Sun, May 25, 2003 - Page 11 News List

Removal of sanctions brings little relief

IMMEDIATE CONCERNS The interim US administration complained of the restrictive effect of UN sanctions, but businessmen say security is their number one concern

NY TIMES NEWS SERVICE , BAGHDAD

Mohammed, aged 9, siphons oil to sell from a pipeline in southern Iraq, Friday. Oil production in Iraq is at only a fraction of its capacity. Although UN sanctions were lifted on Thursday, Iraq will not see the benefits of petroleum sales for months. The lack of security in the war-torn country is cited as the primary reason foreign companies are wary of plunging into Iraqi reconstruction projects.

PHOTO: REUTERS

The UN resolution to remove trade sanctions against Iraq will officially end 13 years of international isolation for this country. But business executives and other experts said on Friday that it would bring little immediate relief to Iraq's battered economy.

The new resolution will allow Iraq to export oil more freely, but Iraqi oil production is still only a fraction of its prewar level as a result of damage to refineries and pipelines. Production is so low that American military officials need to truck in more than a million liters of gasoline a day to meet the country's domestic needs.

Prohibitions on most Iraqi imports had for all practical purposes disappeared as soon as American and British forces defeated the government of Saddam Hussein. For weeks now, American border guards have turned a blind eye to traders who are importing everything from cars and candy to satellite dishes from Jordan, Turkey, Iran and Persian Gulf countries like Abu Dhabi.

Contrary to frequent complaints by American officials here about the obstacles created by the sanctions programs, business executives say the biggest restraint on trade and investment has been fear about the current state of lawlessness and instability.

"Lifting the sanctions was an essential ingredient, but the other is establishing an environment of security and stability," said Joseph Braude, an Iraqi-American business consultant and author of The New Iraq, a book on Iraq's prospects for postwar renewal.

Iraq also faces wrenching economic adjustments, which will not be made easier by the lifting of sanctions. On Friday, the American civilian administrator in the country, L. Paul Bremer , announced that the Iraqi armed forces and the information ministry would be dissolved. That decision will add hundreds of thousands of people to the country's unemployment rolls at a time when a huge but undefined percentage of workers are already jobless.

Foreign investors remain reluctant to commit money to Iraq because of the security problems here. But Iraqi leaders are far from clear about how much they want to encourage such investment. Some of the country's leading business families are urging foreign investors to team up with Iraqi partners and let the Iraqi partners retain more than half the shares in any ventures.

If that view becomes policy in the new Iraqi government, many foreign companies are likely to stay on the sidelines.

In a brief statement on Friday, Bremer said that ending the sanctions had created a "new day" for Iraqis and would allow them to "take one giant step forward in its recovery and its future prosperity."

But increased oil production and exports, the main path to money for rebuilding the country, is still some time away. As of a week ago, Iraqi oil fields were producing only 300,000 barrels per day (bpd). By comparison, Iraq produced about 2 million bpd before the war and about 3.5 million bpd at its peak level.

Thamir Ghadhban, the interim chief executive of the Iraqi Oil Ministry, predicted two weeks ago that the production could reach one million bpd by next month and more than 2 million bpd by the end of the year after sanctions were lifted.

In addition, Iraq has built up inventories of roughly 7 million barrels stored at the Turkish port of Ceyhan, which could provide the government with a quick, one-time source of cash.

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