Bush Administration Opposes Senate Ban On Iraq Oil

WASHINGTON (Dow Jones) – President George W. Bush's administration opposes a Senate plan to ban U.S. imports of Iraqi oil out of concern it could undermine a U.N. program to meet Iraq's humanitarian needs.

On Thursday, the Senate adopted Sen. Frank Murkowski's, R-Alaska, amendment to the pending energy bill prohibiting U.S. direct and indirect import of Iraqi oil until the Iraqi government stops paying families of Palestinian suicide bombers, curtails oil smuggling and cooperates with U.N. weapons inspectors.

"We're opposed to the amendment because of the effect it would have on the U.N. oil-for-food program," a State Department official said Friday.

"If you bar U.S. importation of Iraqi oil it will decrease money in the [U.N. oil-for-food] escrow account and worsen the humanitarian conditions in Iraq," the official said.

Industry analysts said Friday that the proposed ban could add inconvenience and some additional cost for U.S. refiners, but would have little or no effect on world oil prices.

Iraq's supply under the U.N. oil-for-food program has always been erratic - as shown by its current 30-day export halt to protest Israeli military strikes in Palestinian territories - and it could easily be replaced from other sources, analysts say.

"Even if you could push all the oil away, it's a fungible commodity," said David Pursell, industry analyst for Houston-based investment bank Simmons & Co. "Right now there's no Iraqi crude on the market and the system seems to be operating just fine."

Since the oil-for-food program began in 1996, The U.S. has been a primary destination for Iraqi oil exports, which had been running at at nearly 2 million b/d before the export halt this month. Iraqi oil accounted in January for 1 million barrels a day of U.S. crude oil consumption.

The Senate is expected to complete work on its energy bill next week. If it passes the bill, Senate and House negotiators will try to reconcile their energy bills. The House version doesn't have an Iraqi oil ban.