The UN has approved a US$8 million contract for a Russian oil company to drill 45 oil wells in northern Iraq. Under the UN's oil-for-food programme, Zarubezhneft will work with another Russian company, Tatneft, in what is believed to be the first project involving foreign companies that aims to boost rather than maintain Iraqi oil production.

Until 23 February 2001, several UN diplomats had claimed no knowledge of approval for the project, which was apparently given last December despite protestations from London, which opposed the contract.

In the previous week a statement issued by Tatneft said, however, that approval had been given but that work on the project would not begin until the UN Security Council opens a letter of credit with French bank BNP Paribas in New York, which holds the United Nations Iraq Account.

L/Cs are issued by BNP Paribas on instructions from the Central Bank of Iraq. The Office of the Iraq Programme advises the Permanent Mission of Iraq each day of recommendations made by the UN's 661 Sanctions Committee, which examines and then either verifies and approves or rejects proposed trades with Iraq. Once this process is completed the bank holding Iraqi oil funds will issue an irrevocable letter of credit.

After goods are shipped and received in Iraq, a UN inspection agent inspects them and then sends an inspection certificate to the 661 Committee acknowledging receipt of permitted goods in Iraq. The 661 Committee will then order the bank to release funds.

The issue of delays in the opening of L/Cs for Iraqi trades under the UN's oil-for-food programme has arisen several times. This is an important issue in ensuring that spare parts and equipment allowed under the terms of UN sanctions arrive before either the delivery date specified in contracts or within the specified period from when L/Cs are opened.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.