Order Code RL30472
Report for Congress
Received through the CRS Web
Iraq: Oil-For-Food Program,
International Sanctions, and Illicit Trade
Updated May 19, 2003
Kenneth Katzman
Specialist in Middle East Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
Iraq: Oil-For-Food Program,
International Sanctions, and Illicit Trade
Summary
The “oil-for-food” program has been the centerpiece of a long-standing U.N.
Security Council effort to alleviate human suffering in Iraq while maintaining key
elements of the Gulf war-related sanctions regime. It is expected to be phased out
in the near future now that Saddam Hussein’s regime has fallen, under U.S. proposals
pending before the U.N. Security Council.
In order to ensure that Iraq remained contained and that only humanitarian
needs are served by the program, the program mandated substantial controls on Iraqi
oil exports and humanitarian imports. All Iraqi oil revenues earned under the
program have been held in a U.N.-controlled escrow account and were not accessible
to the regime of Saddam Hussein.
There is a consensus among observers that the program, in operation since
December 1996, substantially eased, but did not eliminate, human suffering in Iraq.
Concerns about the program’s early difficulties prompted criticism of the United
States; critics asserted that the U.S. strategy was to maintain sanctions on Iraq
indefinitely as a means of weakening Saddam Hussein’s grip on power. At the same
time, growing regional and international sympathy for the Iraqi people resulted in a
pronounced relaxation of regional enforcement — or even open defiance — of the
Iraq sanctions. The United States argued that continued sanctions were critical to
preventing Iraq from acquiring equipment that could be used to reconstitute banned
weapons of mass destruction (WMD) programs.
U.N. Security Council Resolution 1472, adopted March 28, 2003, restarted and
adjusted the program to enable it to serve as a vehicle to provide humanitarian relief
for the wartime period and laid the groundwork to continue the program into the
post-war period. However, the program was suspended on the eve of the March 17,
2003 start of hostilities against Iraq and has been slow to revive. A U.S.-drafted
Security Council resolution, in circulation at the United Nations, would phase out the
program and end U.N. sanctions on Iraq. The U.S. draft also addresses such
outstanding issues as Iraqi reparations payments, U.N. coordination, debt
rescheduling, missing assets earned illicitly by Saddam Hussein’s regime, and other
outstanding issues. To facilitate U.S. efforts to reconstruct Iraq, the Bush
Administration and Congress have begun easing U.S. sanctions against Iraq.
This product will be updated as warranted by major developments.
Contents
Background and Structure of the
Oil-For-Food Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Program Operations Prior to the 2003 War . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Changes Outlined in Resolution 1284 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Accomplishments of the Program (Pre-War) . . . . . . . . . . . . . . . . . . . . . . . . . 5
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Health, Sanitation, and Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Pre-War Debates Over Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The “Smart Sanctions” Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Sources of Pre-War Humanitarian Aid . . . . . . . . . . . . . . . . . . . . . . . 10
Pre-War Exportation to Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Pre-War Illicit Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Iran/Persian Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Syria/Military Technology Exports to Iraq . . . . . . . . . . . . . . . . . . . . . 13
Syria and Operation Iraqi Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Oil Sales Surcharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Oil Exploration Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Iraqi Debt / Reparations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Flights to Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Oil-for-Food Program In Wartime and Post-War Iraq . . . . . . . . . . . . . . . . . 17
Resolution 1472 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. and U.N. Sanctions and the Post-War Period . . . . . . . . . . . . . . . . . . . 18
Iraq: Oil-For-Food Program,
International Sanctions, and Illicit Trade
Background and Structure of the
Oil-For-Food Program
The establishment of the “oil-for-food” program reflected a longstanding U.N.
Security Council effort to alleviate human suffering in Iraq while pressing Iraq to
comply with all relevant U.N. Security Council resolutions.1 The program is a
temporary and limited exception to the international trade embargo imposed on Iraq
by U.N. Security Council Resolution 661, adopted on August 9, 1990, one week after
Iraq’s invasion of Kuwait on August 2, 1990. U.N. Security Council Resolution 687
(April 3, 1991) provided for the international embargo on Iraq’s exportation of oil2
to end once Iraq had fully complied with U.N. efforts to end its weapons of mass
destruction (WMD) programs. The WMD inspections began in April 1991 but
proceeded more slowly than expected, and an end to sanctions did not appear to be
in sight by April 1991. Without oil export revenues, Iraq was unable to import
sufficient quantities of food and medical supplies, and, according to virtually all
accepted indicators (infant and child mortality, caloric intake, and other indicators),
living conditions deteriorated sharply during 1991-1995.
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 (August 15, 1991) and 712 (an implementing plan adopted September 19, 1991),
but Iraq rejected it as too limited in scope and an infringement on Iraq’s sovereignty.
There was little movement on the issue during 1991-95, despite dramatic declines in
Iraq’s living standards. 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 (document number S/1996/356) 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 food and medical needs of the Iraqi
people, and Resolution 1153 (February 20, 1998) raised the oil export ceiling to
$5.256 billion per 6-month phase. 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),
1 For a further discussion of Security Council resolutions and requirements on Iraq, see CRS
Issue Brief IB92117, Iraq: Weapons Programs, U.N. Requirements, and U.S. Policy.
2 That embargo was imposed by U.N. Security Council Resolution 661 of August 6, 1990.
CRS-2
abolished the export limit. This resolution had a number of additional provisions and
implications for the oil-for-food program, as discussed below.
Program Operations Prior to the 2003 War
The following sections discuss the operations of the oil-for-food program as it
has existed from inception in December 1996 until the U.S.-led war that began
March 19, 2003. As discussed later in this report, the international community has
adjusted the program to function during the war and the post-war period, and the
United States is proposing to phase it out entirely and allow Iraq to resume normal
commercial interactions.
