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Case Studies in Sanctions and Terrorism

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Case 90-1
US and UN v. Iraq (1990–: Invasion of Kuwait, Impairment of military capability, destabilization)
See also Case 80-2 US v. Iraq (1980–2003: Terrorism; Chemical and Nuclear Weapons)

| Chronology of Key Events | Goals of Sender Country | Response to Target Country |
Attitude of Other Countries | Legal Notes | Economic Impact | Assessment |
Author's Summary | Bibliography |

Economic Impact

Observed Economic Statistics

Prior to the War

Iraq: Foreign Trade, 1982-89 (millions of dollars)
	Total imports from:				Food imports from:
Year	World	OECD	US		OECD	US
1982	19,497	14,861	846		1,100	130
1983	9,326	6,532	512		909	336
1984	8,967	6,376	664		1,476	503
1985	9,555	6,728	427		1,037	288
1986	7,897	5,629	527		797	292
1987	6,656	4,369	684		1,094.6	460
1988	9,256	6,113	1,156		1481.9	690
1989	9,899	6,586	1,291		1508.6	629
	Total exports to:				Petroleum exports to:
Year	World	OECD	US		OECD	US
1982	10,589	6,046	42		5,947	35
1983	8,623	4,915	61		4,813	57
1984	9,867	5,486	129		5,332	124
1985	11,117	7,333	491		7,172	485
1986	8,110	5,308	473		5,156	467
1987	10,019	6,689	526		6,913	513
1988	9,970	7,198	1,605		6,976	1,589
1989	12,284	6,844	2,324		8,906	2,530

n.a. = not available
Source: International Monetary Fund; Organization for Cooperation and Development.

Kuwait has approximately $100 billion in foreign assets, investments worldwide. Kuwaiti commercial investments, estimated at $50 billion, earned $8.8 billion in 1989 compared with $7.7 billion from shipments of oil. (Financial Times, 3 August 1990, 4; 10 August 1990, 4)

US Commerce Department official estimates that half of Kuwaiti foreign investment is in US, 20 percent in UK, 30 percent elsewhere in Western Europe, Japan. (New York Times, 3 August 1990, A9)

Iraq's foreign debt is estimated to be between $50 billion and $70 billion, its annual shortfall in hard currency is estimated at $7 billion. Iraq's foreign assets are thought to be negligible. Kuwait estimates that Iraq seized $300 million to $400 million in gold, $10 million to $15 million in foreign currencies in invasion. Much of this money will probably be channeled into sanctions-busting campaign rather than used to pay off debts. (Washington Post, 19 August 1990, H1; Financial Times, 28 August 1990, 2; Economic Intelligence Unit 35; Commerce Department 5)

Kuwait has fourth largest petroleum reserves in world, produces 1.6 million barrels a day. Following absorption of Kuwait, Iraq stands to double its control of oil reserves to 194 billion barrels, second only to Saudi Arabia with 255 billion barrels. Iraqi, Kuwaiti production together is about 4.5 million barrels a day. Oil accounts for over 90 percent of Iraq's exports; annualized estimate of potential revenue from exports, based on second-quarter 1990 export volumes, prices (average $14.32 per barrel), is $13.2 billion. (New York Times, 3 August 1990, A8; 4 August 1990, A5; Rogers 4)

In 1989, oil from Iraq, Kuwait accounted for about 11 percent of total EC imports; Denmark is especially dependent, importing 54 percent of its oil from the two countries. Japan imports 12 percent of its oil from Iraq, Kuwait, is owed about $5 billion by Iraq. (Washington Post, 5 August 1990, A24; Wall Street Journal, 6 August 1990, A1)

Perhaps 75 percent of shortfall in oil supplies from Iraq, Kuwait could be replaced in short run from other sources: Saudi Arabia increases its oil production by 1.5 million to 2 million barrels per day; Venezuela increases production by 350,000 barrels per day immediately, promises additional 150,000 by year-end; UAE increases production by 500,000 barrels per day. USSR is unable to increase production immediately. To offset Japan's loss of 440,000 barrels per day, Iran will increase its sales to Japan from 280,000 to up to 700,000 barrels per day. Brazil has negotiated to buy 100,000 barrels of oil a day from Iran. (US Department of Commerce, 19; New York Times, 15 August 1990, D3; 27 August 1990, D10; Wall Street Journal, 17 August 1990, A3; 27 August 1990, A3; IMF Morning Press, 17 August 1990; Financial Times, 24 August 1990, 3)

