Kuwait oil claim on hold as powers seek Iraq deal

GENEVA, Switzerland (Reuters) -- The United Nations Gulf War reparations body on Wednesday put off debate for a day on Kuwait's $16 billion claim for lost oil as major powers tried to nail down a wider deal on Iraq, diplomatic sources said.

Washington must still approve a tentative two-part agreement, hammered out on Tuesday in New York at a meeting of the permanent five Security Council member states -- Britain, China, France, Russia and the United States -- they added.

The Governing Council of the U.N. Compensation Commission (UNCC), composed of the same 15 member states as the Security Council, began a second day of talks in Geneva on the huge claim, stalled twice in June by Russia and France.

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But diplomats said the Dutch chairman announced that debate would be delayed until Thursday, the final day of the three-day talks -- to allow time to clinch a deal in New York.

"There is a deal brewing in New York," a diplomatic source at the closed-door session told Reuters.

Kuwait filed a $21.5 billion suit, the largest ever, against Iraq seeking compensation for lost oil output and sales during the August 1990 invasion and seven-month occupation.

Neutral arbitrators recommended payment of $15.9 billion on the two-part claim by the Kuwait Petroleum Company (KPC) which also covers oil consumed during fires set by Iraqi troops.

Under the outline agreement, the KPC claim would be approved by consensus, according to a range of diplomatic sources. "We hear there is a package deal in New York. If so, as part of it, the claim would be approved by consensus," one told Reuters.

Under a later stage of the deal -- driven by France and Russia -- the amount of money from limited Iraqi oil sales which is automatically siphoned off into the Geneva humanitarian fund would be cut from 30 percent to probably 25 percent, they said.

"It won't be the 20 percent proposed by France," said one.

Delegates meeting in a Governing Council working group will have to make their recommendation to the UNCC's full Governing Council plenary, which in turn must endorse it on Thursday.

"We are moving towards a solution....My expectation is that the UNCC working group will recommend approval to the plenary by consensus," one diplomatic source told Reuters.

"There is no explicit linkage between the two issues here. But the political climate has been made much easier after the agreement on the whole Iraq package which looks like it has been set between the permanent five Security Council members."

Another diplomatic source told Reuters: "The United States does not want linkage or the appearance of it. There is still a lot of dancing around.

"It is not clear whether they have already committed to a reduction (in the share of Iraqi oil revenues going to the UNCC) or have agreed just to consider a reduction.

"If it is worked out in New York, presumably everybody will go along by consensus here. If not, the U.S. could still call a vote," he added.

There is no veto at the UNCC, set up by the Security Council in 1992, which so far has taken all decisions by consensus. Nine votes are required to either approve or reject a claim.

In New York last week, Russia signaled it would seek a further delay in the claim, but has not done so yet.

Britain and the United States want consensus but have voiced "confidence" they have the required votes if Washington called for a precedent-setting ballot, according to diplomatic sources.

Seen as likely to vote along with the United States and Britain, Gulf War allies, are seven others states: Argentina, Bangladesh, Canada, Jamaica, Mali, Namibia and the Netherlands.

Russia was expected to cast the lone "no" vote, while China and France were seen as being among four potential abstentions -- leaving a risky, wafer-thin margin for approval.

However a diplomatic source close to the Iraqi mission said that the United States did not have enough votes to push through the claim. "The U.S. only has six or seven votes -- not enough.

"The Iraqis are the victims. Why should they pay money to the KPC while Iraqi children are dying,?" he told Reuters.

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