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 Since Iraq was first allowed to resume oil sales nearly two
decades ago it has paid funds into a United Nations body overseeing
compensation for looting and damage inflicted during Saddam
Hussein's seven-month occupation of Kuwait.
More than a million claimants have been paid and nearly all the
$52.4 billion reparations bill has been met through Iraq's annual
allocation of 5 percent of crude oil exports to the U.N.
Compensation Commission (UNCC).
But with its economy now set to shrink for the first time since the
2003 U.S.-led invasion toppled Saddam and ended more than a decade
of sanctions, Iraq can ill afford to divert a large chunk of the
2015 budget to make that last payment due next year.
"We have been really committed to paying this on time up until now,"
Zebari said in a telephone interview conducted on Thursday. "We are
in discussions with the Kuwaitis, trying to defer the payment for
two years or at least a year, to allow some space... to present a
realistic budget."
A senior UNCC official in Geneva said no decision had yet been made,
and any change would require the agreement of the UNCC's Governing
Council, which has same 15 member states as the U.N. Security
Council.
 "We are hearing the Governing Council will be considering the issue
at a special session next week," the official told Reuters, adding
that a meeting had been tentatively set for Dec. 18 in Geneva.
There was no immediate comment from Kuwaiti officials.
"BREATHING SPACE"
OPEC producer Iraq is suffering from the sharp fall in oil prices
and the Islamic State takeover in the north and west, which has
caused mass displacement of people, destruction of infrastructure
and a sharp increase in military expenditure.
Two weeks ago, after the latest oil price fall, it scrapped a draft
2015 budget and said it would cut back spending plans.
Iraq needs Kuwait's agreement to delay payment because the last, and
largest, outstanding claim for compensation comes from the emirate
itself for damage to its oil facilities.
More than 700 Kuwaiti oil wells were set on fire by Iraqi troops
retreating from the U.S.-led operation Desert Storm to recapture it
in January 1991. Some of them burned for 10 months.
Iraq would also need to win broad international support for a
deferral because its obligation to pay the money is enshrined in
U.N. Security Council resolutions.
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"There is an understanding," Zebari said. "Next week there will be
some hectic diplomatic activity between Baghdad, Kuwait, Geneva and
New York in order to present a joint request to postpone the
payment." A delay of one or two years would give Iraq "some
breathing space", he added. Iraq's repayments were first set at 30
percent and then 25 percent of oil sales when it resumed limited
exports under the U.N. oil-for-food deal in 1996. The portion was
cut to 5 percent after Saddam was overthrown in 2003 and sanctions
were lifted.
The International Monetary Fund said Iraq's economy is set to shrink
in 2014 by 0.5 percent, its first contraction in at least a decade,
and that its international reserves have fallen $10 billion so far
this year.
The 2014 budget deficit is likely to reach 5 percent of GDP, the
Fund said.
Zebari said he hoped the government could agree a revised 2015
budget at a meeting on Sunday.
Despite oil's fall below $70 a barrel, the finance minister said
Baghdad will still base next year's spending plans around that
price, since the IMF was forecasting crude will average that level
over the course of the year.
Since the original draft budget was thrown out by Prime Minister
Haider al-Abadi, the finance ministry has trimmed around $10 billion
of spending, Zebari said, still leaving a projected deficit of
around $30 billion.
"It was (originally) over 47 trillion dinars ($40 billion) with all
the extra spending. So we cut down on unnecessary contracts or
payments, or we are delaying projects," he said.
(additional reporting by Stephanie Nebehay in Geneva; editing by
David Stamp)
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