It is more than just an increase in oil exports for humanitarian purposes. What Mr Annan is proposing - doubling Iraqi oil revenues from $2bn to $5.2bn - is the most significant relaxation in sanctions since they were introduced eight years ago after Iraq invaded Kuwait.
At the time, Iraq was exporting 3 million barrels a day. Under Mr Annan's plan, exports would have to rise to 2 million barrels a day to produce $5.2bn. "It is tantamount to a partial lifting of sanctions," said Mehdi Varzi, director of oil and gas research at Dresdner, Kleinwort Benson in London. He doubted the UN Security Council would implement Mr Annan's plan in full.
But in Lisbon yesterday Bill Richardson, US ambassador to the UN, said: "The US will support the increase." Britain also said it welcomed the report, pointing that it had helped initiate the oil-for-food programme for Iraq three years ago. In theory Iraq will therefore return to two-thirds of its export level before it invaded Kuwait, a prospect which led to a sharp slide in oil prices yesterday. A problem is that for the moment there is no way the Iraqi oil industry can produce and export the amount of oil necessary to produce revenues of $5.2bn. It was badly damaged by bombing in the Gulf War. In northern Iraq a pumping station on the 600-mile pipeline linking Kirkuk to Dortyol, on Turkey's Mediterranean coast, was almost destroyed. Iraq built a bypass but export capacity was reduced by a third. A second pumping station on the main north-south pipeline was also damaged.
The US has so far prevented Iraq, through the UN sanctions committee, importing equipment for its oil industry to raise production. It has argued that this might benefit the Iraqi military machine. Iraq uses 600,000 barrels a day of crude oil at home, including oil exports to Jordan and diesel smuggled into Turkey, which it cannot divert. This means that without US agreement to allow it to repair its oil industry, it will be unable to benefit fully from Mr Annan's plan.
The UN Security Council is expected to rule on the expanded oil-for-food plan in two weeks and it could be implemented next month if Iraq agrees to it. But this may be delayed by bombing threatened by the US and Britain.
At the weekend Madeleine Albright, US Secretary of State, said airstrikes were weeks rather than months away. Iraq has always said it wants sanctions totally lifted. The Security Council insists they stay until Iraq complies with UN resolutions about the inspection and destruction of its biological, chemical and nuclear materials and the missiles to deliver them. In practice, if Iraq is allowed to repair its oil industry, Mr Annan's plan would make a large hole in the economic siege of Baghdad.Reuse content