Posted on 13-5-2003

No Iraqi Oil Rush
by Hans de Vreij, 9 May 2003

Ever since the outbreak of the war against Iraq in March, the country's oil
exports have been suspended. The fact that hostilities have ceased has
changed almost nothing; virtually no one wants to buy Iraqi oil as long as
a series of questions pertaining to the ownership of the so-called "black
gold" remain unanswered.

The storage tanks for Iraqi oil in the Turkish Mediterranean port of Ceyhan
are full to the brim, but there are no buyers. Likewise, no oil tankers
have been spotted at the Mina al-Bakr terminal, Iraq's sole outlet in the
Persian Gulf. The United Nations Oil-for-Food program, established after
the 1991 Gulf War, has been suspended for the time being. Under that
program, Iraq was allowed to sell a limited amount of oil, the revenues of
which were controlled by the UN and used for specific humanitarian projects
and to repay Iraq's war debts to Kuwait and Saudi Arabia.

New fund

The US has now introduced a draft Security Council resolution that proposes
to end the Oil-for-Food program and to replace it with a so-called Iraqi
Assistance Fund. The Fund would be under control of the US with assistance
from the UN, the International Monetary Fund, and the World Bank. Oil
revenues could be used by the fund to help reconstruct Iraq until the time
a new and internationally recognized Iraqi government is in place.

Given the expected political and legal wrangling over this proposal, it is
safe to predict that normal oil trade with Iraq remains impossible for
quite some time to come. The international law firm Norton Rose represents
major clients in the oil trade. Their leading Dutch energy lawyer Weerto
Koster has advised these clients to remain cautious as long as two key
questions remain unanswered: "Who has legal title to that oil and is
therefore authorized to deal in it and, secondly, to whom should I as a
purchaser pay in such a way that my obligations under the agreement are
relinquished."

The persisting uncertainties over the ownership of Iraqi oil cause an
additional problem, as Mr Koster explains: "Another, very large part of oil
trade, of energy trade, is not in physical products but in financial
products - in derivatives. Futures, options and the like. And that trade is
very risk-averse. It is very difficult to have a proper trade in oil
futures when there is so much uncertainty as to the ownership position of
the underlying physical product."

Non-profit sales

People have been asking if the US and the UK are even entitled to sell
Iraqi oil. But a binding treaty that - although almost a century old - is
still very much in force answers this particular question: the 1907
Convention of the Hague, that deals with the rights and duties of occupying
powers. Philippe Spoerri is a legal advisor to the International Committee
of the Red Cross: "To keep it simple I would say that you have no right to
take out resources of money for your own profit, for your own economy.
Thus, the line to keep is that you are doing it for the cost of the
administration of the occupied or administered territory and not for the
benefit of one's own economy."

Not surprisingly, the US has stressed that any exploitation of Iraqi oil
will be for the sole benefit of the Iraqi people. A position repeated in
the new draft Security Council resolution now tabled by the US.

Yeah right.