Order Code RL30472
CRS Report for Congress
Received through the CRS Web
Iraq: Oil-For-Food Program
Updated November 29, 2000
Kenneth Katzman
Specialist in Middle East Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Iraq: Oil-For-Food Program
Summary
The “oil-for-food” program represents a longstanding U.N. Security Council
effort to alleviate human suffering in Iraq while maintaining pressure on the Iraqi
government to comply with all relevant U.N. Security Council resolutions. In order
to ensure that only humanitarian needs are served by the program, U.N. Security
Council resolutions have mandated substantial controls on Iraqi oil exports and
humanitarian imports. However, in response to complaints by humanitarian officials
and groups working in Iraq that insufficient supplies are reaching the Iraqi people, the
Security Council has agreed to ease some of the program’s restraints. A major
Security Council resolution adopted in December 1999, Resolution 1284, lifts the cap
on the amount of oil Iraq can export and eliminated U.N. controls on the importation
by Iraq of several categories of humanitarian items.
There is a consensus among observers that the program has eased, but not
eliminated, human suffering in Iraq. Many different explanations have been offered
for the failure of the program to accomplish all of its objectives. The United States
blames Iraq for mismanaging the program and for attempting to import equipment
that, at best, will not improve the humanitarian situation and, at worst, could be used
in any Iraqi attempt to reconstitute weapons of mass destruction (WMD) programs.
The United States also accuses Iraq of using its additional currency reserves – as well
as the proceeds of illicit exports of petroleum and agricultural products – to build
palaces and import liquor and luxury goods rather than to supplement supplies
purchased under the program. The United States has sought to persuade Iraq’s
neighbors, including Iran, not to help Iraq conduct illicit trade, but the growing
regional sympathy for the Iraqi people has resulted in a pronounced relaxation of
regional enforcement – or even open defiance – of the Iraq sanctions.
The United Nations places some of the blame for the deficiencies of the program
on the United States and Britain. Concerned that purchases of technology could have
military applications, the United States and Britain, in their capacity as members of
the U.N. Sanctions Committee, have often slowed or held up Iraqi purchases of oil
industry spare parts and electricity generation and telecommunications equipment.
Iraq and the United Nations claim that these supplies are needed to ensure rapid and
effective distribution of humanitarian supplies. In response to the criticism, the United
States and Britain are promising to try to complete their scrutiny of contracts for such
equipment more quickly, although they say they will not do so at the expense of
approving contracts that Iraq could use for prohibited purposes.

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Contents
Background and Structure of the Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Effectiveness of the Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Health and Sanitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Explanations for Continuing Humanitarian Problems . . . . . . . . . . . . . . . . . 6
Resolution 1284 and Other Initiatives to Improve Program Effectiveness . . 7
Transactions With Iraq Outside the Oil-for-Food Program . . . . . . . . . . . . . . . . . 8
International Donations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Illicit Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Implications for U.S. Policy Toward Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Appendix: Overview of U.S. Regulations Governing
U.S. Participation in the Oil-for-Food Program . . . . . . . . . . . . . . . . . . . . 13

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Iraq: Oil-For-Food Program
Background and Structure of the Program
The "oil-for-food" program reflects a longstanding U.N. Security Council effort
to alleviate humanitarian suffering in Iraq while pressing Iraq to comply with all
relevant U.N. Security Council resolutions.1 The first version of an oil-for-food plan
would have allowed Iraq to export $1.6 billion in oil every six months. It was
adopted by the Council in 1991 in Resolutions 706 and 712, but Iraq rejected it as too
limited in scope and an infringement on Iraq's sovereignty. On April 15, 1995, the
Council adopted Resolution 986, which took into account one of Iraq's concerns by
allowing the export of $2 billion in oil every six months. Iraq and the United Nations
signed a memorandum of understanding on the program on May 20, 1996 and, after
several more months of negotiations on details, the first Iraqi oil exports began on
December 10, 1996. After the first year of the program, the Secretary General
determined that the program was not meeting the humanitarian needs of the Iraqi
people, and Resolution 1153 (February 20, 1998) raised the oil export ceiling to a
limit of $5.256 billion every six months. In an effort to provide Iraq an incentive to
cooperate with a new program of U.N. weapons of mass destruction (WMD)
inspections, the U.N. Security Council, in Resolution 1284 (December 17, 1999),
abolished the export limit. This resolution had a number of additional provisions and
implications for the oil-for-food program, as discussed below.

