16-01-01 BP and Exxon Mobil are buying cargoes of Iraqi crude oil in a move that may indicate a weakening of Western resolve over sanctions against the Iraqi state. The decision by BP and Exxon to resume purchases of Iraqi crude has caused astonishment among rival oil companies which continue to boycott Iraqi crude, fearing that cargoes may be tainted by kickbacks to the Iraqi regime.
Official oil sales under the UN oil-for-food programme collapsed from 2.1 mm bpd to just 600,000 bpd in December after Iraq's State Oil Marketing Organisation (SOMO) demanded surcharges of 40 cents per barrel, to be paid directly to Iraqi bank accounts. The UN programme was designed to provide funds to purchase essential food and medicine for the Iraqi people and payments are supposed to be made exclusively into a UN escrow account.
Since then buyers of Iraqi crude have been dominated by Russian companies and obscure traders. These include Italtech from Italy, Belmetalenergo, a company from Belarus, and Fenar from Liechtenstein. These buyers will almost certainly sell on the cargoes before the oil reaches a refinery.
BP said it did not deal directly with SOMO but had bought a cargo from "a reputable trader", "because the market is tight and it was available". A BP spokesman said it had received contractual assurances from the seller that the cargo complied with UN rules and would not have done so without assurances. A spokeswoman for Exxon confirmed that it had bought cargoes of Iraqi crude. "They did not come directly from Iraq. We are extremely stringent in following UN and US guidelines on this issue," she said.

Other oil companies, including Shell and TotalFinaElf, are continuing to avoid Iraqi oil. The Iraqi authorities are sticking to their demands for surcharges having decided to "institutionalise" the practice. Privately, some oil traders say that the UN programme has lost credibility because the organisation is not checking up on the buyers. "Everyone and his dog is trading Iraqi oil," one trader said.
A Shell spokesman said the company had not bought Iraqi crude since the beginning of December: "We want an assurance from the Iraqis that their pricing policy is in line with UN rules. We have yet to receive that."
Iraq first demanded a surcharge last November. The issue came to a head in December when the UN Office of the Iraqi Programme refused to approve Iraq's price formula because it was too far below the market level. However, the UN eventually agreed to a 30 cent per barrel "discount" from the market price.
In a separate development, the Kuwaiti Foreign Minister endorsed lifting of sanctions against Iraq. Sheikh Sabah al-Ahmad al-Sabah said that it was the Iraqi regime which did not want the removal of the embargo.