In order to ensure that only humanitarian objectives are served by the program,
the oil-for-food program placed substantial controls on Iraqi oil exports and
humanitarian imports. Iraq’s state-owned oil marketing company (State Oil
Marketing Organization, SOMO) negotiates with international oil companies to sell
Iraqi oil. Oil purchase contracts are reviewed by a panel of oil contract overseers
reporting to the U.N. Sanctions Committee,3 which administers the implementation
of sanctions on Iraq. The oil overseers review Iraq’s pricing proposals monthly. Iraq
is only allowed to export oil under the program, not any other products.
The oil sold 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, now BNP-
Paribas). Iraq’s oil exports are monitored at the point of exportation by personnel
from Saybolt Nederland BV, an energy services firm working under contract to the
program.
In each six-month phase of the program, Iraq purchases goods and services
directly from supplier firms, in accordance with an agreed distribution plan allocating
anticipated revenues among categories of goods to be purchased in that phase. Prior
to the major amendment to the program approved in May 2002, which is discussed
below, the Sanctions Committee reviewed and had authority to approve contracts for
the export of goods to Iraq. The Committee operates by consensus. Any Sanctions
Committee member could place a “hold” on a contract for goods to be imported by
Iraq, and the United States often placed holds on exports of dual use items (civilian
items that could have military applications). In deciding whether to place a hold on
a contract, the U.S. representative on the Sanctions Committee consulted with
agencies of the U.S. government to determine whether Iraq could use the requested
items for military purposes.
Under the procedures adopted in Security Council Resolution 1409 (May 14,
2002) and placed into effect in July 2002, the U.N. weapons inspection unit
(UNMOVIC, U.N. Monitoring, Verification, and Inspection Commission) reviews
3 The Sanctions Committee, set up by Resolution 661, consists of representatives of the
member states on the U.N. Security Council.
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export contracts to ensure that they contain no items on a designated list of dual use
items known as the Goods Review List (GRL). If so, the Sanctions Committee then
decides whether to approve that portion of the contract containing the GRL items in
question.
Under U.S. regulations written for the program, U.S. firms can buy Iraqi oil and
sell goods to Iraq, including oil industry spare parts and equipment. Over the past
few years, purchases of Iraqi oil by U.S. firms have ranged between one-third to one-
half of Iraq’s pre-2003 war export volume of about 2.1 million barrels per day. In
February 2003, just prior to the start of the war, U.S. imports of Iraqi oil were tending
toward the high end of that range, about 1 million barrels per day. The U.S. imports
come primarily by purchases from intermediate energy trading firms rather than
direct buys from Iraq. (See appendix for an overview of U.S. regulations governing
U.S. firms’ participation in the program.)
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
Cotecna4 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 Baghdad-controlled Iraq, the Iraqi government distributes
imports to the population through an extensive government rationing system that
employs about 40,000 Iraqis. Distribution is monitored by about 158 U.N. 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 targeted 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. Some goods
bound for the Kurdish-controlled areas are combined with Baghdad’s purchases in
order to obtain more favorable prices in bulk.
Under Security Council Resolution 1051 (March 27, 1996), exports to Iraq of
dual use items are supposed to be monitored by U.N. weapons inspectors at their
point of entry and site of end use in Iraq. This import monitoring mechanism was
altered during 1998-2002 when the U.N. weapons inspection regime was not in
operation inside Iraq. Security Council Resolution 1284 (December 17, 1999)
replaced UNSCOM with UNMOVIC, which was to perform that end-use monitoring
function after reentering Iraq in November 2002, although UNMOVIC withdrew
from Iraq on the eve of Operation Iraqi Freedom before beginning those monitoring
activities. During the 1998-2002 hiatus in weapons inspections, end use monitoring
in Iraq was performed by some of the 158 U.N. employees who monitor the
distribution of civilian goods coming into Iraq. However, these monitors were not
trained weapons inspectors, and this caused the United States and Britain to closely
scrutinize, and to place many holds on, exports of dual use items to Iraq.
4 Cotecna replaced Lloyd’s Register as point-of-entry monitoring contractor on February 1,
1999.
CRS-4
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 have been distributed as follows:
! 25% is transferred to a U.N. Compensation Commission (UNCC) to
pay reparations to victims of Iraq’s invasion of Kuwait. As provided
for in Security Council Resolution 1284 (adopted December 1999),
the deduction percentage was reduced in December 2000 to this
level from its previous level of 30%.
! 59% is used to purchase humanitarian items for Baghdad-controlled
Iraq. This account was increased from its previous level of 53%
when the reparations deduction was reduced in December 2000.
! 13% is used to purchase supplies in the three Kurdish-inhabited
provinces of northern Iraq.
! 3%, the remaining amount, pays for U.N. costs to administer the oil-
for-food program, as well as UNMOVIC’s operating costs.
Changes Outlined in Resolution 1284. U.N. Security Council Resolution
1284, adopted December 17, 1999, was intended in part to improve the provision of
relief for the Iraqi people and to offer Iraq an incentive to readmit U.N. weapons
inspectors. The following highlights key provisions of it and related decisions:
! As noted previously, Resolution 1284 eliminated the limit on the
amount of oil Iraq could export, in order to enable Iraq to generate
more revenues for humanitarian purchases.
! Resolution 1284 began the process, continued in subsequent oil-for-
food program rollover resolutions, of easing restrictions on the flow
of civilian goods to Iraq. The resolution 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 would not be vulnerable to “holds.” The accelerated
approval procedures for foodstuffs and educational goods began in
March 2000, and continued with pharmaceuticals, medical supplies,
medical equipment, and agricultural equipment (March 2000); water
treatment and sanitation supplies (August 2000) goods for the
housing sector (February 2001) and electricity supplies (May 2001).
! The resolution laid the groundwork for foreign investment to explore
for and produce oil in Iraq, although the resolution made this
investment contingent on full Iraqi cooperation with UNMOVIC. In
2000 and 2001, the Sanctions Committee approved drilling in
existing fields by two Russian firms (Tatneft and Slavneft) and a
Turkish firm (Turkish Petroleum Company), but exploration of new
fields was still not permitted.