Saudi Arabia stands to earn extra $11 billion in 1990, additional $33 billion in 1991 from increased oil output, higher prices. (Washington Post, 26 August 1990, A25; IMF Morning Press, 22 August 1990)

USSR expects to gain $1 billion a year for every $1 a barrel increase in price of oil. USSR produces 12 million barrels per day, exports 20 percent; half goes to Western countries, half to Eastern Europe. China, Mexico, Indonesia, Romania will also gain economically from increased oil prices. (New York Times, 10 August 1990, D1; Washington Post, 12 August 1990, H7; 19 August 1990, H5)

"About 21 percent of Iraq's total area of 444,400 square kilometers is arable. Up to 70 percent of this arable land is under cultivation, with 44 percent of this area irrigated and the remainder dependent on rainfall and flooding. One-third of Iraq's work force is engaged in agriculture and related activities. Barley, rice and dates are grown in the south and wheat is grown in the north. Milk, sheep and goat meat, poultry and fish are principal products for domestic consumption." (Financial Times, 21 August 1990, 3)

US Department of Agriculture calculates that Iraq imports about 60 percent of its food in good harvest years, about 70 percent in bad. Following 1990 summer and fall harvests, Iraq should have four-month supply of wheat, rice, seven-month supply of barley, one-and-a-half-month supply of corn at normal rates of consumption. (New York Times, 20 August 1990, A1; Washington Post, 27 August 1990, A8; Wall Street Journal, 28 August 1990, A12)

Iraq: Agricultural trade and consumption, 1987-89 ^a

	Major suppliers (percent of total Iraqi imports)							Thousands of metric tons		Imports as percentage of consumption
Commodity	US	EC	Australia	Thailand	Brazil	Canada		Imports	Consumption
Soybean meal	96.0				3.0			250	250	100
Vegetable oils	27.0	4.0						302	318	95
Sugar	20.0	13.0			40.0			588	630	93.3
Corn	97.0			2.0				644	725	88.8
Wheat	31.0		40.0			26.0		3,225	3,939	81.9
Rice	92.0			8.0				571	698	81.8
Beef		61.0			32.0			94	139	67.6
Barley	44.0	12.0				43.0		296	1,243	23.8
Poultry	80.0	4.0			14.0			32	306	10.3

^a Data are averages for the three years

Source: US Department of Agriculture

US agricultural shipments to Iraq totaled about $1 billion, or 2.5 percent of US farm commodity exports, in 1989, when Iraq was 12th-largest purchaser of US agricultural products overall and largest importer of US rice (taking 14 percent of US rice exports). US share of total Iraqi agricultural commodity imports rose from about 20 percent in 1986 to approximately 40 percent in 1988. (Journal of Commerce, 9 August 1990, 6A; New York Times, 9 August 1990, D19; Washington Post, 23 August 1990, A41; US Department of Agriculture, by communication with authors; US Department of Commerce 14)

Iraq has received about $5 billion in US food subsidies since 1983, $2.5 billion in export loan guarantees since 1988, $141 million in direct export subsidies since 1985. Guarantees were suspended in 1990, all other aid has been cut by embargo. (Wall Street Journal, 10 August 1990, A1)

Turkey's trade with Iraq is $2 billion a year, about 3 percent of Turkey's GNP. Turkey will lose about $400 million in revenues from closure of oil pipeline. Iraq owes Turkey $800 million, supplies it with 60 percent of its oil needs. (Washington Post, 10 August 1990, A30; 16 August 1990, A31)

Jordan's trade with Iraq is $900 million a year, about 25 percent of Jordan's annual output. Jordan sends 40 percent of its exports to Iraq, imports 90 percent of its oil from Iraq, much of it in lieu of payments on longstanding Iraqi debt. Jordan says it will lose $2 billion a year in implementing embargo, including $200 million in exports, mostly food, to Iraq, $200 million in fees for goods passing through Jordan, over $300 million in workers' remittances. Jordan expects to lose about $190 million in aid from Iraq, Kuwait; Iraq will probably discontinue about $295 million in debt repayment to Jordan. President Hosni Mubarak says Egypt, with foreign debt of $50 billion, could lose $2 billion a year from combined loss of remittances from Egyptian contract workers, reduced tolls on Suez Canal, decline in tourism. (New York Times, 15 August 1990, A19; Washington Post, 16 August 1990, A31; 23 August 1990, A40; Wall Street Journal, 24 August 1990, A12)