In order to ensure that only humanitarian needs are served by the program, the
oil-for-food resolutions place substantial controls on Iraqi oil exports and
humanitarian imports. Iraq's state-owned oil marketing company (SOMO) negotiates
with international oil companies to sell Iraqi oil, but all contracts must be approved
by the U.N. Sanctions Committee,2 which administers the implementation of sanctions
on Iraq. Oil is exported through an Iraq-Turkey pipeline and from Iraq’s terminals
in the Persian Gulf. According to Resolution 986, “the larger share” of oil exports
must run through the Turkish route. The proceeds from these sales are deposited
directly, by the oil purchasers, into a U.N.-monitored escrow account held at the New
York branch of France's Banque Nationale de Paris (BNP). Iraq’s oil exports are
monitored at point of exportation by personnel from Saybolt Nederland BV, an
energy services firm working under contract to the oil-for-food program.
Iraq negotiates with supplier firms for goods and services purchased under the
program. The Sanctions Committee, established after Iraq’s August 2, 1990 invasion
1 For a further discussion of Security Council resolutions and requirements on Iraq, see CRS
Issue Brief 92117, Iraqi Compliance With Ceasefire Agreements.
2 The Sanctions Committee, set up by Resolution 661 of August 6, 1990, consists of
representatives of the member states on the U.N. Security Council.

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CRS-2
of Kuwait, must approve all contracts. The Committee operates by consensus. Any
Sanctions Committee member state may place a "hold" on a contract for goods to be
imported by Iraq. In deciding whether or not to place a hold on a contract, the U.S.
representative on the Sanctions Committee consults with agencies of the U.S.
government to determine whether Iraq could use the requested items for military
purposes.
Once a contract is approved, BNP uses the funds deposited in the escrow
account to pay letters of credit for the purchased goods. The arriving supplies are
monitored at their point of entry into Iraq by about 50 personnel from the Swiss firm
Cotecna3 at four approved border crossings — Umm Qasr on the Persian Gulf; Trebil
on the Iraqi-Jordanian border; Walid on the Iraqi-Syrian border; and Zakho on the
Iraqi-Turkish border. In accordance with Resolution 1051 (March 27, 1996), exports
to Iraq of dual use items (items that could have military applications, such as
computers and certain chemicals) are supposed to be monitored by U.N. weapons
inspectors at their point of end use in Iraq. However, this import monitoring has
been suspended since the previous inspection regime (U.N. Special Commission,
UNSCOM) left Iraq in December 1998 just prior to the U.S./British airstrike
campaign against Iraq (Operation Desert Fox, December 16-19). Resolution 1284
replaced UNSCOM with a new inspection body, the U.N. Monitoring, Verification,
and Inspection Commission (UNMOVIC), but Iraq has not allowed UNMOVIC into
Iraq. This absence of monitoring has caused the United States and Britain to closely
scrutinize, and to place many holds on, exports of dual use items to Iraq. Under
regulations written for the program, the U.S. government allows U.S. firms to buy
Iraqi oil and sell goods to Iraq, including oil industry spare parts and equipment. (See
appendix for an overview of U.S. regulations governing U.S. firms’ participation in
the program..)
The oil-for-food program attempts to help Iraq meet its international obligations
and ensure equitable distribution of imports to the Iraqi people. The revenues from
Iraq’s oil sales are distributed as follows:
! 30% is transferred to a U.N. Compensation Commission (UNCC) to
pay compensation to victims of Iraq's invasion of Kuwait. (This
deduction falls to 25% as of early December; see below.)
! 53% is used to purchase humanitarian items for Baghdad-controlled
Iraq.
! 13% is used to purchase supplies in the three Kurdish-inhabited
provinces of northern Iraq.
! 2.2% pays for U.N. costs incurred to administer the oil-for-food
program
3 Cotecna replaced Lloyd's Register as point-of-entry monitoring contractor on February 1,
1999.