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! Resolution 1284 created incentives for Iraq to cooperate with
UNMOVIC by “express[ing] the intention,” if Iraq is deemed to
have “cooperated in all respects” with UNMOVIC, to suspend
export and import sanctions for 120 days, renewable by Security
Council. The resolution implied that the Security Council would
have to vote to implement the sanctions suspension. If sanctions had
been suspended under this provision, Iraq would have been allowed
to control its own revenues, subject to strict but unspecified financial
controls, arms exports to Iraq would have still been banned, and
exports of dual use items would still have been subject to scrutiny by
the Sanctions Committee. These provisions of Resolution 1284
were rendered irrelevant by the U.S.-led decision to go to war
against Iraq.
! Resolution 1284 also made some oil industry spare parts eligible for
a streamlined approval process — contracts for such equipment are
scrutinized by the same Sanctions Committee panel of oil overseers
that review Iraq’s oil sales contracts, without requiring full Sanctions
Committee review. 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. As
of November 30, 2002, about $1.55 billion worth of oil industry
spare parts had arrived in Iraq under the program.
Accomplishments of the Program (Pre-War)
There is a consensus among U.N. officials and outside observers that the oil for
food program eased substantially, but did not eliminate, severe economic hardship
in Iraq. The program, as well as some economic liberalization measures and illicit
activity outside the program (discussed below), enabled Iraq to achieve 15%
economic growth during 2000, according to the CIA’s “World Factbook: 2001.”
Few observers question that the program made vast amounts of funds available
for the purchase of food, medicine, and essential civilian goods. The information in
Table 1, supplied by the United Nations’ Office of the Iraq Program, shows that
higher oil prices, coupled with program modifications, enabled Iraq to generate
substantial revenues to fund imports. At times since the program began operations
in December 1996, Iraq has generated 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 substantial deductions are taken to pay the cost of implementing the
program and for reparations payments.
From inception until February 21, 2003, the program generated over $63 billion
in revenues. From inception until November 30, 2002, contracts for exports to
Baghdad-controlled Iraq of civilian goods worth $38 billion have been approved,
with goods worth $24.4 billion having been delivered. For Kurdish-controlled
northern Iraq, import contracts worth about $4 billion have arrived from inception
CRS-6
until November 30, 2002, including about $3 billion purchased in concert with
Baghdad’s purchases. Another $600 million in locally produced goods and contracts
in the north were procured during the time period.
As noted in Table 1, Iraq’s sales of oil ran significantly below capacity during
2001 and much of 2002. The decrease was largely a result of disputes between Iraq
and the United Nations over the formula for pricing Iraq’s oil. Some members of the
Sanctions Committee have sought to complicate Iraq’s ability to impose surcharges
on its oil buyer — such surcharges of about 30 - 50 cents per barrel constitute illicit
revenue and are prohibited. In September 2001, to reduce Iraq’s surcharging ability,
the pricing formula was changed to “retroactive pricing,” in which the oil is priced
after sale. This significantly reduced Iraq’s oil sales by about 25%, although the
United Nations noted a rebound to previous levels (about 2 million barrels per day)
as of September 2002. Iraq has sometimes unilaterally interrupted the sale of oil to
protest Security Council policy or to challenge the United States and its allies. For
example, Iraq suspended its oil sales for the month of April 2002 in protest against
Israel’s military incursion into the West Bank.
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Table 1. Revenue Generated by Oil-For-Food Program
(through February 2003)
Average
Phase Number
Volume Sold
Value of Export
Price per
(each phase is six months)
(millions of barrels)
($billion)
Barrel ($)
One
120
2.15
17.92
December 10, 1996 - June 7, 1997
($2 billion export ceiling)a
Two
127
2.125
16.73
June 8, 1997 - December 4, 1997
Three
182
2.085
11.46
December 5, 1997 - May 29, 1998
Four
308
3.027
9.83
May 30, 1998 - November 25, 1998
(Export ceiling raised to $5.2 billion by
Resolution 1153)
Five
360.8
3.947
10.94
November 26, 1998 - May 24, 1999
Six
389.6
7.402
19.00
May 26, 1999 - December 11, 1999
Seven
343.4
8.302
24.13
December 12, 1999 - June 8, 2000
(Export ceiling lifted permanently by
Resolution 1284)
Eight
375.7
9.564
25.50
June 9, 2000 - December 5, 2000
Nine
293
5.638
19.24
December 6, 2000 - July 3, 2001
Ten
300.2
5.35
17.82
July 4, 2001 - November 30, 2001
Eleven
225.9
4.589
20.31
December 1, 2001 - May 29, 2002
Twelve
232.7
5.639
24.3
May 30, 2002 - December 4, 2002
Thirteen (as of February 21, 2003)
130.5
3.618
27.7
December 5, 2002 - June 3, 2003
Totals
3,117.3
56.412
Source: U.N. Office of the Iraq Programme. [http://www.un.org/Depts/oip/].
a. Applicable U.N. Security Council resolutions allow 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.
CRS-8
The following represent the major accomplishments of the program in
improving the living standards of the Iraqi people, taken mostly from a report by the
U.N. Secretary General to the U.N. Security Council, dated November 12, 2002.
Food. According to the U.N. report, in Baghdad-controlled Iraq, Iraqis were
receiving about 2,200 kilocalories of food per person per day - about 90% of the U.N.
target caloric intake of 2,463 kilocalories per person per day. The full ration was
achieved only during December 2000. The report noted that 60% of Iraq’s families
rely solely on the food ration under the program to meet all household needs. The
U.N. report did not identify any food problems for the three Kurdish provinces,
which is consistent with press reports that food had become relatively abundant there,
sometimes to the detriment of local agricultural production.
Health, Sanitation, and Electricity. The U.N. report said that there were
“notable” achievements in the health sector, including an increase in major surgeries
performed and a reduction in communicable diseases. This and previous U.N.
reports on the program noted improvement in the diagnostic and other equipment in
use in Iraq’s hospitals. In the related area of water and sanitation, the U.N. report
said that there had been some recent improvement in access to potable water,
although access was still insufficient in both quantity and quality. The U.N. report
said the situation in the electricity had been “improving gradually,” noting a more
reliable supply of electricity to Iraqis than was the case previously.