Pakistan's balance of payments deficit is expected to increase by $1.1 billion because of increases in oil prices, loss of workers' remittances, costs of enforcing embargo ($600 million in increased oil imports; $300 million in lost remittances). (IMF Morning Press, 17 September 1990)

Iraq owes $16.5 million to Hungary, estimated $1 billion to Bulgaria. Poland will lose $1 billion in arms sales, construction contracts, $500 million in exports still awaiting payment. Brazil may have to pay an extra $1.6 billion for oil in 1990, drawing on foreign currency reserves needed to service its $115 billion in foreign debt. (Washington Post, 19 August 1990, H5; 20 August 1990, A19; Financial Times, 9 August 1990, 3; New York Times, 27 August 1990, D10)

India's current account deficit is estimated to widen by $2 billion in fiscal 1990[end]91: $1.2 billion of this is due to increased oil prices, $300 million to additional shipping costs plus fall in remittances from 240,000 Indian workers in Iraq, Kuwait. (Financial Times, 31 August 1990, 6)

Funds committed to Economic Action Plan (billions of dollars)

Donor	Funds
Saudi Arabia (for Operation Desert Shield)a	6.0
Kuwait	5.0
United Arab Emirates	1.0
Total Arab aid	12.0
Japan	2.0
Aid to front-line states	0.6
Immediate loans	2.0
Operation Desert Shieldb	4.6
Total Japanese aid
South Korea
Aid to front-line states	0.1
Operation Desert Shield
Cash	0.05
Materials and services	0.07
Total South Korean aid	0.22
European Community
Pledged aid	2.0
Germany
Operation Desert Shieldc	2.0
Total Commitments	20.8

a. Includes in-kind donations of fuel, water, transportation
b. For transportation, desert equipment, medical teams, chartered aircraft.
c. For 60 armored vehicles equipped for chemical, biological warfare, plus training.
Source: Washington Post, September 23, 1990, A30.

Speaking before the House Armed Services Committee, CIA Director William Webster testifies that the embargo has shut off 97 percent of Iraq’s exports and more than 90 percent of its imports, and that Iraq will likely run out of foreign exchange reserves "by next spring." Webster says that output is severely curtailed at a number of Iraq’s industrial and assembly plants, including Iraq’s only tire-manufacturing facility. He further predicts that "only energy-related and some military industries "will still be operating by spring and "[t]his will almost certainly be the case by next summer." However, Webster points out that sanctions are effecting Iraqi military forces "only at the margin." "Under non-combat conditions, Iraqi ground and air forces can probably maintain the current level of readiness for
as long as nine months." (Washington Post, 6 December 1990, A43)

After the War

A special UN mission to Iraq in March, led by UN Under Secretary General Martti Ahtissari, concludes that Iraq has "for some time to come, been relegated to a pre-industrial age, but with all the disabilities of post-industrial dependency on an intensive use of energy and technology." (New York Times, 3 June, 1991, A1)

A classified administration analysis of the aerial bombing campaign concludes that it destroyed most of the country's electrical grid, in turn affecting water purification and sewage treatment facilities and raising serious public health concerns. A Harvard University study team concludes that the public health consequences of the infrastructure destruction might result in tens of thousands of additional deaths by the end of 1991. Damage to communications and transportation systems is also severe. (New York Times, 3 June, 1991, A1)

The UN's World Food Program (WFP), after a 2-week mission to Iraq, determines that 30 percent of children under the age of five suffer from severe malnutrition. Seventy percent of the population has been forced to live off government rations, which provide only half of the minimum caloric requirements. (Economist, 21 October 1995, 45)

Before the Gulf War, Iraq imported about two-thirds of its food. Since sanctions were imposed, the lack of oil revenue to pay for food imports (which are themselves banned) has made the country turn instead to local agriculture. But [sanctions] prevent the import of spare parts, chemicals for fertilizers and pesticides and all kinds of machinery that might have some military use.
Without them the Iraqis are incapable of maintaining foodproduction, let alone increasing it. (Economist, 21 May 1998, 44)

