December 17, 2014 / 12:11 PM / 3 years ago

UPDATE 1-Iraq seeks one-year deferral on Gulf War reparations

* Iraq seeks delay in paying $4.6 billion claim to Kuwait

* Cash crisis and war with Islamic State drain Iraqi coffers

* U.N. reparations body to consider request on Thursday

By Stephanie Nebehay

GENEVA, Dec 17 (Reuters) - Iraq has requested a one-year deferral of a $4.6 billion reparations payment for destroying Kuwait's oil facilities during its 1990-91 occupation, a U.N. official said on Wednesday.

The request comes as Iraq's economy is being battered by both low oil prices and war with Islamic State militants.

Kuwait and major powers on the ruling body of the U.N. Compensation Commission will consider the formal request at a special session in Geneva on Thursday, the official, who works on the commission, said.

Kuwait was said by the official to be supportive of the request.

"We have a request for a one-year suspension of the requirement to deposit 5 percent of Iraqi oil revenues into the compensation fund," the senior official told Reuters.

"They are looking for a one-year deferral with the possibility of review at the end of one year," she said, adding that the decision could be taken on Thursday.

Reuters reported exclusively last week that Iraq was seeking to postpone payment of the final $4.6 billion instalment as it faces a cash crisis caused by falling oil prices and war with Islamic militants who have taken over the north and west.

Iraq has been paying funds regularly into the Geneva-based fund overseeing compensation for looting and damage inflicted during Saddam Hussein's seven-month occupation of Kuwait.

But with its economy 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.

The last, and largest, outstanding compensation claim for $4.6 billion is from Kuwait for massive 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 burned for 10 months.

"It was anticipated to be paid in full in late 2015, based on projections of (Iraqi oil) revenues.... Those projections seem slightly off now due to the huge dip in oil prices," the official said.

Nearly all of Iraq's $52.4 billion reparations bill has been paid, with more than a million claimants - individuals, companies and governments - receiving payment. (Editing by Jeremy Gaunt)

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