In mid-1999, UNICEF released its first country wide survey of infant and
maternal mortality in Iraq since 1991. The 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. It showed 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. According to the report, this
increase in mortality resulted in about 500,000 more deaths among children under
five than would have been the case if child mortality trends noted prior to 1990
(imposition of sanctions) had continued. In northern Iraq, 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.
Education. The U.N. report identified significant shortages of materials and
equipment throughout the education sector, particularly school overcrowding. The
report says that the recent distribution of 1.2 million school desks has met 60% of the
need at primary and secondary schools. According to an earlier report (September
8, 2000), Iraq’s literacy rate (53.7% of adults and 70.7% of the youth) “has remained
fixed for a number of years.”
CRS-9
Pre-War Debates Over Sanctions
The accomplishments of the program did not end debate over how strictly to
enforce some of the program’s restrictions. The United States and Britain tended to
place most of the blame for the program’s shortcomings on Iraq, alleging that the
Iraqi regime disregarded the needs of its people. U.N. administrators of the program
criticized Iraq on similar grounds, but they also attributed program deficiencies to
U.S. and British policy, which they said slowed or halted the flow of infrastructure
equipment that was required to realize the program’s benefits.
The issue of contract “holds” on infrastructure equipment was one of the most
contentious that the United Nations has faced. Past U.N. reports on the program
claim that infrastructure equipment, such as trucks, communications gear, forklifts,
electricity, and water treatment equipment, were crucial to the timely distribution and
proper storage and functioning of foodstuffs and medical products. At the time of
the adoption in May 2002 of aspects of the “smart sanctions” plan discussed below,
the United States had placed almost $5 billion of goods on hold. In response to
criticism of the holds, the United States asserted that 90% of all contracts were
approved and that the holds had minimal impact. The United States maintained that
all contracts needed to be scrutinized to ensure that no equipment would be used to
rebuild WMD programs, especially during the time U.N. weapons inspectors were
not in Iraq (December 1998 - November 2002) to monitor dual use exports that were
shipped there. U.N. reports did 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, made such allegations.
The “Smart Sanctions” Plan. At the start of the George W. Bush
Administration, with no permanent end to international sanctions in sight due to the
lack of U.N. weapons inspections, the debate over further modifications to the oil-
for-food program was the centerpiece of a broader debate over Iraq policy and
sanctions. The debate intensified in May 2001 when the five permanent members of
the U.N. Security Council began discussing the U.S. plan to adopt “smart sanctions”
on Iraq. The smart sanctions plan represented an effort, articulated primarily by
Secretary of State Colin Powell at the beginning of the Administration, to rebuild a
consensus to contain Iraq. When it came into office, the Bush Administration
asserted that international sanctions enforcement was collapsing and that Iraq was
using the relaxation to acquire prohibited goods and raise illicit revenue. The U.S.
smart sanctions proposal centered on a trade-off in which restrictions on the flow of
civilian goods to Iraq would be greatly eased and, in return, Iraq’s illicit trade with
its neighbors would be brought under the oil-for-food program and its monitoring and
control mechanisms. The net effect, according to the concept, would be to target
sanctions only on limiting Iraq’s strategic capabilities, and not on its civilian
economy.
The smart sanctions plan was intended to defuse criticism by several
governments, including permanent members of the U.N. Security Council France,
Russia, and China, that the United States was using international sanctions to
promote the overthrow of the Iraqi government or to punish Iraq indefinitely for the
invasion of Kuwait. These governments appeared to believe that no amount of Iraqi
cooperation with the United Nations would be sufficient to persuade the United
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States to lift sanctions on Iraq, and they and other governments moved unilaterally
to skirt or erode the sanctions regime.
Differences between the permanent members over how to implement these
measures prevented immediate agreement on the U.S. plan. However, the September
11, 2001 attacks and the war in Afghanistan brought the United States politically
closer to Russia and, to a lesser extent, China, and the Security Council reached
agreement to adopt some elements of the U.S. plan, as provided for in Security
Council Resolution 1409 (May 14, 2002). The resolution created the Goods Review
List (GRL), mentioned above, a list of dual use items that are subject to review by
UNMOVIC before they can be exported to Iraq. The Goods Review List is contained
in U.N. document S/2002/515 of May 3, 2002; it can be found online at the U.N. oil-
for-food program web site [http://www.un.org/depts/oip].
Resolution 1447 (December 4, 2002) contained a pledge to add, within 30 days,
certain items to the GRL, items that the United States said could be used by Iraq to
counter a U.S. military offensive. The Security Council added 36 U.S.-suggested
items to the GRL on December 30, 2002 (Resolution 1454).
Enhanced border control provisions, a central element of the original U.S. smart
sanctions plan, were not included in Resolution 1409, largely because of strong
opposition by Iraq’s neighbors to controls on illicit trade with Iraq. Iraq’s neighbors
maintained that enhanced border controls would harm their economies. The
resolution did not contain U.S. proposals that would have restricted civilian flights
to Iraq. It did not permit new foreign investment in Iraq’s energy sector, a provision
that had been sought by Russia, France, and China, whose energy companies had
signed deals to explore for oil and gas in Iraq once sanctions are lifted.
Other Sources of Pre-War Humanitarian Aid
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 provided additional relief to supplement the oil-for-
food program. UNICEF, ECHO, 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, these aid sources declined as donors
perceived that the oil-for-food program was largely satisfying Iraq’s needs. Secretary
General Annan 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.
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There is no single source for information on pre-war humanitarian assistance to
Iraq. A report of the Organization for Economic Cooperation and Development
(OECD), which provides donor information for the years 1994 through 1998,
indicated that Iraq received a total of $76.36 million in bilateral assistance in 1998.5
This did not include any funds provided by U.N. agencies but does include grants by
the European Commission (ECHO). A Washington-based official of the European
Commission said in June 2001 that the European Union had given over $200 million
in aid to Iraq since 1991.