Iraq prices of selected foods (dinars per kilogram)
Commodity	July 1990		August 1991		February 1993		June 1993
Wheat flour	0.12		2.36		4.00		21.00
Rice	0.20		3.62		9.50		17.00
Vegetable oil	0.70		9.82		22.00		65.50
Sugar	0.20		4.42		11.50		29.50
Tea	1.00		25.18		58.00		192.00
Red meat	6.00		15.18		75.00		90.00
Eggs (per 30)	2.25		13.25		68.00		80.00
Source: Clawson (1993), based on data from the World Food Program.

Iraq: Import costs for official rationing program, 1993
	Flour	Rice	Sugar	Cooking oil	Baby milk	Tea	Total
Ration (kg/person/mo.)	9.00	2.75	1.50	.05	2.40	–	–
Imports/year (tons)	1,308	348	326	109	47	16	2,155
Imports/year (millions of US$)	309	139	98	51	166	41	804
Source: Clawson (1993), based on USDA, UN, FAO, IMF, and Iraqi data.

Iraq: Production of crude oil, 1988-2001 (thousand barrels per day)
1988	1989	1990	1991	1992	1993	1994
2,685	2,897	2,040	305	425	512	553
1995	1996	1997	1998	1999	2000	2001
560	579	1,155	2,150	2,508	2,571	2,432
Source: US Department of Energy, Energy Information Agency, www.eia.doe.gov.

UN approved reparation claims resulting from Iraqi occupation of Kuwait, $1.39 billion. (White House 1995)

As of January 1998, net blocked Iraqi assets in the US amount to $1,434.5 million. (OFAC, Terrorist Assets Report, January 1998, 5)

"[In 1991], Iraq’s total external debt was estimated at $43 billion. Its size constituted 65% of the Gross Domestic Product." (Cordesman 1997, 156) "With virtually no debt-service payments made after 1991, the foreign debt has risen to an estimated $119bn by the end of 1997, of which $80.8bn was arrears on principal and $38.1bn arrears on interest." (Economist Intelligence Unit, EIU Country Profile: Iraq, 1998-99, 29)

“With virtually no debt-service payments made after 1991, the foreign debt has risen to an estimated $119bn by the end of 1997, of which $80.8bn was arrears on principal and $38.1bn arrears on interest.” (Economist Intelligence Unit, EIU Country Profile: Iraq, 1998-99, 29)

"Annual inflation, which was running at 45% before Iraq invaded Kuwait in 1990, jumped to an average 500% in 1991. The UN Food and Agricultural Organization (FAO) has calculated that, from the imposition of sanctions to the end of 1995, food prices had risen 4,000-fold. ...A financial crisis at the end of 1995 forced [the Iraqi government] to raise the price of the basic monthly ration almost 50-fold between January and March 1996." (Economist Intelligence Unit, EIU Country Profile: Iraq, 1998-99, 15)

"The official value of the dinar, which has remained at ID0.331:$1 since 1982, bears no relation to its black-market rate. This hit a low of ID2,660:$1 in December 1995, at the height of the economic crisis generated by inflation and
sanctions. It recovered on news that Iraq was entering talks with the UN on an oil-for-food deal, to a peak of ID650:$1 in February 1996. Since 1995 state banks have been allowed to trade at an unofficial rate; this stood at ID450:$1 in February 1996. The continuing weakness of the Iraqi economy and the scarcity of foreign exchange due to UN sanctions have contributed to the dinar’s further decline against the dollar. The average black-market exchange rate for 1997 was estimated by the EIU at ID1,498:$1." (Economist Intelligence Unit, EIU Country Profile: Iraq, 1998-99, 29)

"The effect of the sanctions regime has been catastrophic. Official figures have not been released for many years but real GDP is estimated to have fallen by nearly two-thirds in 1991, owing to an 85% decline in oil production and devastation of the industrial and services sectors of the economy. Agricultural
growth has since been low and erratic, and manufacturing output has all but vanished. With the oil-for-food deal, GDP is estimated to have risen by 25% in 1997. But growth is concentrated in the oil sector, and sanctions continue to stifle other sectors of the economy." (Economist Intelligence Unit, EIU Country Profile: Iraq, 1998-99, 14-15)

