India may benefit from Iraq move

By Kesava Menon

MANAMA (Bahrain), DEC. 6. India might be one of the major beneficiaries if Iraq succeeds in implementing recent decisions to change the pattern of its oil exports. Firms from Russia and other countries which have been lifting Iraqi oil could find themselves on a black-list and excluded from further trade if they re-sell Iraqi oil to the U.S. or the U.K. and are thus under pressure to look for alternative outlets. If Iraq also exempts friendly countries from a new surcharge that it is seeking to impose on oil sales then much of the 2.3 million barrels per day (bpd) that it produces could flow to India and points further east.

At present over a third of Iraq's oil lands up with the U.S. or U.K. companies. If sales to these destinations are banned there will be over 700,000 bpd available in the market with the holding companies looking around for customers. Since about 40 per cent of India's oil imports are met from the spot market there might be an immediate price benefit from this Iraqi decision. Any benefit on this account will be separate from the benefit accruing from the agreement recently signed for a barter trade between India and Iraq under the ``crude for food'' programme.

Russian and Chinese companies had been supplying 750,000 bpd to the U.S. refineries alone. Iraq has now said that any company found supplying crude to a ``country in a state of war with Iraq)'' will be put on a black-list and that there would be a partial or full ban on dealing with that company along with other punishments that may be decided upon. This is the second decision taken by Iraq in recent weeks to try and cut the benefits that the U.S. derives directly or indirectly from Iraq's oil trade. A few weeks ago Iraq began taking payments in euros instead of the dollars that is the staple of the global oil trade. The U.S. and the U.K. are reportedly not overly concerned about a possible cut-back in supplies of Iraqi crude since Saudi Arabia, Kuwait and the United Arab Emirates have the capacity to make up the shortfall and have given more or less firm assurances that they will do so.

Iraq is trying to get buyers to pay a surcharge, amounting to the euro equivalent of 50 U.S. cents a barrel. The amounts from this surcharge are to be paid into a special fund that is outside the purview of the U.N. sanctions committee. Until now the proceeds that Iraq obtained from its oil exports were paid into a special escrow fund that was closely supervised by the U.N. sanctions committee.

The committees had to approve releases from this fund for contracts under the ``crude for food'' programme. Parts of the proceeds from oil sales are also earmarked for a fund to reimburse the victims of the Iraqi invasion of Kuwait and for the financing of U.N. operations in Iraq including the weapons inspection programme. Iraq's attempt to set up a fund outside the U.N. scrutinising mechanism does not have the approval of the sanctions committee but it is unclear as to how the committee can prevent or punish the violation.

There is some confusion as to whether Iraq will charge a lower base price in regard to contracts where the buyers agree to pay the surcharge into the special new fund. The sanctions committee is reportedly holding back some of the bilateral oil trade contracts that Iraq has entered into recently on the grounds that the price Iraq is charging is too low. Low cost Iraqi oil, at a time when global prices are still riding high, provides consuming countries with a great incentive to by-pass the sanctions mechanism. The companies that have been dealing with Iraq have, however, expressed the hope that Iraq will not impose the surcharge on friendly countries.

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Section  : International
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