Washington Report on Middle East Affairs, April 2002, pages 21-22

Special Report

Oil-for-Food Revenue Equivalent to Yearly Income of $156 for Each Iraqi

By Peter Kiernan

Under U.N. sanctions and its related oil-for-food program, Iraq has been able to export $51 billion worth of oil since December 1996. Advocates of the sanctions say the program is providing enough oil income for Iraq to meet the social and economic needs of its people—but there is more to this figure than meets the eye.

Three fundamental factors have rendered useless the raw dollar value of Iraq’s oil exports. Firstly, under the oil-for-food program the Iraqi government’s share of oil export revenue is only 59 percent. Secondly, Baghdad receives no hard currency from its oil sales, only supplies from U.N.-approved contracts. Thirdly, the export income required to maintain a viable Iraqi economy vastly increased after the U.S. bombing of Iraq in 1991, undertaken to evict Iraq from Kuwait, and which destroyed much of Iraq’s civilian infrastructure.

The oil-for-food program can best be described as a palliative, delaying the effective rehabilitation of Iraq’s economy and leaving the Iraqi people even more dependent on the Ba’athist regime. Furthermore, since 1996 the program has delivered only $19.1 billion worth of supplies to the Iraqi people. This is equivalent to a paltry $3.6 billion a year for the past five years, or just $156 a year for each Iraqi citizen.

Rather than merely easing the harshness of sanctions through a Band-Aid program, the economic sanctions should be completely lifted. A strict military embargo on Iraq should be maintained, however, in conjunction with a comprehensive effort to achieve regional disarmament in accordance with U.N. Security Council Resolution 687 of 1991. This calls for “establishing in the Middle East a zone free from weapons of mass destruction and all missiles for their delivery.”

The oil-for-food program was initiated in response to the growing humanitarian crisis in Iraq, brought about by the twin effects of the Gulf war and subsequent sanctions. It is designed to prevent the further deterioration of Iraq’s humanitarian situation in terms of access to food and medicines, as well as of its civilian infrastructure.

Politically, the program was a response to charges that the sanctions were resulting in the deaths of hundreds of thousands of Iraqis. It also ensured that a disarmed Iraq would be kept in a weakened state, with an economy dependent on the strategic agenda of the U.S. and UK, through the U.N. Security Council. At the same time, however, the oil-for-food program has maximized the dependence of the Iraqi people on a regime able to maintain power through its intrusive security apparatus and serious human rights abuses.

The program is reviewed and renewed for six-month periods by the U.N. Security Council. The Iraqi government submits contracts for purchase of supplies to the U.N.’s Office of Iraq Program (OIP); the contracts also are subject to approval by the U.N. Security Council sanctions committee. Any one of the committee members—although it is usually the U.S.—can hold up a contract, typically on the grounds that the supplies involved could also have a military use, or could be used to develop nuclear or chemical weapons capability. Meanwhile, Iraq is permitted to export oil to pay for the contracted supplies, the revenue for which is placed in a U.N. escrow account.

Between 1996 and 2000, or during Phases One to Eight of the program, 66 percent of oil revenue was allocated to the purchase of humanitarian supplies, 30 percent was allocated to a Compensation Commission to award claims against Iraq for damages relating to its invasion of Kuwait, and the remaining 4 percent was earmarked for the U.N.’s administrative expenses. Of that 66 percent intended for the Iraqi people, however, 53 percent was allocated to Iraq’s 15 central and southern governorates, while 13 percent was directed to Iraq’s three northern Kurdish governorates. (Baghdad is responsible for distribution of supplies in the central and southern governorates, while the U.N. runs the distribution system in the three Kurdish provinces, separately from that operated in the rest of the country.)

Since Phase Nine, the allocations have changed slightly to boost the amount for humanitarian supplies to 72 percent, and reduce the Compensation Commission’s share to 25 percent and U.N. administration costs to 3 percent. Of that 72 percent in humanitarian aid, central and southern Iraq get 59 percent, while the Kurdish north gets 13 percent. The U.N.-run program in the Kurdish north receives a 22 percent higher allocation on a per capita basis than the rest of the country.

As a result, the actual amount of oil revenue allocated to delivering humanitarian supplies to Iraq since 1996 is $34.2 billion, of which $27.7 billion is for central and southern Iraq, and $6.5 billion for the north. The claim that the Iraqi government has had $51 billion to spend on its people, therefore, is a gross exaggeration.

Further down the bureaucratic chain comes the value of contracts approved by the U.N. and, ultimately, the value of supplies that reach Iraq. Here too, clarifications are needed. As of late January contracts worth $31.3 billion had been approved by the U.N. sanctions committee for delivery of supplies to Iraq, with a further $5.23 billion worth of contracts put on hold. The contracts held up are worth about 14 percent of the total contracts. Of the contracts placed on hold, the OIP states that 1,410—worth $4.55 billion—were for the purchase of various humanitarian supplies and equipment, while another 630—or $680 million worth—were for oil industry spare parts and equipment,. In all, 2,040 contracts were on hold, 80 percent of which are the result of U.S. objections. As of the end of Phase Ten of the program (Nov. 30, 2001), held-up contracts also included $1.160 billion for electricity, $529 million for sanitation, $490 million for agriculture, $426 million for food handling, $409 million for health, and $370 million for telecommunications and transport.