The Iraq sanctions committee has made several grossly inappropriate waiver decisions, casting a shadow on the efficiency of the implementation of UN Security Council sanctions against Iraq: "At one point, five tons of patchouli leaves were cleared as a food stuff (!); there have several times been sugar notifications in volumes twice what the total population could possibly consume; there have been massive approvals for agricultural equipment without any indication of how they were to be financed; there have been massive flows of teacups and drinking glasses. Items are described manipulatively in order to strengthen their claim of humanitarian usage (e.g. textiles are disguised as "coffin cloth"); the unit prices given are open to question: e.g. detergent for $4/ton, water glasses for $10 a piece." (Conlon, 86)

"[I]raq’s average per capita income dropped from a peak of $8,161 in 1979 to $2,108 in 1989... [and]to well under $1,000 a year in 1992-1995." (Cordesman 1997, 124)

"According to the new Iraqi oil minister Lieutenant General ‘Amir Muhammad Rashid, Iraq lost $85 billion in revenue as a result of the ban on the export of its oil between August 6, 1990 and July 1995." (Cordesman 1997, 136)

"Iraq...has not found any way to bypass the sanctions regimes. It has had only limited success in smuggling oil across its borders, and its main illegal export has been dates-exports worth, at most, $10 million a year. Even in the case of dates, Iraq has faced major problems with the Multinational Interception Force
(MIF) in the Gulf. The MIF has seized some $9 million worth of Iraqi dates since 1994." (Cordesman 1997, 140)

Sources report that 150,000 tons of diesel oil may be smuggled out of Iraq each month, fetching around $30-$50 a ton below market price. (Journal of Commerce, 8 October 1997, 14A)

"Amatzia Baram, a professor of Middle Eastern history at the University of Haifa and a visiting professor at Georgetown University, ... estimates about 50,000 barrels per day of [Iraqi] oil goes through the Gulf—down from 120,000-150,000 b/d three months ago, perhaps in part due to more intense naval policing by the US. About 100,000 b/d goes to Jordan, sold in effect at half price. That smuggled by truck over land borders, mainly through Turkey, amounts to 50,000-70,000 b/d, he says." (Financial Times, 22 December 1998, 3)

"According to Western diplomats.... Iraq was able to illegally export 1,868,466 barrels of oil in 1996, 10,497,000 barrels the following year, 13,296,000 barrels in 1998 and 7,557,838 barrels in 1999. Smuggling began to increase again in September, and record levels of smuggling were reported in December, January and February. If current prices stay high, it is estimated that Iraq will sell about 33,590,390 barrels of illegal gas oil—akin to diesel fuel—this year." (New York Times, 24 March 2000, A3)

"... [Iraq] is now pumping as much as $2 million a day in oil through a recently reopened pipeline to Syria in violation of UN sanctions.

"The Syrian pipeline opens a fourth smuggling route for Iraq, along with Turkey, Jordan and the Persian Gulf, and could boost the government’s direct oil revenue to well over $2 billion a year, according to U.S. official and U.N. diplomats...." (Wall Street Journal, 24 January 2001, A6)

"Oil analysts say the illegal trade [with Turkey] ... —and similar sanctions—evading trade between Iraq and its neighbors Jordan and Syria—puts as much as $1 billion a year directly into Iraqi President Saddam Hussein’s pockets.... The neighbors are enticed into the transaction, experts said, because they receive the oil and fuel at deep discounts—perhaps 40 percent below market value—and the trade has become a critical part of their economies. .... Furthermore, Hussein has threatened to cut off the oil trade to Jordan, Syria and Turkey if they implement the "Smart sanctions," leading to a groundswell of opposition in frontline countries whose support is critical to the success of any sanctions program. (Washington Post, 1 July 2001, A14)

