Iraq Oil Revenue: The Facts Behind the Figures

by Hans von Sponeck

On 20 May 1996, the Government of Iraq and the United Nations signed a memorandum of understanding to cooperate in what has become known as the 'oil-for-food-programme (OFFP). Created to mitigate the effects of the prevailing comprehensive economic sanctions, it took another half-a-year before this humanitarian exemption finally became a reality on 16 December 1996. A life-line for the Iraqi population, it was to be re-newed every six months as long as the sanction regime remained in place.

Initially and until 2000, the OFFP involved the supply of imported food (1) including special targetted nutrition needs for pregnant and lactating mothers and infants, food handling equipment, medicines and medical equipment, civilian public transport, water safety and sewerage treatment supplies and equipment, agricultural inputs and irrigation equipment, electrical machinery and spare parts and educational materials.

In 1999, the severely deteriorating conditions of Iraq's oil industry led the UN Security Council to agree, reluctantly, to the inclusion in the oil-for-food-programme of spare parts for the industry. Similarly, in 2000, the supply of imported building materials was added to the programme because no construction of much needed civilian housing had taken place since the beginning of the Gulf War. The near collapse of the public tele-communication sector also prompted the allocation of funds for repair of telephone lines and exchanges in 2000.

These half-year programmes or phases, as they became known, are prepared for the country as a whole by the Government of Iraq in consultation with the UN representation in Baghdad. Separate negotiations take place between the UN and the local Kurdish administration in the three northern governorates (districts) of Dohuk, Erbil and Suelemaniyah to identify the needs in these areas. This excludes food and medicines which are centrally procured by the Ministries of Health and Trade in Baghdad and distributed throughout the country, including the areas presently under Kurdish administration.

It is important to note here that at its beginning in 1996, the oil-for-food-programme was identified as a supplementary and ' exceptional and temporary measure' (2) to meet the physical needs of the Iraqi population.

An oil-for-food-programme obviously can not meet other essential needs such as those related to employment, self-realization and human dignity or for that matter contribute to the provision of rights as guaranteed by the International Bill of Human Rights.

What does an analysis of the oil income and its use (3) show? The following table includes information not often referred to in public discussions:

Oil Revenue for Iraq (1996-2001) ( $ billion)
1	Total oil sales	50.73
2	Available for contracting	29.59
3	Contracts signed	34.44
4	Contracts approved by the UN Sanction Committee or notified to the Committee	28.33
5	Funds unencumbered (2-4)	1.26
6	Value of all goods delivered to Iraq up to 31 Oct.2001	15.98

The above figures show that the balance of funds that were available at end-October 2001 for contracting humanitarian supplies amounted to only $ 1.26 billion. The UN Secretary General's report in fact points out that if "all the applications…were approved and the holds lifted…(the) account would be short of funds by over $ 6 billion." (5) This refutes the claim often made by the US State Department that the Iraqi authorities are negligent in timely procurement because they do not care for their people.

The table also shows that during the period of 16 December 1996 to 31 October 2001, the total value of humanitarian supplies which actually arrived in Iraq comes to a mere $ 15.98 billion out of the total of $29.59 billion which had been allocated. This amounts to a sobering $ 149 per person per year or 41 cents per person per day if one takes a median population size of 22 million during the five year period. Keeping in mind that these resources had to cover all the sectors identified earlier, the total inadequacy of the oil-for-food-programme is glaring!

Even if the $ 29.59 billion had been utilized in full during this period, the value of the programme would still have been only $ 277 per person per year or 76 cents per person per day. While these aggregate figures in themselves convey a desolate picture, they do not reveal that during the initial three years of the oil-for-food-programme, the amounts of oil revenue allocated by the UN Security Council were only $1.3 billion for each of the first three phases and $ 2.6 billion for each of the following phases 4-6. This means that during the initial three years of the programme the amounts available to meet essential physical needs were even lower than identified for the entire period.

What explains such an inadequate allocation of $ 29.59 billion and the even more inadequate amount of $ 15.98 billion of funds actually utilized? First of all, it must be remembered that the United Nations has never carried out a detailed needs assessment for all the sectors included in the oil-for-food-programme. The initial allocation of $ 1.3 billion per phase was at best determined by a rough guesstimate of needs and not on a careful analysis with macro-financial conclusions. Secondly, the entire sanction regime for Iraq has always been based on punitive rather than on objective measures as foreseen by the UN Charter. Thirdly, under sanctions Iraq's oil industry has not been allowed to make large scale repairs let alone to rehabilitate or modernize itself or to open up new oil fields. To increase oil production beyond 2.0 to 2.2 million barrels per day was simply not possible. Revenue increases were therefore solely a function of oil market prices.

