The introduction of a retroactive pricing policy for Iraqi oil has severely constricted funding for imports of essential goods since the beginning of the year. 'With a persisting revenue shortfall, 1,001 humanitarian supply contracts worth over $2,080 million are still awaiting funding, although already approved by the United Nations,' says a UN report issued in late July. In the same period, Baghdad has been paring back trade ties with the US and its military allies, and has continued to strengthen economic links with other Middle East states.
Iraq has slashed agricultural imports from the US, Europe and Turkey this year, completely phasing out its annual order for US wheat - worth about $85 million in 1998. Despite the straightjacket of retroactive pricing, the UN oil-for-food programme still gives Baghdad a certain amount of leverage over its trade partners. After the Australian government announced in late June that it was prepared to back US military action, the Iraqi government threatened to cancel a $222 million order for Australian wheat. Australia exported $829 million-worth of goods to Iraq in 2001.
'Iraq was also reacting to the fact that the Australians took over the multinational task force operating in the Gulf, which recently stopped several vessels violating sanctions,' says an official at the UN Office of the Iraq Programme. Sales of oil outside the programme were estimated at $2,000 million last year, with the Iraqi government offering discounts on crude to anyone willing to break the sanctions regime.
After Russia and France, Iraq's most important trade partners are, respectively, Egypt, Jordan and the UAE. Iraq has signed 10 free trade agreements with Arab states in the last two years, and has been exploring ways of opening up new trade channels since the beginning of August.
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