The Bush administration last night eased its embargo against imports of crude oil from Iraq and Kuwait by allowing oil into the country that was shipped before President Bush ordered the restrictions early Thursday morning.
The Treasury Department issued its ruling after U.S. oil companies complained that as many as 15 tankers filled with oil from Iraq or Kuwait were nearing U.S. shores. Much of the oil had already been paid for, oil company officials said, so the embargo would not hurt Iraqi bank accounts as President Bush intended with his original embargo order.
The Treasury Department gave no explanation for easing the restrictions, but oil executives had argued for two days that the embargo forced them to violate contracts. Analysts also said the government could be subjected to breach-of-contract lawsuits.
Unlike previous embargoes, the presidential ban included shipments already on the high seas, posing added problems for companies that already had paid for cargoes.
Over the past two days, furthermore, gasoline prices across the country increased by as much as 14 cents a gallon, adding a potential political cost to the president's actions.
The eased rules were a sharp departure from the flat statement by a U.S. Customs official Thursday that, "There is no exception for goods currently in transit to the United States."
In its new ruling the Treasury said oil imports from Iraq and Kuwait will be permitted if the shipments were loaded before 5:01 a.m. Thursday, Washington time, with a bill of lading issued before then, and arrive in the United States before Oct. 1. Further, any unpaid balances on the purchases must be paid into blocked accounts in this country.
The Treasury also eased the president's order freezing all assets held in the United States by the governments of Iraq and Kuwait. The new rules will allow Kuwaiti-controlled firms in this country, such as the oil services company Sante Fe International Corp., which is completely owned by Kuwait Petroleum Corp., to continue doing business.
Similarly, managers of Kuwait government investments in this country will be allowed to buy and sell for those accounts as long as none of the proceeds goes to Iraq.
The president had frozen Kuwait government accounts to insure that none of those assets would be available to the Iraqi occupying forces in the rich desert sheikdom.
Bush's initial order froze assets in the United States of the Iraqi and Kuwaiti governments, but not those of individual citizens or private businesses of those countries. That action appeared to have less impact than the oil embargo, banking officials said yesterday, although tellers in downtown branches of First American Bank had alert notices taped to their cubicles warning them against cashing checks that appeared to be coming from Iraq or Kuwait government accounts.
The freeze affects embassy accounts, making it impossible for Iraqi or Kuwaiti diplomats to use government accounts to pay bills. But Treasury officials said the freeze could be modified further to allow the diplomatic missions to operate while still blocking the flow of assets out of the country.
Before the administration eased the oil embargo, U.S. companies carefully kept incoming shipments outside the 12-mile limits of U.S. territorial waters. At the same time, they made no secret that they were lobbying hard to get the rules changed.
"Embargoes pretty much have to include everyone, or almost everyone, to have much impact," said Amoco Corp. chief economist Ted Eck. Otherwise, he added, "we'll import less and someone will import more" from Iraq.
As an example of how that operates, Ashland Oil Co. announced yesterday that it had replaced a tanker shipment of 1 million barrels of Iraqi crude that it expected with new purchases on the U.S. spot market. Ashland spokesman Roger Schrum said the company had neither paid for the oil, which is still on the ocean, nor secured it with a letter of credit, which made the switch easier to accomplish.
One oil executive, who asked that neither he nor his company be identified, called the embargo pointless because Iraq already has been paid for the oil.
"Saddam Hussein has the money, but we're not allowed to use the oil. As of this moment, the order is working to the advantage of Iraq, not Kuwait or the United States. The order benefits Iraq and nobody else."
Among the companies affected by the original embargo was Chevron Corp., which had 1.9 million barrels of Iraqi crude oil in the hold of the tanker Eastern Trust, which sailed into the Gulf of Mexico yesterday. It was destined for the Chevron refinery at Pascagoula, Miss.
Chevron spokesman Mark Libbey said the tanker Eastern Trust was loaded a month ago with Iraqi crude, and yesterday afternoon the company was trying to figure out what to do with the ship and its cargo.
Libbey said shortly before the Treasury announcement that the company was seeking permission from Customs to bring in the oil as originally planned. If not, he said, "we'll probably have to sell it at a loss" because Chevron refineries in Great Britain and British Columbia are too far away.
"Obviously, we are going to have to find a buyer. We are not going to dump it in the Gulf," Libbey said. He added that Chevron has title to the oil and therefore has an obligation to pay for it.
Mobil Corp. has a tanker with Iraqi crude six days away from U.S. shores, and spokeswoman Carol Edwards said before the change in embargo rules that the Fairfax-based company has no plans to divert the shipment elsewhere. She said the company is negotiating with Customs to see if the ship can be unloaded here as planned.
While the United States is not seizing oil shipments on the high seas, it took custody of 312,000 barrels of Iraqi crude being unloaded from a barge that docked in Corpus Christi, Tex., just three hours after the embargo was imposed.
The tanker, with more Iraqi oil in its holds, remained in the Gulf outside U.S. territorial waters and has not been seized, Customs spokeswoman Donna De La Torre said.
Although no announcement was made last night, the oil will be released under the new, eased embargo rules.