Pre-War Exportation to Iraq
Although the oil-for-food program did not open Iraq to free and unfettered
international trade, firms of many countries participated in the program by buying
Iraqi oil and selling civilian goods. Table 2 provides a list of countries whose firms
exported more than $25 million worth of goods to Iraq in 1998, the latest full year for
which international statistics are available. It is probable that almost all of the
exports in these statistics represent oil-for-food related transactions, although it is
possible that some transactions were conducted separately from the program, under
pre-existing U.N. regulations that allowed Iraq to import certain civilian items using
its own funds. The statistics do not cover illicit trade that, by nature, generally goes
unreported to statistics-keeping organizations.
5 Geographical Distribution of Financial Flows to Aid Recipients. Disbursements,
Commitments, Country Indicators. 1994-1998. OECD. 2000.
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Table 2. Major Exporters of Goods to Iraq (1998)
(in millions of dollars)
Country
Value of Goods Exported
Australia
196
Belgium/Luxembourg
66
China
105
France
256
Germany
86
India
36
Indonesia
45
Iran
30
Italy
37
Jordan
150
Malaysia
31
Russia
43
Switzerland
28
United Kingdom
42
United States
106
Pre-War Illicit Trade
In order to generate funds that it could use without restriction, the regime of
Saddam Hussein allegedly conducted illicit oil dealings with its neighbors and other
countries, imposed surcharges on oil buyers, and solicited kickbacks from suppliers
of humanitarian and other civilian goods. The primary concern of U.S. officials was
that Iraq was reportedly using these revenues to buy prohibited military and WMD
technology. In February 2000, the Clinton Administration accused the Iraqi
government of using such resources to build nine lavish palaces (valued at about $2
billion) and to import non-essential items such as cigarettes and liquor,6 rather than
to alleviate economic hardships for the Iraqi people.
There are no authoritative figures for the value of illicit trade with Iraq.
However, the most widely cited estimates come from a study, released in May 2002
by the General Accounting Office (GAO).7 According to the GAO study, Iraq earned
$6.6 billion in illicit revenue from oil smuggling and surcharges during 1997-2001.
Of that total, GAO estimates $4.3 billion was from illicit oil sales and $2.3 was from
6 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.
7 GAO-02-625. Weapons of Mass Destruction: U.N. Confronts Significant Challenges in
Implementing Sanctions Against Iraq. General Accounting Office, May 2002.
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surcharges on oil and commissions from its contracts to buy civilian goods
(kickbacks). The study estimated that during 2001, Iraq earned $1.5 billion from
illicit oil sales through Jordan, Syria, Turkey, and the Persian Gulf; and about $700
million from surcharges and contract kickbacks.
Additional details on the Baath regime’s illicit dealings are discussed below.
Jordan. After the Gulf war, Jordan notified the Security Council that it was
importing Iraqi oil (between 70,000 - 100,000 barrels per day as of March 2002,
according to the GAO study) at below-market prices. According to Jordanian
officials, the oil was in exchange for civilian goods and write-downs of Iraq’s debt
to Jordan. The United States supported the Sanctions Committee decision to “take
note of” the Jordanian purchases - neither approving them nor deeming them a
violation. The Administration routinely waived unilateral sanctions on Jordan that
could be imposed because of this trade.8 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 program; goods imported under the
program are monitored at all points of entry, including the Iraq-Jordanian border.
Iran/Persian Gulf. The GAO study estimates that Iraq was exporting illicitly
about 30,000 - 40,000 barrels per day through the Persian Gulf in March 2002. This
exportation was apparently conducted with cooperation from Iran. Of the funds
generated through this export channel, about one-half went to Iraq, one-quarter to
smugglers and middlemen, and one-quarter to Iran’s Revolutionary Guard for
“protection fees” to allow the shipments to hug its coast and avoid capture. Many
believe that exports through the Gulf were higher during 1998-2000, but they fell
because Iraq was diverting oil to the Syrian route, where there were fewer
middlemen to pay.
Syria/Military Technology Exports to Iraq. In late 2000, according to
several press reports, Iraq began exporting oil through an Iraq-Syria pipeline, closed
since 1982 but now repaired. According to the GAO study, Iraq exported 180,000 -
250,000 barrels per day through this route in March 2002, and exports through Syria
are believed to be at similar levels as of early 2003. This exportation was reputedly
under a bilateral agreement with Syria under which Syria refined the Iraqi oil for
domestic use, and paid Iraq about half the world market price for oil, freeing up
extra Syrian oil for export. The United Nations did not formally approved this export
route and the U.S. position was that it is illegitimate. Many experts believe the
United States did not forcefully press Syria to cease this importation in order to enlist
Syria’s support in the global war on terrorism and the U.S. effort to build
international support for confronting Iraq.
Before the war, there was growing U.S. concern that Syria was becoming a
major transit point for prohibited imports by Iraq of military equipment and
technology that could be used for WMD. In July 2002, a respected Israeli military
8 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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expert reported that Syria had served as a transit point for Iraq’s importation of
Russian-made engines for combat aircraft (sold by Ukraine) and tanks (sold by
Bulgaria and Belarus), and Czech-made anti-aircraft cannons (sold by the Czech
Republic).9 According to the same article, Syria also passed on prohibited equipment
to Iraq sold by Hungary and Serbia. In late September 2002, the Bush
Administration initiated what it called a “temporary pause” in U.S. assistance to
Ukraine (about $55 million held up) because of allegations that Ukraine had provided
the “Kolchuga” early warning radar system to Iraq. If the system was shipped to Iraq,
it is not known whether it was transported through Syria. In February 2001, the
United States struck an air defense network that was being upgraded with the help
of a Chinese firm, according to press accounts, although it is not known how the fiber
optic equipment reached Iraq.
