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Tuesday, February 3, 1998 Published at 18:03 GMT



Special Report

A people suffering under sanctions
image: [ Crude oil - Iraqs most important export. ]
Crude oil - Iraqs most important export.

The effect of the Gulf war

The Gulf War "wrought near apocalyptic results on the economic infrastructure" of Iraq, according to an official UN report published in mid-March 1991.

It put Iraq back to a "pre-industrial age but with all the disabilities of post-industrial dependency on an intensive use of energy and technology".

The UN imposed economic sanctions on Iraq in August 1990. In December 1996 the UN passed Resolution 986, which allowed "oil-for-food" sales, which are governed by stringent restrictions.

Full economic sanctions will not be lifted until the UN is satisfied that Iraq's weapons of mass destruction have been destroyed.

Iraq had a huge foreign debt even before the Gulf War. It is now estimated to be around $200,000m. The direct costs of the war for Iraq are estimated to be over $50 billion for military equipment alone.

The effect of UN sanctions

The UN sanctions affect nearly every sphere of economic activity. Oil exports fell from an estimated 2.3 m barrels in 1989 to 1.6 m barrels in 1990. They were estimated to be down to 39,000 barrels in 1991, and 59,000 in 1993. New investment has now virtually ceased, and most basic facilities are run down.


[ image: Mother grieves over children
Mother grieves over children "who died from sanctions".
Huge increases in the costs of basic foodstuffs and the collapse of the Iraqi dinar have resulted in unrest, particularly following the decision in September 1994 to halve the basic ration issued to all Iraqis. Begging and criminal activity are now widespread.

By 1995 an average monthly salary of 5000 dinars would buy only two chickens. The infant mortality rate has risen from 25 per 1000 births before the war to 92% per 1000 births by 1994 according to UNICEF.

Despite such problems, analysts say the economy could recover fairly quickly if sanctions were lifted.

Before its invasions of Kuwait, the Iraqi government was beginning to liberalise the economy, and discussions were beginning on privatisation. Reserves of oil remain substantial, there is considerable agricultural potential, and the middle classes are well educated.

Oil for food

Iraq delayed approval of the oil-for-food programme for four years. It was not until January 1996 that Iraq and the UN agreed to negotiate a Memorandum of Understanding.


[ image:  ]
The oil-for-food programme was launched in December 1996. Iraq can now sell limited amounts of oil to buy food and medicine. In a six month period Iraq can sell $2 billion worth of oil and two thirds of the revenue raised by the sale of this oil can go to buy food and medicine.

The other third pays for the UNSCOM weapons inspection programme and is also paid to Kuwait in reparations for the damage caused by the Gulf War.


[ image: Almost one-third of small Iraqi children are underfed.]
Almost one-third of small Iraqi children are underfed.
However, this is unlikely to solve the pressing humanitarian needs of the Iraqi people. Distribution of supplies has been uneven and aid agencies argue that the amount of oil that Iraq can sell to buy food and medicine should be increased.

The UN Secretary-General, Kofi Annan, has also called for restrictions to be eased. On 1 February 1998 he issued a report to the UN Security Council calling for the amount of oil that Iraq can sell every six months to be increased to $5.2 billion. This would mean that $3.6bn would be set aside for purchases of food and medicine.

Iraqi officials are opposed to the oil-for-food programme, and have threatened to stop co-operating with it unless the workings of it are improved. The UN Security Council agreed last December to a six month extension for the programme. However, Iraq said it would not export oil until the UN agreed to its plan for the delivery and distribution of food and medicine.

The effect of the Gulf war

The Gulf War "wrought near apocalyptic results on the economic infrastructure" of Iraq, according to an official UN report published in mid-March 1991. It put Iraq back to a "pre-industrial age but with all the disabilities of post-industrial dependency on an intensive use of energy and technology".

The UN imposed economic sanctions on Iraq in August 1990. In December 1996 the UN passed Resolution 986, which allowed "oil-for-food" sales, which are governed by stringent restrictions. Full economic sanctions will not be lifted until the UN is satisfied that Iraq's weapons of mass destruction have been destroyed.

Iraq had a huge foreign debt even before the Gulf War. It is now estimated to be around $200,000 million. The direct costs of the war for Iraq are estimated to be over $50 billion for military equipment alone.

The effect of UN sanctions

The UN sanctions affect nearly every sphere of economic activity. Oil exports fell from an estimated 2.3 m barrels in 1989 to 1.6 m barrels in 1990.


[ image: Iraqis queue for rationed food.]
Iraqis queue for rationed food.
They were estimated to be down to 39,000 barrels in 1991, and 59,000 in 1993. New investment has now virtually ceased, and most basic facilities are run down.

Huge increases in the costs of basic foodstuffs and the collapse of the Iraqi dinar have resulted in unrest, particularly following the decision in September 1994 to halve the basic ration issued to all Iraqis. Begging and criminal activity are now widespread.

By 1995 an average monthly salary of 5000 dinars would buy only two chickens. The infant mortality rate has risen from 25 per 1000 births before the war to 92% per 1000 births by 1994 according to UNICEF.

Despite such problems, analysts say the economy could recover fairly quickly if sanctions were lifted.

Before its invasion of Kuwait, the Iraqi government was beginning to liberalise the economy, and discussions were beginning on privatisation. Reserves of oil remain substantial, there is considerable agricultural potential, and the middle classes are well educated.

Oil for food

Iraq delayed approval of the oil-for-food programme for four years. It was not until January 1996 that Iraq and the UN agreed to negotiate a Memorandum of Understanding. The oil-for-food programme was launched in December 1996. Iraq can now sell limited amounts of oil to buy food and medicine. In a six month period, Iraq can sell $2 billion worth of oil. Two thirds of the revenue raised by the sale of this oil can go to buy food and medicine.

The rest pays for the UNSCOM weapons inspection programme, with some money going to Kuwait to pay for the damage caused by the Gulf War.

However, this is unlikely to solve the pressing humanitarian needs of the Iraqi people. Distribution of supplies has been uneven and aid agencies argue that the amount of oil that Iraq can sell to buy food and medicine should be increased.

Kofi Annan, the UN Secretary-General, has also called for restrictions to be eased. On February 1, 1998, he issued a report to the UN Security Council calling for the amount of oil that Iraq can sell every six months to be increased to $5.2 billion. This would mean that $3.6billion would be set aside for purchases of food and medicine.

Iraqi officials are opposed to the oil-for-food programme, and have threatened to stop co-operating with it unless the workings of it are improved.

The UN Security Council agreed last December to a six month extension of the programme. However, Iraq said it would not export oil until the UN agreed to its plan for the delivery and distribution of food and medicine.

Oil sales and market

  • In the global oil market, there is concern that that the combination of Iraqi exports, increased competition from outside the middle-east and slackening demand due to the Asian crisis will lead to an over-supply of oil and falling prices. Oil prices have already fallen to their lowest level in four years.

  • A number of foreign companies have been in talks on investing in Iraq. Companies from Canada, China, Russia and France have all been involved. Some have come to statements of "understanding" with Iraq, although these will only take effect after the UN sanctions have been lifted. The companies want to secure contractual rights to major oil fields.

  • The UN embargo prevents any investment in Iraq and the unauthorised export of Iraqi oil.

  • Iraq's strategy has been to use foreign oil deals to try to increase pressure to end sanctions.

  • The stop-start nature of UN monitored Iraqi oil exports also adds volatility to the world oil market, especially as Iraqi exports are based on a value, rather than a volume target of a certain number of barrels.
     





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