Oil-for-Food program (as of 21 March 2003)
Phasea	Volume of oil (millions of barrels)	Value of oil exported (millions of dollars)
I	120	2,150
II	127	2,125
III	182	2,085
IV	308	3,027
V	360.8	3,947
VI	389.6	7,402
VII	343.4	8,302
VIII	375.7	9,564
IXb	293.0	5,638
X	300.2	5,350
XI	225.9	4,589
XII	232.7	5,639
XIII	169.6	4,413
Source: UN, Office of Iraq Programme, http://www.un.org/Depts/oip/background/basicfigures.html
a. Phases: I: 10 December 1996; II: 8 June 1997; III: 5 December 1997; IV: 30 May 1998; V: 26 November 1998; VI: 25 May 1999; VII: 10 December 1999; VIII: 8 June 2000; IX: 5 December 2000; X: 20 May 2001; XI: 6 December 2001; XII: 30 May 2002; XIII: 5 December 2002.
b. Beginning with Phase IX Iraq required that payments be made in Euros instead of US dollars. Dollar amounts quoted are those reported by UN, Office of Iraq Programme.

"The first oil under the [oil-for-food] programme was exported on 10 December 1996. For the first three six-month phases the Security Council set a ceiling of two billion dollars on oil exports in each phase. For the phases IV and V the ceiling was raised to $5.2 billion but low price of oil and the state of Iraq’s oil industry put that out of reach. In phase VI, the Security Council, resolution 1266 (1999), recognized the earlier shortfalls and permitted Iraq to export an additional $3 billion worth of oil. Security Council resolution 1284 (1999) removed the ceiling on Iraqi oil exports." (UN, Office of Iraq Programmme, http://www.un.org/Depts/oip/latest/basicfigures.cfml)

Iraqi Imports under Oil-for-Food program, 1996-2003, by country of origin (millions of dollars)
		World	US		France		UK		China		Russia
				percent of total		percent of total		percent of total		percent of total		percent of total
1996		568.4	3.1	0.5	0.0	0.0	19.3	3.4	1.1	0.2	0.0	0.0
1997		1136.0	90.2	7.9	52.8	4.6	11.5	1.0	64.9	5.7	5.7	0.5
1998		1852.8	117.2	6.3	281.3	15.2	46.9	2.5	115.0	6.2	47.4	2.6
1999		2110.3	21.6	1.0	327.4	15.5	63.0	3.0	162.7	7.7	83.1	3.9
2000		3449.6	12.0	0.3	392.5	11.4	84.8	2.5	320.0	9.3	98.9	2.9
2001		5665.3	51.0	0.9	650.3	11.5	95.3	1.7	437.6	7.7	206.1	3.6
2002		5869.9	34.8	0.6	487.5	8.3	78.2	1.3	462.9	7.9	403.2	6.9
2003		4684.1	347.2	7.4	190.7	4.1	237.7	5.1	61.7	1.3	240.2	5.1
Source: IMF, Direction of Trade Statistics, CD-Rom, August 2004.

"So far, Mr. Hussein has played deftly on America’s rage and Russia’s fears. He gave Russia by far the largest share of Iraq’s contracts last year—$1.3 billion—under the United Nations oil-for-food program, ... In late September, ... Baghdad announced plans to award Russian companies another $40 billion in contracts as soon as United Nations sanctions were lifted." (New York Times, 3 February 2002, 3)

"U.N. officials estimate that Iraq has levied illegal surcharges ranging from 20 cents to 70 cents on every barrel of oil it has sold through the oil-for-food program since late 2000—adding up to as much as $300 million. In addition, Iraq smuggles huge quantities to Turkey and Jordan. All told, U.S. State Department officials believe Mr. Hussein reaps $2.5 billion a year in illegal oil revenues, which they say he uses to develop weapons of mass destruction and consolidate his power." (Wall Street Journal, 2 May 2002, A1)

To eliminate the surcharges "US and British members of the Iraq sanctions committee delayed their approval of the official Iraqi oil selling price ... as long as possible. ... But the net effect was a fall in Iraqi oil exports, not the elimination of surcharges, ... As a result, in the first few months of this year, when the new pricing system really took hold, Iraqi exports fell significantly. U.N. diplomats estimate that, because of the drop in exports, the new pricing system kept some $60 million in potential surcharges away from Mr. Hussein. … The most striking consequence of retroactive pricing was an unintended one: Depriving the humanitarian fund of much-needed cash." (Wall Street Journal, 2 May 2002, A1)

"The [oil-for-food] program has indeed been the locomotive of a steady expansion of Iraqi trade. Contracts approved by the U.N. have delivered $21.1 billion of projects and humanitarian supplies in the last five years, with another $12.8 billion approved or on the way." (Wall Street Journal, 2 May 2002, A12)