The poor utilization of available funds is explained first of all by the extraordinarily complicated procurement process involved in the trade with Iraq. Foreign and defence ministries in the exporting countries, the respective missions to the UN, the UN Secretariat and the UN Security Council, the Banque National de Paris (BNP), holder of the Iraq oil account, to name just the major entities, are among those concerned with this process. In addition, the Iraq Government openly chooses its trade partners openly on the basis of political considerations. All of this translates, on average, into a six to twelve month procurement period from the moment an item is ordered until the time it arrives in the country.

An additional factor explaining the inadequacy of the oil-for-food-programme is the ever increasing volume of humanitarian supplies blocked by the US Government and to a lesser extent by the UK authorities. At end-February 2002, some $ 5.3 billion worth of contracted goods had been blocked in the UN Sanction Committee by these two governments, either because of their concern that the items could be useable by the Iraqi military or because of alleged lack of technical specifications accompanying the orders. Putting such amounts of needed supplies on hold plays havoc with an entire programme since many of the arrived items depend for their use upon items withheld by the UN Sanction Committee. The large contingent of UN staff in Iraq charged with verification of agreed usage of humanitarian items could do so without difficulty. The fact that the UN staff is by-passed once again shows the punitive nature of the sanction regime victimizing, even life-threatening, the civilian population and marginalizing UN operations.

To complete the picture, the contribution of $ 13.96 billion to the UN Compensation Commission (UNCC) must be mentioned. The UN has taken this amount out of the total oil revenue of $ 50.73 billion to pay for losses allegedly incurred by governments, commercial firms and individuals as a result of Iraq's 1990 invasion of Kuwait. In fact until recently 30 percent of the oil revenue was transferred automatically to the UNCC. It should be emphasized that this amount is only slightly lower than the value of the humanitarian supplies which actually arrived in Iraq during the period under review.

What conclusions can be drawn from such a financial picture?

First of all, the revenue available for the humanitarian exemption has been woefully inadequate, particularly in the early phases of the oil-for-food-programme;

Secondly, compensation payments, justified as they are, should not have started as early as they did and not at the scale applied in view of the human catastrophe which exists in Iraq;

Thirdly, in-depth reviews of physical needs of the Iraqi people after the Gulf War were never carried out nor did a carefully worked out macro-financial framework become available to define minimum funding requirements. Such substantive and financial assessments would have made it more difficult to justify the low financial ceilings which the UN Security Council decided to put on the oil-for-food-programme during the intial six phases. This would have prevented many deaths and reduced suffering;

Fourthly, the various phases of the oil-for-food-programme have seen an ever increasing volume of humanitarian supplies being withheld or put on hold in the UN Sanctions Committee by the US/UK. The current value of $5.3 billion worth of goods blocked constitutes an all-time high and has intensified deprivation;

Fifthly, during the five year period under review, essential supplies amounting to only 54% of the allocated funds have actually arrived in Iraq. This slow arrival of contracted humanitarian supplies is explained by the unnecessarily complicated procurement process, the politicization of trade relations by Iraq and the blocking of contracted humanitarian supplies by US/UK authorities;

Sixthly, low financial allocations for the humanitarian exemption by the UN Security Council , the prevention of the rehabilitation of Iraq's oil industry damaged by war and neglect, the high level of deduction from limited oil income for compensation payments and the blocking of a large volume of humanitarian supplies by the US/UK have contributed significantly to the suffering of the civilian population. They reflect the punitive nature of the sanction measures and show a lack of concern for the welfare of the civilian population which was meant to be shielded from the full impact of economic sanctions.

Notes:

(1)Under sanction regulations, Iraq has been prevented from using oil revenue for the purchase of locally grown food. This has not only increased the cost of the food basket but done severe damage to Iraqi farmers, in particular Kurdish farmers as they traditionally were the producers of cash crops;

(2)See: Memorandum of Understanding between the UN Secretariat and the Government of Iraq dated 20 May 1996;

(3) This refers particularly to UN resolutions 986 of 14 April 1995 and 1284 of 17 December 1999;

(4) Based on the report by the UN Secretary General of 30 November 2001; data covers the period 16 December 1996 to 31 October 2001

(5) ibid, page 2