Gulf States Newsletter, 6 March 2002

European banks are jostling to win some of the lucrative business secured exclusively since 1997 by BNP Paribas. The French bank's New York branch alone has been approved by the United Nations to clear Oil-for-Food Programme (OFP) transactions and confirm letters of credit.

This is big business, with billions of dollars building up in BNP's Iraqi escrow accounts - Euro 77 billion (US$67 billion), plus US$6.5 billion, according to the Financial Times. No wonder Europeans institutions including Banco Bilbao, Crédit Agricole Indosuez, Crédit Suisse, Deutsche Bank, Hypovereinsbank and Rabobank are so keenly chasing mandates.

The UN decided to open up the business as part of wider moves to overhaul the sanctions regime. These are now backed by France and are moving quickly despite US efforts to mobilise against President Saddam Hussein. But as ever in Iraq the going isn't easy. Sources report that Iraq has not paid any funds to cover OFP Phase 11 [operational since 1 December 2001] contracts.

Even if smarter sanctions are applied, using several banks, not just BNP, as Iraq has advocated, Baghdad will not necessarily play ball.