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CRS-3
! 0.8% pays for the costs of UNMOVIC’s administration and
operations.
! 1% is used to administer the escrow account that holds the revenue
generated under the program.
In Baghdad-controlled Iraq, the Iraqi government distributes imports to the
population through a government rationing system, but distribution is monitored by
about 150 U.N. humanitarian workers from the World Food Program, the Food and
Agriculture Organization, the World Health Organization, and UNICEF. The U.N.
personnel visit ration centers, marketplaces, warehouses, and other installations to
ensure that distribution is equitable and accords with the required allocation plans
submitted by Iraq for each six month phase. In Kurdish-controlled Iraq, about 65
U.N. workers, accompanied by about 130 U.N. security guards, perform the
distribution function.
Effectiveness of the Program
There is a consensus among U.N. officials and outside observers that the oil for
food program is easing, but has not eliminated, human suffering in Iraq. Some might
argue that this result is the best that the international community could have hoped
for. The Secretary General has noted in his reports that the program was never
intended to meet all the humanitarian needs of the Iraqi people or to “substitute for
normal economic activity.”
Few observers question that the program has made vast amounts of funds
available for the purchase of food, medicine, and essential civilian goods. The table
below, supplied by the United Nations’ Office of the Iraq Program, shows that higher
oil prices, coupled with program modifications, have enabled Iraq to generate
substantial revenues to fund imports. Iraq is now generating significantly more oil
revenue than it did before the U.N. embargo was imposed in 1990 (about $12.5 billion
in total exports was generated in 1988), although, as noted above, substantial
deductions are taken to pay the cost of implementing the sanctions. Phase Nine of
the program is scheduled to begin on December 5, 2000.

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CRS-4
Revenue Generated by Oil-For-Food Program
(Through November 10, 2000)
Phase Number
Volume Sold
Value of Export
Average Price per
(each phase is six
(millions of barrels)
($billion)
Barrel ($)
months)
One
120
2.15
17.92
(Begun December
10, 1996 - $2
billion ceiling)1
Two
127
2.125
16.73
Three
182
2.085
11.46
Four
308
3.027
9.83
(ceiling raised to
$5.2 billion)
Five
360.8
3.947
10.94
Six
389.6
7.402
19.00
(ceiling temporarily
raised an additional
$3 billion)
Seven
343.4
8.285
24.13
(ceiling lifted
permanently)
Eight
326.6
8.412
25.76
Totals/Averages
2,157.4
37.433
17.35
Source: U.N. Office of the Iraq Programme.
[http://www.un.org/Depts/oip/latest/basicfigures.html].
1. Applicable U.N. Security Council resolutions allowed Iraq to generate revenue, over and above
the ceilings, to pay the costs of transit fees for exporting oil through Turkey, which explains why
some figures might exceed stated ceilings.
Food. In a report on September 8, 2000, Secretary General Kofi Annan notes
that the increased financial resources are helping the Iraqi population meet “its daily
needs,” but that humanitarian and human rights organizations highlight continued
suffering among “children and other vulnerable groups.” A U.N. fact sheet on the
program, dated October 8, 2000, states that more than $5.5 billion worth of food and
nearly $1 billion worth of medical supplies have arrived in Iraq since shipments to Iraq
under the program began in early 1997. The September 8, 2000 report indicates that
in Baghdad-controlled Iraq, the Iraq government is now importing and distributing
enough food to meet, or slightly exceed, the food levels targeted under the program
(of 2,472 kilocalories per person per day). On the other hand, the report notes that
few families can buy additional food and some sell part of their distributed rations in

