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The Oil-for-Food Programme (OIP), established by the United Nations in 1995, under UN Security Council Resolution 986, was to allow Iraq to sell oil on the world market in exchange for food, medicine and other humanitarian needs for ordinary Iraqi citizens without allowing Iraq to boost its military capabilities.
Why is a similar proposal not applied for Iran?
The program was just one controversy after another.
The UN committee’s fifth and final 623-page report released October 27, 2005, accused nearly half of the 4,500 participating companies of paying kickbacks and illegal surcharges to win lucrative contracts, and allowing Saddam Hussein to pocket $1.8 billion at the expense of Iraqis suffering under UN economic sanctions. The commission’s lead investigator, former U.S. Federal Reserve Chairman Paul Volcker, stated that it was UN mismanagement and failure of the world’s most powerful nations to end corruption in the program that allowed Saddam to fill his coffers.
Stated in Corruption a way of life in Iran:
In 2015, Iran was ranked 132 in the Corruption Perceptions Index (CPI) among 168 nations as ranked by Transparency International. A major factor affecting the CPI is transparency, or lack thereof. By providing civil servants with opportunities to entertain the advantages of their position and win bribes, lack of transparency is another major factor empowering corruption.
Their corruption is better than Iraq was when they were added to the CPI reports in 2003 where they positioned 115th out of a possible 133 but in retrospect, the UN would be skeptical about making such an offer after the failures and mismanagement of the previous program.
Update: Corruption Perception Index 2016 was released by Transparency International last night (24/01/2017) and Iran are now 131 out of 176.
To expand on Bradley Wilson's answer, a major reason is that Kofi Annan (then President of the U.N.) created quite a scandal when it came out that a key contract was awarded to the firm that was employing his son
Senior U.N. officials said they hope that Volcker's fourth and most complete report will bring an end to a painful 18-month probe of the $64 billion program, which investigators concluded was so poorly managed that Iraqi leader Saddam Hussein raked in $1.7 billion in kickbacks from participating companies and $11 billion in oil-smuggling profits. Among the most volatile allegations probed by Volcker were suspicions that Kofi Annan had steered lucrative Iraqi oil contracts to a Swiss company, Cotecna, that had put his son on its payroll.
Wednesday's report said the panel found no evidence that Kofi Annan had interceded on behalf of Cotecna and no conclusive proof that he knew of his son's activities. But it provided fresh details suggesting that Kojo Annan, 31, may have obtained privileged information about U.N. business deals from his father's personal assistant and from contacts in the U.N. procurement office. It also asserted that Kojo Annan abused his father's diplomatic status to secure more than $20,000 in breaks on taxes and customs fees for a Mercedes-Benz he bought in Geneva in 1998.
It's worth noting that programs like this, in general, tend to fail because either the money is redirected or the food is resold on the black market. Consider the considerably less controversial, but equally flawed, Live Aid, which wound up inadvertently helping a brutal regime
A strong case can be made for Live Aid's achievements. According to one Ethiopia expert, Alex de Waal, the relief effort may have cut the death toll by between a quarter and a half. The problem is that it may have contributed to as many deaths. The negative effects of the NGO presence on the government side became more pronounced as the crisis went on. Moreover, the government in Addis Ababa became increasingly adept at manipulating these Live Aid-funded NGOs. Indeed, a good case can be made that the picture provided of the Ethiopian famine was to some degree manipulated by the Dergue from the beginning.
And
Of all the NGOs, only the founding (French) section of MSF refused to go along with the pro-Dergue consensus. Once expelled from Ethiopia, however, MSF France was free to talk about what it knew of forced deportations. "We are witnessing the biggest deportation since the Khmer Rouge genocide," said MSF's president, Claude Malhuret, in late 1985. For MSF, the decision of aid agencies, UN institutions and donor governments to help a totalitarian project like the Ethiopian resettlement programme was an exercise in deadly compassion. As Claude Malhuret put it, Ethiopia demonstrated that it had become imperative to "clarify the complex relations that humanitarian action forms with a totalitarian regime; to mark out the indistinct but very real limit beyond which aid to victims was unwittingly transformed into support to their executioners."
