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The BBC's Ian Pollock
"The taps have not been turned off"
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Friday, 1 December, 2000, 21:03 GMT
Oil prices: The Iraq factor
Iraqi oil worker at an installation at West Quma
Iraq export halt: unlikely to prompt price surge
Iraq's halt of crude oil exports has again focused attention on the extent to which the Gulf producer can affect world oil supplies and markets.

In London, the market's first move was upwards as traders reacted to the move that would cut up to 5% from world oil supplies.

But the rise in the price of benchmark crude futures was modest and most analysts were not expecting any great price surge to result from the latest twist in Iraq's turbulent relationship with the United Nations.

By the end of the day the markets had been reassured by the reaction of the US and Saudi Arabia, with a barrel of benchmark Brent crude falling $1.73 to end at $30.15, close to its eight week low.

The US had moved quickly to downplay the significance of any Iraqi action, with Energy Secretary Bill Richardson saying beforehand he was "not terribly concerned" at the prospect of an interruption to Iraqi exports.

Releases from reserves

He said any shortfall in supplies could be made up with fresh releases from the US strategic petroleum reserve.

The world's largest oil producer and exporter Saudi Arabia also stood ready to take up the slack, he said, as it had done during the 1990-91 Gulf crisis, when oil supplies from the region were severely disrupted.

And the Paris-based International Energy Agency added its voice, saying it would consider opening the reserves it holds for 24 member states.

The words were clearly intended to calm the markets, which have swung sharply in the past, sometimes because of threats to supplies which have been more perceived than real.

At present, most analysts do not believe there is a substantial shortage of crude oil worldwide. The missing Iraqi volumes are unlikely to be enough to send prices soaring, they say.

Any shortages are more in refined products such as heating oil than in crude oil.

Indeed, some analysts say the Iraqi move - if sustained for several weeks - may merely allow the Organisation of Petroleum Exporting Countries (Opec) to put off the production cuts it said its members might make early next year.

Temporary interruption?

Most analysts also doubt that the break in supplies will be anything other than a temporary interruption.

They interpret Iraq's action as another step in its campaign to have sanctions lifted.

The halting of oil exports came as the UN's latest 180-day oil-for-food programme expired and the UN Security Council prepared to meet to consider how to proceed with the arrangements.

A solution satisfactory to Iraq could be found as early as next week allowing exports to resume, analysts say.

Substantial ability

Despite the somewhat muted market reaction on Friday, Iraq remains one of the world's major oil powers.

In some circumstances it would have substantial ability to move markets, as it did in 1990-91 when invading Kuwait led to a sharp fall in both countries' exports and sent crude prices spiralling upwards.

Iraqi exports dropped to 280,000 barrels a day in 1991 while, at one point, prices stood at more than $40 a barrel.

However, other producers led by Saudi Arabia were able to raise production and the market gradually stabilised at lower price levels.

At the end of 1999, Iraq's proven oil reserves stood at 112.5bn barrels, or 10.9% of the world's total - second only to Saudi Arabia.

Iraqi production last year averaged 2.58 million barrels a day of crude oil or 3.6% of the world's total.

This ranked it third among Middle Eastern producers - behind Saudi Arabia and Iran - fourth among Opec member states and 11th worldwide.

This year, Iraqi oil output has risen steadily, from about 3.4 million barrels a day in February to 3.7 million barrels a day in July. About 2.3 million barrels a day have been exported.

Extra supplies

Analysts say any extra supplies needed from reserves or other producers could be provided to the market fairly quickly.

Strategic reserves are held close to the markets where they are most needed.

And Saudi Arabia - which produced 8.7 million barrels a day in July - would have the ability to pump about 500,000 barrels a day extra immediately.

Within about a month, it could add perhaps a further one million barrels a day to output.

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See also:

01 Dec 00 | Middle East
Iraq halts oil exports
01 Dec 00 | Middle East
Analysis: Saddam steps up defiance
01 Dec 00 | Media reports
Oil exports: The Iraqi statement
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