Big oil is in for some big questions. A new report implicates international oil companies in the U.N.’s corruption-ridden oil-for-food program. At the same time, coincidentally, several energy giants announced obscene increases in quarterly profits as consumer prices were earning Senate scrutiny.
The U.N. report from former Fed Chairman Paul Volcker reinforced the need for serious reform. The $64 billion oil-for-food program was intended to help Iraqi citizens cope with sanctions meant to punish Saddam Hussein after the dictator’s 1990 invasion of Kuwait. It quickly became a cash cow for the Iraqi leader as well as companies that paid kickbacks and surcharges in exchange for oil and humanitarian contracts.
The final report of the Volcker inquiry found more than 2,200 companies and individuals paid bribes totaling $1.8 billion to Hussein’s government. The program allowed Hussein to sell oil to buy food, medicine and other necessities. It lured such name-brand companies as Volvo Group, DaimlerChrysler and Siemens. Oil companies were also involved but used traders to distance themselves from the illegal surcharges. Texaco was one, the report said. British Petroleum, Anglo/Dutch Royal Dutch Shell, Total, of France, and Spain’s Repsol were named as examples of “established oil companies” involved in the program before surcharges began in 2001.
Most of the oil bought by the traders from Iraq was sold to independent refiners. “A more nefarious purpose for an oil trader, or oil company, to purchase oil from a contractor, rather than directly from Somo (Iraq’s oil company) was to maintain an apparent distance from the payment of illicit oil surcharges,” the report said.
Governments, companies and individuals knew about the corruption yet looked the other way. The scandal should provide another impetus for reforming the U.N. And while Secretary-General Kofi Annan should quickly undertake a thorough housecleaning of the world body, oil companies should come clean on their windfall profits.
The U.N. report was made public on the same day that several oil companies announced huge quarterly profits, including Exxon Mobil Corp., whose 75 percent increase brought third-quarter earnings to $9.9 billion. The profit statements drew howls from consumer activists who demanded an explanation. Congress is right to ask them to justify windfall profits while consumers are struggling with rising gasoline and home heating costs.
