens had been positive and the government of new President
Vicente Fox had pledged to continue to cooperate with OPEC on supply.

United Nations  | Reuters | 02-12-00


Some oil traders have said they do not expect the disruption to last long,
and crude oil on the New York Mercantile Exchange fell $1.57 a barrel to
$32.25 a barrel by 3:00pm EST.

U.S. Energy Secretary Bill Richardson has said the lost Iraqi supplies can
be made up from industrialised nation's strategic reserves and by increased
output from the world's biggest producer Saudi Arabia.

But it will take at least a month for Iraq's production shortfall to be
offset by increased supply elsewhere, said Jareer Elass of oil consultancy
Oil Navigator. "Although those barrels would more than accomodate the loss
of Iraqi crude, the problem is that that additional volume would be unlikely
to hit the market for at least a month," said Elass.

The fact that oil flow was stopped at both Iraqi exports points - Gulf
terminal Mina al-Bakr and Ceyhan in Turkey - also indicates that the
suspension will last longer longer than a few days, UN diplomats and oil
analysts said.

"It's a different situation when Iraq stops (oil exports) from Mina because
there is no storage there," said a Western diplomat. With no storage at Mina
Al Bakr, Iraq's Basrah oilfields will be shut in, and it takes longer than a
few days to bring that back on line, he added.

Suspensions in the past several weeks from Ceyhan were less worrisome
because the Turkish port has a capacity of eight million barrels in crude
storage. UN spokesman Fred Eckhard, confirming that oil exports had stopped,
said that the United Nations has not been informed by Iraq of its intentions
in halting oil flow.

Several diplomats and UN officials said that as long as the United Nations
remains in the dark about Iraq's intentions, there can be no compromise to
restart oil exports. Eckhard also said that UN oil-sale overseers are trying
to get a response from Iraq's State Oil Marketing Organization (SOMO) about
December oil prices for Iraqi crude.

Earlier this week, the UN Security Council Iraqi sanctions committee
rejected SOMO's December price proposals as too low. SOMO low-balled
December prices in an attempt to account for the 50-cent-per-barrel
surcharge on its crude beginning today.

The United Nations said it can allow oil exports without an approved price
plan with buyers to pay into a UN escrow account later. But that is moot for
now, as long as Iraq has closed the oil taps.

Raad Alkadiri of Petroleum Finance Co said that he sees no clear way out for
Iraq or the UN Security Council to the current situation, but the longer the
export halt, the weaker Iraq's position.

"There are two dangers that this will go on long," said Alkadiri. "One is
that it's clear that the Security Council is in no position to make any
concessions to the Iraqis."

"The second is the Iraqis are clearly confident of their position and may be
overestimating the hand they hold in the market. (Iraq) may think they can
stick this out for one or two weeks and the international resolve will
fold," Alkadiri said.

The UN-administered oil-for-food programme has been run in six-month phases
since the programme's inception in December 1996. The current eighth phase
expires Tuesday. The UN Security Council is expected to approve the ninth
phase on Tuesday, regardless of whether Iraq will restart oil exports.

As in the past, diplomats started with a proposed wide-ranging resolution
but will likely next Tuesday approve a stripped-down version calling for six
more months of oil sales largely as is, they said.

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