US charged with aiding illegal Iraq oil exports under UN program

New York (Platts)--17May2005

In a scathing new report on the role of the US government in illicit oil
shipments by Iraq under the UN's oil-for-food program, Senate Democrats Monday
charged that the government facilitated the shipment of about 7.7-mil bbl of
crude oil from Iraq's Khor al-Amaya oil port outside the UN program, possibly
escorting some of the seven oil tankers through the Persian Gulf in direct
contravention of the policing effort meant to thwart such shipments. The
report was prepared by the minority staff of the Senate's Permanent
Subcommittee on Investigations, which has been investigating the
scandal-plagued former UN program. In addition to the latest revelations on
the tanker shipments, which have been the subject of speculation since they
were made on the eve of the US invasion of Iraq in 2003, the staff report also
provided new details on the role of US-based trader Bayoil in Iraq's illegal
surcharges effort.

According to the report, the 7.7-mil bbl of crude lifted from Khor al-Amaya on
the eve of the war was sold to a company controlled by the Shaheen Business
Investment Group, which was fronting for the Jordanian government. The Shaheen
group also has a license to build and operate a 60,000 b/d refinery in Jordan.
Citing a committee staff interview with an unnamed interviewee familiar with
the crude sale, the report said that Iraq sold the oil delivered through Khor
al-Amaya "for a price between $7 and $9/bbl". The sale was approved by senior
Iraqi officials. The Democratic staff report noted that at the time of the
deal, benchmark WTI crude oil was selling at around $30/bbl, while crude
grades comparable to Iraq's Basrah Light, which was lifted from Khor al-Amaya,
were selling at around $23/bbl. Khor al-Amaya was at the time not on the UN's
list of approved export sites for Iraqi crudes. Less than 1-mil bbl of the
total 7.7-mil bbl sold to Jordan appears to have made it there. The report was
unable to determine where the oil eventually wound up.

The report said the charterer and ship owner were each concerned enough about
the legality of the shipments to notify the US, but that they were told the US
would not intervene. Senator Carl Levin, the ranking Democrat on the
Investigations Subcommittee, told reporters in a phone briefing that, "we
explicitly knew that ships were being used to deliver" the oil. "Those ships
were allowed to pass through our controlled screening...We may have even
escorted some of those ships." A staffer told reporters that State and Defense
have thus far failed to allow their officials to be questioned by the
Subcommittee on those assurances. A staff source also said that while some
have sought to link the Khor shipments to the oil needs of Jordan's economy on
the eve of the war, the country had already secured sufficient oil supplies,
including from Saudi Arabia, and that it even exported around 1-mil bbl of
crude during that time.

The report also provided further details regarding the alleged illegal
surcharges paid to Iraq by US oil trading company Bayoil, whose owner David
Bay Chalmers Jr has previously been indicted in the US in connection with that
kickback scheme. The minority staff report, using both SOMO and Bayoil
documents, calculated that during the period of Iraq's illegal surcharge
effort, Bayoil paid "either directly or indirectly, illegal surcharges on
Iraqi oil purchases of at least $37-mil". It said that during that period, the
minority staff report also documented a wide range of US refiners who were
soaking up the Iraqi oil from Bayoil, but noted that it had found no evidence
that those refiners had been complicit in the surcharge scheme.

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