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[casi] FCO commentary - trade problems

Greetings to all,

A few  comments on Seb's latest posting to the list.

When I last spoke to the OIP, the problem of lack of funds appears to
remain serious. To what extent this affects the speed at which letters of
credit are opened for purchase orders requires some further investigation.

Part of the failure to deliver goods ordered is attributable to two

1. The Iraqi government import organisations remain unwilling to trust
normal trade inspection and certification procedures, which generally
require inspection at the port of shipment. Most, if not all, cargoes
arriving at Umm Qasr are inspected by Iraq on arrival. There have been a
large number of cargo rejections, either for reason that the goods fail to
meet specification, or because allegedly or actually damaged items have
been refused and not discharged. These count as "non-delivery" under the
OIP system which only certifies or "authenticates" cargo after it has been
discharged and the ship has sailed.

For example, significant quantities of Australian wheat were not delivered
following the dispute between the Iraqi and Australian governments which
received passing mention in previous press reports.

2. The slow pace of ordering, contract approval, and opening of L/Cs makes
normal trade pricing difficult. The Iraqi method of allocating trade quotas
or contracts adds to the difficulty. For example, a trader or broker who
gains a contract for 20,000 MT sugar today may be unable to place a firm
order with a supplier for weeks or months until he has the L/C open in his
favour. Unless he hedged the contract when first awarded, the market price
may move against him and make  it impossible for him to confirm an order to
a supplier and deliver to Iraq without incurring substantial loss. In such
circumstances, the trader may simply default, relying on the goodwill of
the Iraqi government not to pursue him for delivery.

There are insufficient figures available to me to calculate what proportion
of the reported US$ 1.76 billion shortfall is accounted for by such

The US/UK insistence on retrospective pricing of oil purchase contracts
likewise makes it difficult for traders purchasing Iraqi oil, particularly
in a falling market. Contracts may be awarded, but the purchaser may fail
to load.

I am not sure how it is possible to check delays on individual contracts,
but just as a simple example, a equipment for an electricity power plant
arrived in Umm Qasr 2 months ago. The purchase contract appears to have
been agreed 3 years ago. It is difficult to conceive what reason there may
have been to block the contract.

Recent reports indicate that Iraq has stocked up the basic food items,
perhaps a sensible reaction to the US threat of invasion.

Mark Galloway

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