In November 2002 UNICEF, the U.N. Children’s Fund, released a report “saying the malnutrition rate among Iraqi children has fallen significantly since 1996. UNICEF attributed the drop primarily to an exemption in the sanctions that allows the Iraqi government to sell oil to buy food, medicine and other humanitarian supplies.” (Washington Post, 22 November 2002, A28)

“From 1997 to 2002, the Oil for Food program was responsible for more than $67 billion of Iraq’s oil revenue. …Despite concerns that sanctions may have worsened the humanitarian situation, the Oil for Food program appears to have helped the Iraqi people. According to the United Nations, the average daily food intake increased from around 1,275 calories per person per day in 1996 to about 2,229 calories at the end of 2001. Malnutrition rates for children under 5 fell by more than half. In February 2002, the United Nations reported that the Oil for Food program has considerable success in several sectors such as agriculture, food, health, and nutrition by arresting the decline in living conditions and improving the nutritional status of the average Iraqi citizen.” (GAO 2004b, 3)

“From 1997 through 2002, we [GAO] estimate that the former Iraqi regime acquired $10.1 billion in illegal revenues - $5.7 billion in oil smuggled out of Iraq and $4.4 billion in illicit surcharges on oil sales and illicit charges from suppliers exporting goods to Iraq through the Oil for Food program. The United Nations, through OIP and the Security Council’s Iraq sanctions committee, was responsible for overseeing the Oil for Food program. However, the Security Council allowed the Iraqi government, as a sovereign entity, to negotiate contracts directly with purchasers of Iraqi oil and suppliers of commodities. This structure, in addition to the uncertain oversight roles of OIP and the sanctions committee, was an important factor in enabling Iraq to levy illegal surcharges and illicit commission.” (GAO 2004b, 4)

“…[A] September 2003 Department of Defense review found that at least 48 percent of 759 Oil for Food contracts that it reviewed were potentially overpriced by an average of 21 percent. Food commodity contracts were the most consistently overpriced, with potential overpricing identified in 87 percent of the contract by an average of 22 percent. The review also found that the use of middlemen companies potentially increased contract prices by 20 percent or more. Defense officials found 5 contracts that includes “after-sales service charges” of between 10 and 20 percent.” (GAO 2004b, 4)

Calculated Economic Impact (annual cost to target country)
Phase I: 1990-96
Boycott of Iraqi oil; welfare loss estimated at 90 percent of value of lost oil sales (based on 88-89 average Iraqi export in volume and average 90-96 Dubai Fateh prices)	$13.6 billion
Suspension of US agricultural export credits; estimated at 25 percent of loan value.	$250 million
Embargo on exports to Iraq; welfare loss estimated at 50 percent of lost shipments (based on value of 1988 Iraqi imports)	$4.6 billion
Freeze of Iraqi assets; welfare loss estimated at 10 percent of face value of assets frozen.	$370 million
Total, 1990-96	$18.8 billion
Phase II: 1997-2003
Boycott of Iraqi oil; welfare loss estimated at 90 percent of value of lost oil sales (based on 88-89 average Iraqi export in volume and average 97-99 Dubai Fateh prices)	$11.3 billion
Suspension of US agricultural export credits; estimated at 25 percent of loan value.	$250 million
Embargo on exports to Iraq; welfare loss estimated at 50 percent of lost shipments (based on value of 1988 Iraqi imports)	$4.6 billion
Freeze of Iraqi assets; welfare loss estimated at 10 percent of face value of assets frozen.	$370 million
Offseta Oil-for-food program; welfare gain estimated at 53 percent of average Iraqi oil revenues for 1997-98 [Phase I to IV] (taking into account that 30 percentb of revenues are set aside for compensation fund, 4 percent for UN expenses and 13 percent for UN administered Northern Iraq.)	($2.5 billion)
Gains from smuggling of oil and surcharge on oil-for-food trade; welfare gains calculated at 100 percent of estimated revenues.	($2 billion)
Total, 1997-2003	$12 billion
Average Annual Total, 1990-2003	$15.4 billion
a. Although we include the oil-for-food program as offsetting the economic impact of the sanctions, we are not counting it as offsetting assistance in our assessment because politically the program is