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CRS-5
order to buy other goods on the open market. The Secretary General’s report does
not identify any food problems for the three Kurdish provinces, which is consistent
with press reports that food has become relatively abundant there, sometimes to the
detriment of local agricultural production.
Health and Sanitation. The Secretary General’s assessments of health
conditions in Iraq are somewhat less optimistic. The Secretary General’s September
8, 2000 report indicates some improvements in the health sector but that, in general,
“these have tended to be localized in time and place.” A report by the International
Committee of the Red Cross (ICRC), released February 1, 2000, said the program
had not halted the collapse of the health system, or the deterioration of water supplies,
which together pose one of the gravest threats to the health and well being of the
civilian population.4 The U.N. Secretary General’s March 10, 2000 report on the oil-
for-food program5 suggested that erratic and uncoordinated arrival of drugs to treat
chronic disease as a contributing factor in the rise in deaths attributable to cardiac,
diabetic, renal, and liver disease reported by the Iraqi government. In the related area
of water and sanitation, the Secretary General’s September 8, 2000 report says that
“infrastructural degradation is evident across the subsectors, from water treatment to
water distribution,” and that “the decay rate of the entire system is accelerating.”
In mid-1999, UNICEF released its first country wide survey of infant and
maternal mortality in Iraq since 1991. UNICEF, the World Health Organization, and
the World Food Program had previously published malnutrition surveys which
showed greatly increased malnutrition in children under 5. Because these surveys
relied on Iraqi government information, they were dismissed by some as propaganda
fostered by the Iraqis to end the economic sanctions. The 1999 UNICEF survey took
a number of precautions to ensure that the survey results would not be altered or
modified and UNICEF is confident that the survey information is accurate. See
chapter 2 of the report, which is available online on the UNICEF Web site at
[http://www.unicef.org/reseval/iraqr.htm].
The 1999 survey shows that infant mortality in the southern and central sections
of Iraq (under the control of the Iraqi government) rose from 47.1 deaths per
thousand live births during 1984-1989 to 107.9 deaths per thousand during 1994-
1999. The under five-year-old mortality rate rose from 56 to 130.6 per thousand live
births in the same time period. In the northern part of Iraq, (currently under the
protection of the international community) the mortality rate has declined over the
same period: infant mortality dropped from 63.9 per thousand live births in 1984-
1989 to 58.7 in 1994-1999 and under five-year-old mortality dropped from 80.2 per
thousand live births to 71.8 per thousand.
4 Iraq: A Decade of Sanctions. ICRC Activities on Behalf of Iraqi Civilians 1999-2000.
International Committee of the Red Cross [http://www.reliefweb.int/w/rwb/nsf/6686f4].
Placed on Web site March 14, 2000.
5 U.N. Security Council. Report of the Secretary-General pursuant to paragraphs 28 and 30
of resolution 1284 (1999) and paragraph 5 of resolution 1281 (1999) March 10, 2000.
S/2000/208.

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CRS-6
Education. The Secretary General’s September 8, 2000 report identifies the
education sector as “one of the most intractable problems facing the country.”
According to the report, Iraq’s literacy rate (53.7% of adults and 70.7% of the youth)
“has remained fixed for a number of years.” The report adds that school enrollment
in Baghdad-controlled Iraq has dropped as families have sent their children to work,
while enrollment has risen in the Kurdish-controlled provinces because of improving
economic conditions there.
Explanations for Continuing Humanitarian Problems
Many different, and often conflicting, explanations are offered for the program’s
failure to eliminate human suffering in Iraq. The United States and its key ally,
Britain, place a high priority on containing Iraq, and they tend to place the
overwhelming majority of the blame on Iraqi misfeasance and alleged disregard for
the needs of its people. U.N. administrators of the program criticize Iraq on similar
grounds, but they also attribute program deficiencies to U.S. and British policy, which
they allege slows or halts the flow of infrastructure equipment that is required to
realize the program’s benefits.
The issue of contract holds (see above) on infrastructure equipment has been one
of the most contentious that the United Nations has tried to address. U.N. reports
on the program claim that infrastructure equipment, such as trucks, communications
gear, forklifts, electricity, and water treatment equipment, are crucial to the timely
distribution and proper storage and functioning of foodstuffs and medical products.
According to a November 21, 2000 U.N. report, the total value of contracts still on
hold is about $2.3 billion; of this amount, about $325 million consists of oil industry
spare parts and about $765 million consists of equipment for the electricity sector.
The United States asserts that 90% of all contracts are approved and that the holds
have had minimal impact. The United States maintains that all contracts must be
scrutinized to ensure that no equipment will be used to rebuild WMD programs,
especially because U.N. weapons inspectors are not in Iraq to monitor dual use
exports that are shipped there. U.S. officials say they also want to ensure that no
contract is being awarded solely to encourage political support for Iraq from parent
governments and that all contracts submitted for review must provide required
technical specifications.
U.N. reports express the hope that the United States and Britain will release
some of their holds, but the reports also criticize Iraq. U.N. reports cite Iraq for often
failing to follow U.N. procurement recommendations and for failing to efficiently
distribute program imports, particularly medicine and medical equipment. Reports
by the Secretary-General in 1999 noted three month delays in Iraq's movement of
medicine from the main receiving warehouse to hospitals and clinics.6 The
September 8, 2000 U.N. report also criticizes Iraq for refusing to issue visas to U.N.
experts tasked to make arrangements for the purchase of some program goods and
services locally. The report adds that Iraq has refused to allow in U.N. experts to
conduct a comprehensive assessment of the humanitarian situation, as stipulated in
6 Aita, Judy. "U.N. Concerned About Medicines Distribution in Iraq." USIS Washington
File, May 21, 1999.

