Congress critical of UN's current role in Iraq oil revenues

<a href=ogj.pennnet.com>Oil & Gas JournalMaureen Lorenzetti Washington Editor

WASHINGTON, DC, May 15 -- US House congressional leaders Wednesday sharply criticized the United Nations' management of oil revenues under its Iraq oil-for-aid program and called for strong US involvement in controlling future oil receipts.

"I see no need to continue the United Nations' Oil-For-Food Program and to allow the UN to control oil revenues that rightly belong to the Iraqi people, when the UN lacked the will to enforce its own sanctions against a tyrant and thereby liberate the Iraqi people from unspeakable atrocities," said House Energy and Commerce Committee Chairman Billy Tauzin (R-La) at a subcommittee hearing on the subject. "Continuing the Oil-for-Food Program will only guarantee to again enslave the Iraqi people by denying them the only means they have to preserve the freedom they now have."

House Subcommittee Energy and Air Quality Chairman Joe Barton (R-Tex.) said he will send a letter to the UN asking that Congress receives a "full accounting" of the current oil aid program. He acknowledged that Congress does not have the authority to subpoena the UN's records, "but I encourage the UN to fully explain this program that has not been externally audited." Barton has been a frequent critic of the UN program since it was established in the late 1990s as a way to avert the humanitarian crisis that developed in the wake of Gulf War I and subsequent international sanctions.

The US is proposing that the UN begin phasing out the oil-for-aid program over a 4-month period before the current program expires June 3. It also is seeking a detailed resolution that lifts sanctions and protects the interim government from oil revenue claims so oil can start flowing.

US officials say the resolution "will abolish outdated provisions relating to the sale of oil and other goods and facilitate Iraq's ability to trade freely in the international market," according to a Department of State fact sheet.

A "reconstituted" Iraqi State Oil and Marketing Organization (SOMO) will conduct oil sales consistent with international market practices, DOS said. "These transactions will be audited by independent public accountants, who will report their findings to an international advisory board that will include representatives from the UN, World Bank, and IMF (International Monetary Fund). To ensure that the Iraqi people are not penalized because of (deposed ruler) Saddam (Hussein) and can receive the benefits of their national patrimony, oil sales will be immunized against attachment by international creditors or others with claims against the former regime."

US officials are calling for a vote next week, but there is resistance from France and Russia, whose officials say taking such a sweeping action would be premature, given that it is unclear how an Iraqi government will pay existing debt. Some US lawmakers are calling on Iraq's creditors to forgive much of that outstanding debt.

Experts testify Oil experts representing government, academia, and the private sector also testified before the subcommittee.

Robert Ebel, director of the energy program at the Center for Strategic and International Studies in Washington, DC, said a number of interested observers make the interpretation that, under the Geneva Convention, the occupying power has the right to sell the oil and to use the income for the restoration of order and the benefit of the Iraqi people. He also noted that this is not a universally held position. "Not all would agree. Nonetheless, is the United States today an occupying power, having shifted from that of a liberating power? Apparently so, and that means the Geneva Convention can apply."

Ebel added that accepting the role of an occupying power raises an associated question: What is the status of those oil contracts that have been signed with Russia and China? Will they be honored?

"Under international law, it would seem that these rights should be protected in that contract sanctity is maintained in the event of a change in government."

Jim Barnes, research fellow at the James Baker III Institute for Public Policy at Rice University, said that oversight of oil revenue is best handled by multinational agencies such as the International Monetary Fund and World Bank. "The fund will presumably be involved in such critical matters as rescheduling Iraqi debt in any case; the bank will no doubt be called upon to play an important role in Iraqi reconstruction."

The Bush administration proposals call for the UN and the IMF to be part of an advisory board that would have auditing authority over a fund that would serve as a repository for Iraq's oil revenues.

Barnes noted that significant funds remain in escrow accounts under the current UN aid program. "These funds need to be disbursed to pay for emergency aid to Iraq. It might be best to permit the UN to continue managing these funds, on an expedited and transparent basis, until the balance is liquidated." The US proposal before the UN suggests something along those lines.

Testifying on Iraq's role in international oil markets, Guy Caruso, administrator of the Energy Information Administration, said the country is "crucial" to long-term world oil supplies but, in the short term, the market has adjusted to its absence. Despite several disruptions in supply since last November (Venezuela, Nigeria, and Iraq), and low inventories, the prospects for improvements in short-term world oil supply are good over the next several quarters.

He said that analysts assume that as disrupted sources move back toward normal production (now particularly Iraq), the increased production from those areas will be accommodated by reductions in supply from other OPEC producers. "Thus the development of excess supplies that might sharply pressure prices in the downward direction is not expected over the next several quarters," he said.