Syria and Operation Iraqi Freedom. Syria opposed U.S. efforts to obtain
specific U.N. Security Council authorization for war against Iraq, and it publicly
sided with “the Iraqi people” during the war. After the start of the U.S.-led war
against Iraq, Defense Secretary Rumsfeld accused Syria of allowing transshipment
of military goods to Iraq, including night vision equipment, and warned Syria to
cease allowing such transit. Administration officials have accused Syria of allowing
former members of Saddam’s regime to flee there as the regime fell, although Syria
has expelled some former regime members to Iraq where they were subsequently
captured by U.S. forces. On April 15, 2003, about a week after the Baath regime fled
Baghdad, U.S. military officials announced that they had shut the flow of Iraqi oil
through Syria.
Turkey. According to the GAO study, Iraq exported the equivalent of 40,000 -
80,000 barrels per day of oil through Turkey in March 2002. The exportation was
in the form of 450 Turkish trucks per day carrying Iraqi oil products (not crude oil)
through the Iraqi Kurdish areas into Turkey in spare fuel tanks. The Turkish
government taxes and regulates the illicit imports. As in the case of Jordan, the U.S.
Administration had routinely waived the imposition of U.S. sanctions on Turkey for
permitting this illicit trade. Some reports suggest that commerce between Iraq and
Turkey slowed to a crawl, if not halted entirely, in February 2003 in anticipation of
the U.S.-led war against Iraq.
Oil Sales Surcharges. As noted above, the GAO study estimated that Iraq
earned over $700 million in 2001 from oil sales surcharges and kickbacks on
purchases of goods. The GAO study obtained that estimate by assuming that Iraq
obtained a surcharge of 35 cents on each barrel of oil sold under the oil-for-food
program. The GAO estimated the “kickback” percentage for Iraq at 5 percent of the
value of each purchase contract. In September 2001, the Sanctions Committee
moved to curb Iraq’s ability to surcharge on oil sales by adopting a “retroactive
pricing” formula. The United Nations said in late September 2002 that Iraq, in part
due to the pricing formula, had ended its surcharging practice and that Iraq’s oil sales
were rebounding.
9 Schiff, Ze’ev. Syria Buys Arms for Iraq. Ha’aretz, July 15, 2002.
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Prior to adopting retroactive pricing, the Sanctions Committee had evaluated
but not adopted another idea - to limit Iraq’s oil buyers to major international oil
firms, rather than smaller oil traders that were willing to pay Iraq the surcharge. A
press report in March 2001 (Reuters, March 8, 2001) listed companies that were
purchasing Iraqi oil; many are small companies from countries that seek to do
business with Iraq or are sympathetic to easing sanctions on Iraq. U.S. major oil
companies are said to buy Iraqi oil shipments from these small traders.
The list included Italtech (Italy); Mastek, and Quantum Holdings (Malaysia);
Zarubezhneftegas, Mashinoimport, Slavneft, Sidanco, and Rosneftimpex (Russia);
Fenar (Lichtenstein); Emir Oil, Coastal Oil Derivatives, and Benzol (United Arab
Emirates); Nafta Petroleum, and KTG Kentford Globe (Cyprus); Glencore, and Lakia
Sari (Switzerland); Al Hoda (Jordan); Belmetalenergo (Belarus); Samasu (Sudan);
Erdem (Turkey); African Petroleum (Namibia); Shaher Trading (Yemen); Aredio
(France); Commercial Home (Ukraine); Awad Ammora (Syria); Montega (South
Africa); Afro Eastern (Ireland); and Bulf Drilling (Romania).
Oil Exploration Contracts. There are no public allegations that any
international oil companies had begun new oil exploration investments in
contravention of existing U.N. resolutions. However, a number of companies have
signed exploration deals that would go into effect if the ban on oil exploration is
lifted. Much of the focus of U.S. officials has been on oil exploration deals by
Russian firms. In general, Russia seeks to obtain repayment of Iraq’s $7.6 billion in
debt to Moscow and possibly to earn funds selling arms to Iraq if such sanctions are
eventually lifted.
In August 2002, it was reported that Russia and Iraq had agreed to a $40 billion
economic cooperation agreement, although it is not clear that any of the planned
cooperation would have violated oil-for-food or other sanctions guidelines. Russian-
Iraqi commercial relations were set back somewhat in December 2002 when Iraq
overturned a presumptive contract with Russia’s Lukoil to develop the West Qurna
field (see below). Iraq acted reportedly on the grounds that Lukoil had held
discussions with Iraq’s opposition about Lukoil’s possible role in developing the
energy sector of a post-war Iraq.
France10 has long had substantial economic interests in Iraq as well and
reportedly is owed $5 billion to $ 7 billion by Iraq, although some reports cite a
French National Assembly study that contains a much lower figure of about $2.25
billion. As noted above, France has been a major exporter of goods to Iraq and
several major French companies export equipment to Iraq under the oil-for food
program; these companies include Peugeot (automobiles and parts), Renault Trucks,
and Alcatel (telecommunications equipment).
10 Some of the information and analysis in this section was provided by Paul Gallis,
Specialist in European Affairs, Foreign Affairs and Trade Division.
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Some of the presumptive contracts for oil exploration in Iraq, signed with the
government of Saddam Hussein, include the following:11
! Al Ahdab field — China National Oil Company (China)
! Nassiriya field — Agip (Italy) and Repsol (Spain)
! West Qurna — Lukoil (Russia)
! Majnoon — Total Fina Elf (France)
! Nahr Umar — Total Fina Elf (France)
! Tuba — ONGC (India) and Sonatrach (Algeria)
! Ratawi — Royal Dutch Shell (Britain and the Netherlands)
! Block 8 — ONGC (India)
It is not known whether these contracts will be considered valid in post-war
Iraq. Some of the companies listed above, and their parent governments, fear that the
United States and Britain might invalidate the contracts and award new exploration
deals predominantly to U.S. and British firms. Since the fall of Saddam Hussein’s
regime, no decisions on these issues have been announced by the United States or
Britain.