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CRS-7
U.N. Security Council Resolution 1302 (June 8, 2000). U.N. reports do not accuse
Iraq of purposely diverting imports from the program to the military or regime
supporters, although some U.S. reports, such as a February 28, 1998 State
Department fact sheet, say Iraq has diverted other food stocks to these elements.
Some of the fault appears to lie with factors outside the control of any particular
party. The Secretary General’s September 8, 2000 report attributes the decline of the
health sector, in part, to the departure from Iraq of foreign and Iraqi health
professionals.
Resolution 1284 and Other Initiatives to Improve Program
Effectiveness
U.N. Security Council Resolution 1284, adopted December 17, 1999, as well as
other recent Security Council and Sanctions Committee decisions, are intended to
improve the provision of relief for the Iraqi people. (For full text of Resolution 1284,
see [http://www.un.org/Docs/scres/1999/99sc1284.htm].) The following highlights
key provisions of it and related decisions:
! As noted previously, Resolution 1284 eliminates a limit on the
amount of oil Iraq can export, in order to enable Iraq to generate
more revenues for humanitarian purchases. All proceeds from the oil
sales must still be deposited in the U.N.-supervised escrow account.
! Resolution 1284 directed the Sanctions Committee to draw up lists
of items, in several categories, that would no longer be subject to
Sanctions Committee review, and therefore will not be vulnerable to
holds. The U.N. oil for food program administrators still need to be
notified of the sale of these goods. The accelerated approval
procedures for the approved list of foodstuffs and educational goods
began on March 1, 2000. The new procedures were implemented for
pharmaceuticals, medical supplies, medical equipment, and
agricultural equipment and supplies on March 29, 2000. In keeping
with a provision of U.N. Security Council Resolution 1302 (June 8,
2000), water treatment and sanitation supplies became eligible for
accelerated approval on August 11, 2000. Resolution 1284 also
made some oil industry spare parts eligible for a streamlined approval
process - contracts for such equipment is scrutinized by the same
Sanctions Committee panel of oil overseers that review Iraq’s oil
sales contracts, without requiring full Sanctions Committee review.
! Resolution 1284 lays the groundwork for foreign investment in
exploring and producing oil in Iraq, although the Resolution makes
this investment contingent on Iraqi cooperation with the new U.N.
weapons inspection body, U.N. Monitoring, Verification, and
Inspection Commission (UNMOVIC).

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CRS-8
! Resolution 1284 creates incentives for Iraq to cooperate with
UNMOVIC by promising that, if Iraq fully cooperates with the new
body, export and import sanctions will be suspended. Iraq would
once again be allowed to control its own revenues, although subject
to strict but unspecified financial controls, according to the
resolution. Arms exports to Iraq would still be banned and exports
of dual use items would still be subject to scrutiny by the Sanctions
Committee.
! U.N. Security Council Resolution 1293 (March 31, 2000) increased
to $600 million, from $300 million, the value of oil industry spare
parts that Iraq could import per oil-for-food phase. This decision
was taken in response to recommendations by the U.N. Secretary
General that improving the humanitarian situation was contingent on
the rehabilitation of Iraq’s ability to export its oil.
! In late September 2000, the United States reached agreement with
Russia and France that, beginning in Phase Nine of the oil-for-food
program (commencing December 5, 2000), the amount of revenue
that will be deducted for reparations payments will fall from 30% to
25%. This will free additional funds for humanitarian relief.
Transactions With Iraq Outside the
Oil-for-Food Program
Numerous international transactions with Iraq — some legitimate, some illicit
— fall outside the oil-for-food program. As was the case before the oil-for-food
program started, Iraq is permitted to use its own currency reserves to purchase food,
medicine, and essential civilian goods. Governments and private relief organizations
are permitted to donate humanitarian items to Iraq. However, U.S. officials say Iraq
has viewed the oil-for-food program as a replacement for, rather than a supplement
to, its pre-existing supply purchase program. On February 29, 2000, the
Administration accused Iraq of using its resources to build nine lavish palaces (valued
at about $2 billion) and to import cigarettes and liquor.7 Some fear that Iraq could
also use its reserves to import militarily useful equipment; U.N. weapons inspectors
seized illicitly imported missile guidance systems in 1995.
International Donations
UNICEF, the World Food Program (WFP) the U.N. Development Program
(UNDP), the European Community (ECHO), the International Committee of the Red
Cross (ICRC), governments, and private relief organizations such as Catholic Relief
Services and Save the Children continue to provide funds for programs in Iraq. This
is in addition to their activities under the oil-for-food program. UNICEF, ECHO,
7 Alcohol is classified as a food, so the imports are technically legal under the international
sanctions regime in place since Iraq’s August 2, 1990 invasion of Kuwait.

