Iraqis are desperate for hard currency to buy basic commodities
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The United States is to present a draft resolution at the United Nations' Security Council on Friday morning aimed at ending 12 years of sanctions against the country.
A copy of the draft obtained by the BBC proposes that all economic and financial embargoes on Iraq be lifted.
It also suggests that Iraq's oil revenues be used to fund aid and reconstruction, overseen by an international board which would include the UN Secretary-General, Kofi Annan.
We're certainly hopeful that everybody is going to enter in this discussion in a concerted and open manner
US ambassador to the UN John Negroponte
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Diplomats say however that the draft appears to leave nearly all power in the hands of the United States and its allies.
Russia, which has power of veto in the council along with France and China, wants to see a strong role for the UN to give any US-chosen Iraqi authority international legitimacy.
Russia and France also want the UN to follow procedures - opposed by Washington - which would require UN arms inspectors to declare Iraq free of weapons of mass destruction.
Sources say the mood on the UN Security Council, ahead of what is likely to be a long round of negotiations, is constructive.
But talks to get the support of countries who are against the lifting of sanctions, such as Russia, have so far been inconclusive.
US Assistant Secretary of State Kim Holmes met Russian officials in Moscow on Thursday and said he was "very pleased", but indicated no agreement had been reached.
In other developments:
- A US soldier of the 3rd Infantry Division was shot and killed by a sniper, while another is reported to have been killed in broad daylight at close range - both in Baghdad
- A special Iraqi court may be set up to try members of Saddam Hussein's Government for crimes against the Iraqi people
- A new police force is to begin guarding water installations in Basra, where there are fears of a cholera epidemic
- The US military says it is still holding about 2,000 prisoners in Iraq and is planning to hold on to about 500 for further interrogation.
Sanctions
Diplomats say US officials have begun circulating what they call "elements" of the proposed resolution and intend to share the complete text with all 15 members of the Security Council on Friday.
The sanctions were first imposed following Iraq's invasion of Kuwait in 1990 and were modified over the years to make it easier for Iraq to sell its oil in order to buy food and medicine.
As well as the lifting of sanctions, the resolution is also thought to include the phasing out over four months of the oil-for-food programme.
The draft resolution is reported to propose an international board to monitor the spending of Iraq's oil revenue, with a seat for a UN representative alongside multilateral institutions like the World Bank and the International Monetary Fund.
The resolution would also apparently allow some contracts concluded by the old Iraqi regime under the oil-for-food programme to be honoured - a move designed to please the Russians, says the BBC's Barnaby Mason.
It also foresees a role for a UN special co-ordinator to work on institutional reform.
Russian reluctance
Speaking before his meeting with Mr Holmes, Russian Foreign Minister Igor Ivanov endorsed moves to lift sanctions, but insisted the UN strictly follows procedures that require UN arms inspectors to declare Iraq free of weapons of mass destruction.
"The Iraqi people have already suffered from the sanctions
for more than 11 years and there is no reason why they should
continue to do so today," Mr Ivanov said.
"Regarding international sanctions against Iraq, they were
passed by the UN Security Council and only the UN Security
Council has the power to change or halt these sanctions," he
added.
The US is using its own investigators to hunt for alleged weapons of mass destruction, and has resisted requests that UN teams be allowed to return.
The threat posed by banned weapons was the primary reason stated by the US for invading Iraq, but none have been found to date.