Other Iraqi Debt / Reparations. There are no authoritative figures on the
amount of Iraqi debt owed to other countries, although some press reports quote
totals over $100 billion in official and commercial debt.12 As noted above, Iraq is
believed to owe France about $5 billion to $7 billion, although the figure might be
as low as $2.25 billion, and Russia is owed almost $8 billion. Germany is owed
about $4 billion, and Japan is owed about the same amount. Some press reports say
Iraq owes at least $1.1 billion to South Korean companies. Poland is owed about $1
billion. Iraq also owed about $35 billion to the Persian Gulf states for monies lent
to Iraq to help it fight the Iran-Iraq war, although most experts believe that the Gulf
states had not expected to be repaid. Some press reports have Iraq’s debt to the Gulf
states at about $55 billion. The Bush Administration is now pressing foreign
governments to write off the bilateral debt owed by Iraq to free up additional funds
for post-war reconstruction.
The issue of bilateral debt is separate from that of that of reparations payments
mandated by the United Nations after the 1991 Gulf war. Under that process, about
$320 billion of total reparations claims have been filed, although not all claims filed
are paid, or paid at the asserted value. Some experts expect that, once all claims are
evaluated, about $200 billion in total claims, including those already decided, will
be approved, although some press reports, quoting U.N. Compensation Commission
officials, say the final figures are likely to be far lower, perhaps $40 billion.13 As of
April 2003, the United Nations has approved about $44 billion in claims, of which
about $16 billion have been paid. Seeking to free up funds for reconstruction, the
11 Morgan, Dan and David Ottaway. In Iraqi War Scenario, Oil Is Key Issue. Washington
Post, September 15, 2002.
12 Maclean, William. War Claims and Debt May Stall Iraq’s Oil Schemes. Middle East
Times, June 2000. The Cold Calculation of War. The Economist, April 5, 2003.
13 Iraq May Owe Less Than Previously Expected in Gulf War Claims. Bloomberg News,
May 2, 2003.
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U.S. draft Security Council resolution, circulated on May 9, 2003, proposes reducing
the deduction for reparations payments to 5% of Iraq’s total revenues, from the
current rate of 25%.
Flights to Iraq. Since September 2000, Iraq may have conducted an unknown
amount of additional illicit trade aid from flights to and from Iraq. These flights
began as relief flights carrying humanitarian aid, intended to challenge the U.S. and
British interpretation of U.N. Security Council Resolution 670 (September 25, 1990).
Resolution 670 requires the banning of flights to or from Iraq that are carrying any
“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. 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 Resolution
670 restricts all flights to Iraq was not correct.
The cargo on these flights was not subjected to any U.N. monitoring to ensure
that the cargo comports with oil-for-food guidelines. Since September 2000, regular
charter flights took place between Iraq and Syria and Iraq and Jordan. The United
States criticized those governments that allowed the flights to proceed without
approval, but no U.S. or U.N. measures were taken against the flights or against
Jordan or Syria.
One donation to Iraq in November 2000 drew strong U.S. criticism and a
sanction. A member of the royal family of Qatar presented Saddam Hussein 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, the Clinton Administration 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. U.S. officials said that sanctions were
imposed to ensure that U.S. goods would not be improperly diverted to Iraq.
The Oil-for-Food Program
In Wartime and Post-War Iraq
The Bush Administration has begun to implement its plans for administering
Iraq now that the regime has fallen in the course of Operation Iraqi Freedom. The
Administration, as noted above, is seeking to phase out the oil-for-food program and
lift U.N. sanctions in order to transition Iraq to a more normal economy. The oil-for-
food program was suspended just before hostilities began, when U.N. staff in Iraq
that help run the various aspects of the program departed Iraq. As the war began, $9
billion worth of humanitarian goods were in the process of being delivered or in
production, and about $2.7 billion remained in the escrow account unallocated.
Iraq’s oil infrastructure is currently being repaired and Iraq does not have the
capability, at this time, to produce enough oil to allow for exports.
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Resolution 1472. At the height of the fighting in Operation Iraqi Freedom,
on March 28, 2003, the U.N. Security Council adopted Resolution 1472 that restarts
the program and empowers the United Nations to take more direct control of the
program for 45 days. The resolution authorized the U.N. Secretary General to set
priorities for and redirect the delivery of shipments of goods contracted for. The
resolution also eases international sanctions on Iraq to facilitate the delivery of
humanitarian supplies to Iraq by international relief organizations and groups. U.N.
staff have begun to return to Iraq and the coordinator of the oil-for-food program,
Benon Sevan, has begun allocating a number of supply contracts for entry into Iraq
under the authority of Resolution 1472. n April 24, 2003, the U.N. Security Council
adopted Resolution 1476, extending the authorities of Resolution 1472 until June 3,
2003, which is the date the current phase of the oil-for-food program is to expire.
It is possible that Iraq’s distribution network, which employs about 40,000 Iraqis,
might not fully function again until security returns to Iraq’s major cities.
The issue of Iraq’s resumption of oil exports is a further complication. Some
experts believe it might be several months before Iraqi oil exports resume. Even if
all oil infrastructure were repaired, there is still the question of who is legally able
to contract for sales of Iraqi oil once they are able to begin. The U.S. occupation
administration has set up an oil sector oversight team headed by former Shell Oil
executive Phillip Carroll and including several Iraqi oil industry professionals
including Fadhil Othman and Muhammad Ali Zainy. Iraq’s oil ministry is being run
by Thamir Ghadban, who reports to the oversight team. Once exports resume, there
will likely be a debate about the proportion of oil revenues to be devoted to
upgrading Iraq’s oil production facilities; such reinvestment is crucial to boosting
Iraq’s production to about 3 million barrels per day from pre-war output of about 2.4
million barrels per day.
U.S. and U.N. Sanctions and the Post-War Period 14
The United States has decided to press for a lifting of international sanctions
in order to permit normal commerce with Iraq, rather than depend on a continuation
of the oil-for-food program. The United States is seeking to lift U.N. sanctions
through a U.N. Security Council resolution that the United States began circulating
on May 9, 2003. The Bush Administration wants a vote on the draft resolution the
week of May 19, 2003, but some countries, reportedly including France, are still
seeking changes to the draft. If adopted in its latest reported form, the resolution,
among other provisions related to Iraq’s post-war governance and such outstanding
issues as the fate of missing Kuwaitis, would:
! end the U.N. embargo on trade with Iraq, except for the sale of
supply to Iraq of arms or technology that could be used for WMD;
14 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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! establish a “Development Fund” for Iraq, held by the Central Bank
of Iraq and audited by accountants reporting to an advisory board
that includes representatives of the IMF and World Bank;
! transfer the unallocated funds of about $2.7 billion in the oil-for-
food program escrow account into the Development Fund,
! phase out the oil-for-food program over a period of four months,
including completing all contracts already agreed under the oil-for-
food program.