The OIP also states that, with $12.2 of the $31.3 billion worth of approved contracts still in “the production and delivery pipeline,” the total value of contracts that actually have reached Iraq amounts to only $19.1 billion. There are various reasons for the disparity in the value of contracts approved and supplies received in Iraq. There have been some extraordinarily long time lags involved—the anti-sanctions group Voices in the Wilderness has been informed that even some supplies ordered during Phase Two of the program have yet to arrive. Contractors may delay manufacturing supplies until the contract itself is approved, the uncertainty of the program’s process may discourage more reputable suppliers who are more likely to deliver goods on time, and Baghdad may negotiate with contractors from countries where political advantage may be gained but who also may not be the most efficient supplier.

Although the program has been modified to improve its capacity to deliver supplies, this still merely represents tinkering around the edges. In its first three phases Iraq could export a maximum of $2 million worth of oil per phase, a ceiling raised to $5.2 billion in phases four and five, and lifted completely in 1999. Since 2000 the U.N. Security Council endorsed a “Green List” of items covering food, medicines, educational supplies and agricultural equipment which could be imported by Iraq without individual contract approval by the sanctions committee. And since phase four, Iraq has been permitted to import spare parts and equipment for its oil industry, the limit of which currently is $600 million per phase.

Iraq as Soup Kitchen

Regardless of whether the process of delivering supplies in the oil-for-food program is quickened, or Washington and London ease up on the number of contracts placed on hold, the program remains inadequate to rehabilitate the Iraqi economy. In a sense Iraq is like a soup kitchen—an analogy used by the Economist—in that it receives no hard currency for economic development, but instead a given amount of supplies to prevent an even more severe humanitarian crisis.

The oil-for-food program does not facilitate the payment of government salaries or any other kind of recurrent expenditure required of any state to effectively govern a country. After visiting Iraq last year, the U.N. humanitarian coordinator for Iraq, Tun Myat, reported that Iraqis were selling food they’ve been given free under the program just to pay for clothes and other items that they could not afford on their salaries. The Iraqi currency has collapsed over the last decade to be practically worthless in value, and the spending power of salaries has been correspondingly slashed.

What the oil-for-food program does is to maintain the Iraqi people in a state of ongoing economic dependence—not only on a bureaucratic U.N. program, but also on the Iraqi government, which controls the distribution of supplies in all but Iraq’s three Kurdish governorates. Advocates of sanctions place the blame for the program’s shortfalls purely on Saddam Hussain’s regime. The current and former humanitarian coordinators for Iraq, however, have confirmed that Baghdad’s record in distributing food and other supplies under the program has been quite good. Nevertheless, if there is to be any internal pressure on the Iraqi government to improve its human rights record—or, indeed, even if it is to be successfully challenged—it will not happen while the average Iraqi’s means of survival depends on the regime’s control of resources.

To survive, a country of 23 million people needs more than $3.6 billion a year in imports. Iraq does smuggle oil, but cannot afford anything like its import bill in the late 1980s of about $10 billion per year. A U.N. delegation that surveyed the damage to Iraq from the 1991 bombing estimated it would cost $22 billion to provide pre-war levels of service to Iraq’s population for the following year alone.

Iraq’s oil industry is the key to the country’s development, but production still lags behind 1980s levels. In 1989, Iraq produced 2.84 million barrels per day (bpd); only since 1999 has production been anywhere near that level. In 2001 Iraq produced an average of 2.31 million bpd. While allowing Iraq to import spare parts and equipment has made a difference, a U.N. team that inspected Iraq’s oil industry last year noted that it faced “significant technical and infrastructural problems.” Its recent rate of production approaching pre-1990 levels was considered unsustainable, largely because of inadequate repairs since 1991 to the damage inflicted on oil installations from the bombing campaign.

Other infrastructure sectors severely damaged by the bombing include Iraq’s electricity grid, water and sanitation system, and telecommunications and agricultural sectors. In 1991 the U.S. bombed all of Iraq’s 35 water treatment plants, as well as 20 of the country’s 22 electricity grids. Former U.N. humanitarian coordinator for Iraq Denis Halliday estimates that between $50 billion and $60 billion of capital investment is required to rebuild Iraq’s infrastructure, and about $15 billion per year in recurrent costs to maintain it.

While the oil-for-food program may serve to deflect criticism of the U.S. and Britain’s policy of maintaining sanctions, how quickly can the program turn around, for instance, the increase in mortality rates of Iraqi children under five? According to a 1999 report by UNICEF, this jump in mortality rates from pre-sanctions levels has led to the additional deaths of 500,000 in that age group between 1991 and 1998. The Iraqi sanctions have been devastating because they have been in place for over a decade, following severe bombing described by a 1991 U.N. report as having “wrought near-apocalyptic results upon an economic infrastructure.”

Even with its oil-for-food sweetener, the policy of economic sanctions against Iraq has placed the Iraqi people in an intolerable situation—while doing nothing to diminish the internal power of a repressive Iraqi government. The solution is to link a complete lifting of sanctions with Iraqi agreement to a return of an impartial weapons inspections regime. This could be the first step toward achieving regional disarmament in the Middle East, a more sensible goal than dealing unilaterally with individual states identified as part of a so-called “axis of evil.”

Peter Kiernan is a freelance journalist on Middle East and energy issues based in Washington, DC.