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CRS-9
and WFP focus their humanitarian aid on the South and Central part of the country
rather than on the economically better off Kurdish north.
It is impossible to determine precisely the total amounts of bilateral and
multilateral aid by all donors. However, the U.N. Secretary-General's recent reports
and statements have suggested that these aid sources are declining, possibly because
donors believe the oil-for-food program is satisfying Iraq's needs. Secretary General
Annan has called for increased international assistance to Iraq, and Resolution 1284
“encourages” countries and international organizations to provide supplementary
humanitarian aid and educational materials to Iraq. After Baghdad's incursion into
the Kurdish north in late August 1996, the United States virtually ended its assistance
program for northern Iraq, which had been about $45 million per year. The incursion
caused all American-based humanitarian relief organizations in northern Iraq to leave
in fear of Iraqi reprisals against them.
There is no single source for information on humanitarian assistance to Iraq.
The most recent report of the Organization for Economic Cooperation and
Development (OECD), which provides donor information for the years 1994 through
1998, indicates that Iraq received a total of $76.36 million in bilateral assistance in
1998.8 This does not include any funds provided by U.N. agencies but does include
grants by the European Commission (ECHO). The recent experiences in Iraq of a
major relief agency, UNICEF, illustrate some of the donation patterns that prevail for
Iraq. In its donors’ report of August 8, 2000, UNICEF indicates that:
! There is “very limited donor support” for its programs in Iraq. For
2000, new donations, coupled with funds carried over from 1999, are
expected to cover only 23% of the costs of the programs UNICEF
planned in Iraq. Programs planned for 2000 are expected to cost
$12.9 million, of which only $3.02 million are funded.
! The largest governmental donors to UNICEF programs in Iraq for
2000 are Japan and Sweden, with total new pledges of $543,000 and
$227,000 respectively. The governments of the Netherlands and
Luxembourg made pledges as well.
! The U.S. Center for Disease Control pledged $385,000 for an
immunization program.
! Much of UNICEF’s Iraq funding comes from other U.N. sources,
such as U.N. Foundation Funds, U.N. Emergency Funds, and the
U.N. Department of Humanitarian Affairs.
Since September 2000, Iraq has derived an unknown amount of additional aid
from flights, most of which carried some relief aid, intended to challenge the U.S. and
British interpretation of U.N. Security Council Resolution 670 (September 25, 1990).
The Resolution requires the banning of flights to or from Iraq that are carrying any
8 Geographical Distribution of Financial Flows to Aid Recipients. Disbursements,
Commitments, Country Indicators. 1994-1998. OECD. 2000.

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CRS-10
“cargo to or from Iraq or Kuwait other than food in humanitarian circumstances,
subject to authorization by the Council....” or the Sanctions Committee. Prior to
September 2000, the U.S. interpretation prevailed that all flights to Iraq require
Sanctions Committee authorization prior to takeoff. Since September 2000, several
dozen flights carrying officials and humanitarian donations to Iraq have taken place,
some of which proceeded before receiving formal approval. The United States
criticized those governments that allowed flights to proceed without approval, but no
U.S. or U.N. measures were taken against those flights or governments. The United
States maintains that the resolution is intended to ensure that any cargo or material
destined for Iraq could be inspected to ensure it is not carrying contraband goods.
France, Russia, and other governments, although not opposed in principle to
inspecting cargo bound for Iraq, argue that passengers are not “cargo” and that the
U.S. interpretation that the Resolution restricts all flights to Iraq is not correct.
One donation to Iraq in November 2000 drew strong U.S. criticism and a
sanction. A member of the royal family of Qatar presented Iraq with a Boeing 747
jumbo jet as a “gift.” The Qatari, Hamad bin Ali bin Jabr Al Thani, heads the Gulf
Falcon air services company, which gave him access to the aircraft. On November 24,
2000, Secretary of State Albright and Commerce Secretary Norman Mineta
announced that exports and reexports of many U.S. goods would need specific
Commerce Department approval for sale to Mr. Al Thani or his businesses. The U.S.
officials said the move was to ensure that U.S. goods would not be improperly
diverted to Iraq.
Illicit Trade
Baghdad is using its neighbors, as well as its outlet to the Persian Gulf, as a
conduit to conduct illicit trade. Iraq is doing so to earn funds that it can fully control,
as well as to import contraband goods, such as luxury consumer items. Iraq’s
neighbors are increasingly cooperative in these efforts because of sympathy with the
Iraqi people, and out of the apparent belief that Saddam is likely to remain in power.
The following are the main routes for illicit trade with Iraq:
! Since the Gulf war, Jordan has notified the Security Council that it
imports Iraqi oil (about 100,000 barrels per day) at below-market
prices in exchange for civilian goods and write-downs of Iraq's debt
to Jordan expected to be worth about $300 million for 2001. The
United States supports the Sanctions Committee decision to "take
note of" the Jordanian purchases, neither approving them nor
deeming them a violation. The Administration has routinely waived
unilateral sanctions on Jordan that could be imposed because of this
trade.9 In October 2000, Jordan cancelled an agreement with
Lloyd’s Registry, in force since 1993, for the firm to inspect Iraq-
bound cargo in Jordan’s port of Aqaba. This inspection agreement
covered goods other than those imported under the oil-for-food
9 Every fiscal year since 1994, Congress has included a provision in foreign aid appropriations
cutting U.S. aid to countries that violated the Iraq embargo.