! reduce the percentage of Iraqi oil revenue devoted to reparations
from the current 25% level to 5%.
! require the identification, freezing, and turnover to the Development
Fund of all Iraqi assets located abroad.
The Bush Administration has begun to ease U.S. sanctions in a manner it calls
“wholly consistent” with current U.N. sanctions. The easing of U.S. sanctions was
implemented by a May 7, 2003 Executive order that exercises the sanctions easing
authorities provided to the President in Sections 1501 - 1504 of the FY2003
supplemental appropriations bill (H.R. 1559, P.L. 108-11) The President had
requested that authority in his request to Congress for FY2003 supplemental funding
to pay for the costs of the war, submitted March 25, 2003. The following discusses
major U.S. sanctions in place on Iraq and the Bush Administration’s exercise of
authorities to ease them.
The post-1990 Iraqi Sanctions Regulations implemented Executive Orders No.
12722 (August 2, 1990) and 12724 (August 9, 1990), issued after Iraq’s August 2,
1990 invasion of Kuwait. The executive orders imposed a ban on U.S. trade with
and investment in Iraq, and froze Iraq’s assets in the United States. The Iraq
Sanctions Act of 1990 (Section 586 of P.L. 101-513, signed November 5, 1990
reinforces those executive orders. The August 9, 1990 executive order amended the
August 2 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). That resolution imposed a comprehensive embargo on all Iraqi
imports and exports.
In the aftermath of Iraq’s invasion of Kuwait in 1990, Iraq was again placed on
the U.S. list of state sponsors of terrorism under Section 6(j) of the Export
Administration Act (P.L. 96-72). Iraq had been removed from the list in 1982.
Countries on the terrorism list are barred from receiving U.S. foreign assistance,
votes in favor of international loans, and sales of munitions list items (arms and
related equipment and services). Exports of dual use items (items that can have
military applications) are subject to strict licensing procedures.
As noted above, the FY2003 granted the President the authority to lift or render
inapplicable most U.S sanctions in Iraq - authorities that were exercised in the May
7, 2003 Executive order. The authority is available until September 2004, according
to P.L. 108-11. The following represent the U.S. sanctions that have now been eased:
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! The President’s exercise of the authorities suspends the application
of the Iraq Sanctions Act (Section 586 of P.L. 101-513), mentioned
above, but the provisions of the Iran-Iraq Arms Non-Proliferation
Act (P.L. 102-484) would remain in effect. That Act imposes
sanctions on persons or governments that export technology that
would contribute to Iraq’s advanced conventional arms capability or
weapons of mass destruction programs. (Section 1503 of H.R. 1559
gives the President the authority to suspend the application of “any
provision” of the Iraq Sanctions Act, while keeping intact the
provisions of the Iran-Iraq Arms Non-Proliferation Act.)
! The Executive order “makes inapplicable” the sanctions imposed on
Iraq as a consequence of its place on the terrorism list. (Section
1503 of H.R. 1559 gives the President the authority to “make
inapplicable” the sanctions that flow from Iraq’s presence on the
terrorism list.)
! The President requested the authority to render inapplicable to Iraq
any U.S. laws that direct the U.S. government to vote against or
oppose international lending to Iraq. (This authority is provided in
Section 1503.)
! the President requested authority to render inapplicable to Iraq
Section 307 of the Foreign Assistance Act of 1961. That provision
requires cuts in U.S. contributions to international programs that
work in Iraq (and other countries named in that section). (This
authority is provided in Section 1503.)
! Authority was requested that would enable the President to authorize
the export to (post-war) Iraq dual use items or arms if the President
determines that doing so is in the national interest. (Section 1504
gives the President the authority to export to Iraq non-lethal military
equipment and to export military equipment to a reconstituted or
interim Iraqi military. Section 1503 requires the President to submit
regular reports to Congress on any export licenses granted for the
exportation of dual use items to Iraq.)
In advance of congressional action, the Bush Administration began the process
of easing post-war sanctions on March 24, 2003. The President issued Presidential
Determination 2003-18, determining that providing direct assistance to Iraq is
important to the national security interests of the United States. That waiver, for use
in providing humanitarian relief to Iraq, is provided for in Section 507 of P.L. 108-7,
the consolidated appropriations for FY2003. That section bars direct assistance to
Iraq as well as the other six countries on the terrorism list (Syria, Iran, Cuba, North
Korea, and Sudan).
President Bush’s May 7, 2003 Executive order also eases the regulations that
previously governed U.S. commerce with Iraq. However, because the United Nations
has not yet lifted sanctions, most of the U.S. regulations that previously existed
remain in place. According to those regulations, U.S. firms have to apply to the
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Office of Foreign Assets Control (OFAC) of the Treasury Department for specific
licenses for the activities below under the oil-for-food program. The activities
previously needing specific licenses include the following:
! “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.”
! All transportation-related services, or the use by U.S. persons of
vehicles, ships or aircraft registered in Iraq, are prohibited. Travel-
related transactions by U.S. persons are also prohibited, with the
exception of travel related to journalism, or U.S. government or
United Nations business.
The May 7, 2003 Executive order allows some U.S.-Iraq commerce to take
place under general license. These include providing humanitarian aid, spending
money for the purpose of performing reconstruction contracts in Iraq for the U.S.
government, and making personal remittances to Iraq.15
15 Konig, Rachel and Rex Nutting. U.S. Lifts Some Sanctions on Iraq. CBS Marketwatch,
[http:// www.marketwatch.com] , May 7, 2003.