While most of the European and Asian end-users are shying away from Iraqi crude at the moment, this is not the case with US refiners, who are buying the overwhelming majority of Iraqi oil exports, MEES learns.
Small nameplate companies are buying the oil from Iraq and selling it to traders who in turn sell it to US firms. The US firms demand a letter from the sellers that no surcharge outside the UN’s jurisdiction is being paid to the Iraqi authorities.
Iraqi oil exports under the oil-for-food program are running at around half their normal average, or approximately 1mn b/d compared to the normal rate of 2.2mn b/d, for two main reasons.
The first is the reluctance of major international oil companies to lift the crude because of the legal complications related to the surcharge (MEES, 29 January).
The second is the approximately $1/B decline in the price of Russia’s benchmark Urals since mid-January, which has left the Kirkuk February price formula over-priced.
Talks are under way between Iraq’s State Oil Marketing Organization (SOMO) and the UN overseers to renegotiate the February price formula to factor in new market developments in the Mediterranean.
However, while this would solve the pricing problem, it will do little to diminish the reluctance of European companies to lift Kirkuk with the surcharge, especially since short-haul Mediterranean prices are much more transparent than those for long-haul Basrah crude.
MEES soundings also indicate that there is no end in sight to the disruption of Iraqi oil exports. A visit to Baghdad last week by the Russian energy minister Alexandre Gavrin underlined the Iraqi political authorities’ determination to stick to the surcharge as another way of eroding the sanctions.
Baghdad was hoping that the Russian minister’s visit would result in Russian companies accepting the surcharge, effectively enlisting the cooperation of a permanent member of the Security Council.
However, the Russians wanted Baghdad to cancel the surcharges since their companies, which normally lift one-third of Iraqi oil exports, cannot market the crude to end-users.
The low-key ending of the visit was seen as evidence of a deadlock on the question of the surcharges.
In related developments:
Iraq and Syria signed last week a free economic zone agreement.
The deal, similar to the one signed with Egypt last month, provides for the two countries’ products to move freely across their border without customs duties or import licensees.
It is expected that Jordan, the UAE and Lebanon will sign similar agreements soon.
The agreements are part of Iraq’s overall campaign to wear sanctions down, since, according to senior Ba'th party member Sa'ad Qasim Hammudi, “the accords are of the utmost importance because they fall outside the oil-for-food program and so contribute to the erosion of sanctions.”
Spain’s Secretary of State for Foreign Affairs Miguel Nadal visited Baghdad last week. Meanwhile, Turkey has upgraded its diplomatic relations with Iraq and sent an ambassador last month, while Venezuela is expected to do the same soon.
Furthermore, Portugal, Austria and Switzerland have reopened their embassies in Baghdad. Norway, the current chairman of the UN sanctions committee, is considering reopening its embassy.
A UN team of experts is scheduled to arrive in Baghdad in mid-February to negotiate with the Iraqi authorities on plans to spend the euro 600mn approved by the UN for expenditures on the oil industry.
The UN team will submit its report to the UN Secretary-General in March, with an announcement on the subject expected in early April.
Reuters reported on 1 February that the Iraqi authorities have been attempting since last December to collect a 10% fee from international firms on import contracts under the oil-for-food program.
The 15 members of the Security Council, who constitute the membership of the Geneva-based UN Compensation commission (UNCC), have failed after two successive sessions to appoint a new chairman for the group.
The US wanted Norway, which heads the sanctions committee, to lead the group – as was the practice in the past when one country held both posts.
However, Russia wants to separate the chairmanships of the two groups. It is expected that a new round of discussions on the subject will start in mid-February.
The World Health Organization plans to study the health effects of depleted uranium in Iraq following a formal request by the Iraqi Government in early January.
(mees)
© 2001 Mena Report (www.menareport.com)