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CRS-11
program; goods imported under the program are monitored at all
points of entry, including the Iraq-Jordanian border.
! Iraq conducts much of its illicit trade through the Gulf, apparently
with cooperation from Iran. The U.S. Navy estimated in March
2000 that Iraq would export about $1 billion in oil products through
the Gulf in 2000. Of that amount, about one half goes to Iraq, one
quarter goes to smugglers and middlemen, and one quarter goes to
Iran’s Revolutionary Guard for “protection fees” to allow the
shipments to hug its coast and avoid capture. In early November
2000, Iraq openly admitted it is using its Gulf ports for contraband
imports by announcing it would import 30,000 Toyota automobiles
“from Qatar and the United Arab Emirates.”10 Neither of these Gulf
states have land borders with Iraq and both of them have called for
the easing of Iraq sanctions.
! In November 2000, several press reports quoted sources in the
region as saying that Iraq had begun sending about 150,000 barrels
of oil per day through an Iraq-Syria pipeline, closed since 1982 but
now repaired. This exportation is reputedly under a bilateral
agreement with Syria under which Syria will refine the Iraqi oil for
domestic use, pay Iraq about $20 per barrel for the oil, and free up
extra Syrian oil for export. Resolution 1284 states the Security
Council’s “intention” to allow new oil export routes, such as this line,
and the U.S. and British position is to oppose the reopening of this
line unless it is brought under the oil-for-food program and its
monitoring and control mechanisms. Syria could face U.N. and
additional U.S. sanctions if it refuses to place this export route under
the oil-for-food program.
! Iraq is estimated to conduct about $400 million per year in illicit
trade with neighboring Turkey, of which about half goes to Kurdish
middlemen in the territory through which this trade passes. Most of
the trade is in the form of about 1,000 Turkish trucks per day
carrying Iraqi oil products into Turkey in spare fuel tanks. Each
truck can bring in about 8 tons of product per trip through this
method. As in the case of Jordan, the U.S. Administration has
routinely waived the imposition of U.S. sanctions on Turkey for
permitting this illicit trade.
Implications for U.S. Policy Toward Iraq
The problems in implementing the oil-for-food program appear to be intensifying
a debate over U.S. policy toward Iraq. Some governments, including some
permanent members of the U.N. Security Council, have become increasingly critical
of what they believe is a U.S. effort to use international sanctions to promote the
10 "Iraq to Import 30,000 Toyota Vehicles." Dow Jones Newswire, November 1, 2000.

