The Oil-For-Food Problem

The Oil-For-Food The Oil-For-Food ProblemProblem

By:By:

Billy LepakBilly Lepak

Resolution 661Resolution 661

United Nations ban on all Iraqi imports and United Nations ban on all Iraqi imports and exports in response to the Iraqi invasion of exports in response to the Iraqi invasion of KuwaitKuwait

Medical supplies and, in humanitarian Medical supplies and, in humanitarian circumstances, foodstuffs were allowedcircumstances, foodstuffs were allowed

This provision paved the way for the Oil-For-This provision paved the way for the Oil-For-Food programFood program

United Nations Security Council. United Nations Security Council. Resolution 661Resolution 661. New York: United Nations, 1990.. New York: United Nations, 1990.

661 Winners & Losers661 Winners & Losers

WinnersWinners KuwaitKuwait

LosersLosers Iraqi peopleIraqi people

Saddam HusseinSaddam Hussein

Resolution 986Resolution 986

Allows countries to import Iraqi petroleum Allows countries to import Iraqi petroleum productsproducts

Revenues will be deposited in an escrow account Revenues will be deposited in an escrow account to be used for foodstuffsto be used for foodstuffs

The Iraqi government is given the power to The Iraqi government is given the power to manage the escrow accountmanage the escrow account

United Nations Security Council. United Nations Security Council. Resolution 986Resolution 986. New York: United Nations, 1990.. New York: United Nations, 1990.

986 Winners & Losers986 Winners & Losers

WinnersWinners Saddam HusseinSaddam Hussein

Iraqi oil-dependent countriesIraqi oil-dependent countries LosersLosers

Iraqi peopleIraqi people

United NationsUnited Nations

Reinisch, August. Reinisch, August. Developing Human Rights and Humanitarian Law Accountability Developing Human Rights and Humanitarian Law Accountability of the Security Council for the Imposition of Economic Sanctionsof the Security Council for the Imposition of Economic Sanctions. The American . The American

Journal of International Law: pp. 852. Oct., 2001.Journal of International Law: pp. 852. Oct., 2001.

JustificationJustification

Economic burden gives the Iraqi people an Economic burden gives the Iraqi people an incentive to remove Saddam Husseinincentive to remove Saddam Hussein

International sense of justice provides for the International sense of justice provides for the punishment of the actions of Iraqpunishment of the actions of Iraq

Iraq infringed on Kuwait’s right to existence and Iraq infringed on Kuwait’s right to existence and must pay for that actionmust pay for that action

Schachter, Oscar. Schachter, Oscar. United Nations Law in the Gulf ConflictUnited Nations Law in the Gulf Conflict. The American Journal of . The American Journal of International Law: pp. 454. July, 1991.International Law: pp. 454. July, 1991.

Economic PoliciesEconomic Policies

Economic EfficiencyEconomic Efficiency

Subsidies to revolutionariesSubsidies to revolutionaries

Money-For-WeaponsMoney-For-Weapons

Economic EfficiencyEconomic Efficiency

$

Q

Cost of policy to the Iraqi people

Demand

Supply 1

Supply 2

Due to Iraqi government not operating the program correctly

Economic Efficiency, Cont.Economic Efficiency, Cont.

Iraqi government is charged with managing the Iraqi government is charged with managing the escrow accountescrow account

Saddam Hussein is in charge of providing for Saddam Hussein is in charge of providing for the humanitarian good of the Iraqi peoplethe humanitarian good of the Iraqi people

Economic efficiency is found when marginal Economic efficiency is found when marginal social benefits (MSB) equal marginal social costs social benefits (MSB) equal marginal social costs (MSC)(MSC)


Saddam Hussein acted in his own benefit and Saddam Hussein acted in his own benefit and used the escrow account as his personal fundused the escrow account as his personal fund

Supply of food decreased from supply 1 to Supply of food decreased from supply 1 to supply 2supply 2

Iraqi people suffered because of this policy seen Iraqi people suffered because of this policy seen by the triangle that shows the costs to societyby the triangle that shows the costs to society


MSB < MSC because of the policyMSB < MSC because of the policy

The Oil-For-Food program is economically The Oil-For-Food program is economically inefficient due to the management and inefficient due to the management and application of its policiesapplication of its policies

Revolutionary SubsidyRevolutionary Subsidy

$

Q of Revolutionary Acts

Demand

Supply 2

Supply 1

Due to the subsidy inducing revolutionary acts

Value of the subsidy

Revolutionary Subsidy, Cont.Revolutionary Subsidy, Cont.

Subsidy will entice revolutionary groups to strike Subsidy will entice revolutionary groups to strike the Iraqi governmentthe Iraqi government

Increase in revolutionary acts will cost less than Increase in revolutionary acts will cost less than the cost of a war to remove Saddam Husseinthe cost of a war to remove Saddam Hussein

Value of the subsidy can be seen as the box on Value of the subsidy can be seen as the box on the graphthe graph

Revolutionary Subsidy, Cont.Revolutionary Subsidy, Cont.

Revolutionaries may cheat by constantly Revolutionaries may cheat by constantly revolting from the established governmentrevolting from the established government

Cost of revolutionary acts may be loss of civilian Cost of revolutionary acts may be loss of civilian life and outweigh the benefits createdlife and outweigh the benefits created

RecommendationRecommendation

Replace the Oil-For-Food program with a Replace the Oil-For-Food program with a Money-For-Weapons programMoney-For-Weapons program

Pay the Iraqi government to hand over all Pay the Iraqi government to hand over all weapons that can be used to wage offensive weapons that can be used to wage offensive warfarewarfare

Threat of Iraqi weapons is decreasing the Threat of Iraqi weapons is decreasing the amount of social spending in countries amount of social spending in countries threatened by Iraq (negative externality)threatened by Iraq (negative externality)


$

Q of social spending

Demand

Supply 1

Supply 2

Due to the proposed program

Cost of Iraqi weapons


Decrease in the supply of Iraqi weapons will be Decrease in the supply of Iraqi weapons will be created by a subsidy program from the United created by a subsidy program from the United NationsNations

Benefit of the program will be to increase social Benefit of the program will be to increase social spending in countries threatened by Iraqi spending in countries threatened by Iraqi weapons due to a decrease in defense spendingweapons due to a decrease in defense spending

Increase in cost is more than offset by the Increase in cost is more than offset by the increase in benefit to societyincrease in benefit to society

ConclusionConclusion

Oil-For-Food program is economically Oil-For-Food program is economically inefficient for the Iraqi peopleinefficient for the Iraqi people

Revolutionaries might create a higher MSC than Revolutionaries might create a higher MSC than MSBMSB

Money-For-Weapons program will accomplish Money-For-Weapons program will accomplish all of the goals of the United Nations and create all of the goals of the United Nations and create greater economic benefitsgreater economic benefits

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The Oil-For-Food Problem