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To: Tomas who wrote (86430)	2/6/2001 1:40:56 AM
From: Tomas	Read Replies (2) \| Respond to of 95453

Phillips & Tosco: Transcript of a Bloomberg interview with Fadel Gheit quote.bloomberg.com

To: Tomas who wrote (86430)	2/6/2001 1:49:43 AM
From: Tomas	Respond to of 95453

The worst-kept secret in the oil business UN diplomats fume as Iraqi sanctions crumble to dust: Oil-consuming countries have an interest in keeping the country's crude flowing Financial Times, February 6 By Carola Hoyos and Roula Khalaf United Nations diplomats are becoming increasingly alarmed at the crumbling of the comprehensive sanctions against Iraq. The UK and France, which as recently as a month ago played down the impact of Iraq's strengthened ties with the international community, now believe the Iraqi regime is earning what amounts to Dollars 2bn a year from smuggling, double estimates of western governments a few months ago. On top of increased smuggling through Iran, Turkey, Syria and Jordan, evidence is mounting that companies buying Iraqi oil are paying a surcharge directly to the Iraqi government. "The cheating is the worst-kept secret in the oil business," says Antonio Szabo, president of Stone Bond, a Houston-based energy consultant. "The oil-consuming countries have a keen but concealed interest in keeping Iraqi crude flowing." UN diplomats agree. "Everybody knows - the Americans know, the French know and the (UN) oil overseers know," said one diplomat. The UN employs 1,000 international staff and 1,700 Iraqi nationals who are paid with Iraq's oil revenue. With arms inspectors blocked from returning to Iraq, control of Baghdad's finances has become one of the last means the UN has of preventing the country rebuilding its weapons programmes. But wresting control of Iraq's oil revenues back from the UN has also become Iraqi President Saddam Hussein's top priority. In recent weeks, middlemen with good Iraqi contacts have begun to accept Baghdad's demand for a surcharge on its crude oil in sales under the UN-approved oil-for-food deal. They resell the oil to traders, who pass it on to large companies. Analysts say these companies are taking Iraqi oil at a relatively high price because the production cut earlier this month by the Organisation of Petroleum Exporting Countries has left Iraq as the last resort. According to the UN, Iraq's exports doubled from December to January and now total about 1.2m barrels per day (b/d), but are still about 1m b/d short of their average capacity. The increase follows a two-month interruption during which Somo, Iraq's state oil company, tested the size of the surcharge buyers were willing to accept. Western officials point out that there are breaches of sanctions by companies selling to Iraq outside the oil-for-food programme, and these too are being ignored. "They have to import and export outside the oil-for-food deal and everyone is joining in, including big western companies," says a senior official. Syria has begun to import illegally as much as 100,000 b/d of Iraqi oil, according to diplomats. Iraqi oil trucks stream across Jordan's border, and Iran is doing little to stop tankers smuggling oil through the Gulf. The reopened pipeline to Syria is the most embarrassing development for the UN. Damascus is believed to be buying Iraqi oil to use in its own refineries and increasing exports of its own crude. Both Iraq and Syria are keen not to publicise the new trade. Damascus says it has no intention of breaching UN resolutions. But as one senior European official says: "Everyone knows, and they're all closing their eyes to this, while the Syrians say they're just testing the pipeline." Oil experts and diplomats say the UN is unable to prosecute those who break sanctions. But the more pervasive problem is that the Security Council, which designs the UN's policy on Iraq, is too divided to counter the violations.