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CRS-12
overthrow of the Iraqi government. These governments appear to believe that no
amount of Iraqi cooperation with the United Nations will be sufficient to satisfy the
United States that sanctions should be eased further, and some are moving forward
unilaterally to skirt or erode the sanctions regime.
The erosion of the sanctions regime has presented the Administration with a
policy dilemma. In holding fast to the sanctions regime as currently constituted, as
well as a stated policy of the overthrow of Iraq’s government, the United States
appears to have become increasingly isolated on the Iraq issue. To stem this erosion
of consensus, the United States has gone along, as noted above, with progressive
liberalization of the oil-for-food program. On the other hand, the Administration
insists that significant restrictions remain on Iraq, including the provision of the oil-
for-food program that requires all oil revenue proceeds to be supervised by the United
Nations. In the Administration's view, further easing of sanctions will remove any
remaining incentive Iraq has to allowing the restart of a robust and effective WMD
inspections program. Further easings, according to the Administration, could enable
Iraq to obtain the technology it needs to restart its WMD programs. In order to build
international support for its view, the Administration has stepped up its criticism of
Iraq’s illicit trade activities and its refusal to take advantage of provisions of
Resolution 1284 that would ease sanctions further, especially full Iraqi cooperation
with UNMOVIC. The Administration also has rejected direct government-to-
government dialogue with Iraq unless and until it complies with the requirements of
Resolution 1284 and other relevant resolutions.
Since the 1991 Gulf war, Congress has given strong support to a policy of
maintaining comprehensive international sanctions on Iraq, and Congress largely
forged the U.S. policy of promoting the overthrow of Saddam Husayn by passing the
Iraq Liberation Act (P.L. 105-338, October 31, 1998).11 However, some Members
are openly calling for easing some sanctions on Iraq. A January 31, 2000 letter to
President Clinton, signed by 70 Members, stated that “Morally, it is wrong to hold the
Iraqi people responsible for the actions of a brutal and reckless [Iraqi] government,”
and that “We simply ask you to do what is right: lift the economic sanctions. At the
same time, we support the continued embargo on military equipment and materials.”
In conjunction, the key sponsor of the letter (Rep. John Conyers), introduced H.R.
3825 on March 2, 2000. The legislation, which was not enacted in the 106th
Congress, would ease U.S. civilian sanctions by eliminating the requirement that U.S.
exporters of food and medical equipment obtain a license to sell such goods to Iraq.
U.S. companies would be required only to notify the Commerce Department of the
sales. In April 2000, Rep. Tony Hall visited Iraq to observe and discuss the
humanitarian situation.
11 For more information on U.S. aid to Iraq’s opposition, see CRS Report 98-179 F, Iraq’s
Opposition Movements.

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Appendix: Overview of U.S. Regulations Governing
U.S. Participation in the Oil-for-Food Program12
The Iraqi Sanctions Regulations implement Executive Orders No. 12722 (August
2, 1990) and 12724 (August 9, 1990). The second amended the first executive order
to align U.S. sanctions with U.N. Security Council Resolution 661 (August 6, 1990),
in keeping with the United Nations Participation Act (22 U.S.C. 287c). Key
provisions of the U.S. sanctions include the following:
U.S. firms may apply to the Office of Foreign Assets Control (OFAC) of the
Treasury Department for specific licenses for the following activities under the oil-for-
food program:
! “the sale and exportation to Iraq of medicines, health supplies,
foodstuffs, and materials and supplies for essential civilian needs.”
The goods can be sold, subject to a license, to the government of
Iraq or to a U.N. entity distributing aid under the program.
! “the purchase and exportation from Iraq of Iraqi-origin petroleum
and petroleum products;”
! “the trading, importation, exportation or other dealings in or related
to Iraq-origin petroleum and petroleum products outside Iraq; and”
! “the sale and exportation to Iraq of parts and equipment that are
essential for the safe operation of the Kirkuk-Yumurtalik (Iraq-
Turkey) pipeline system in Iraq.”
In addition:
! The regulations “generally” prohibit “the performance of contracts
in support of industrial, commercial, public utility, or governmental
projects” in Iraq. U.S. persons may not provide financing or
consulting services to a foreign country company where those
services would benefit such projects in Iraq. U.S. persons may not
provide consulting services or goods, in connection with Iraqi
projects, to foreign subsidiaries of U.S. corporations, although
foreign subsidiaries themselves are not subject to U.S. regulations.
! All transfers of funds by U.S. persons to the government of Iraq or
to persons in Iraq, are prohibited, as are “all commitments or
transfers of credit, financial transactions, or contracts.”
12 Source: Iraq: What You Need to Know About the U.S. Embargo. An Overview of the Iraqi
Sanctions Regulations – Title 31, Part 575 of the U.S. Code of Federal Regulations. U.S.
Department of the Treasury, Office of Foreign Assets Control [http://www.treas.gov/ofac/].

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