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Last Updated:  Tuesday, 18 March, 2003, 23:20 GMT
Oil price dips as war nears
Kuwaitis walk through the remnants of wells destroyed by retreating Iraqi forces in 1991
Iraqi oil wells could still face destruction

The prospect of an imminent war has sent the price of oil plummeting.

US crude oil futures plunged $3.53 to a two-month low of $31.40 per barrel, before closing at $31.67.

In London, international benchmark Brent crude oil slumped by $2.23, or 7.6%, to $27.25 per barrel.

The falls are consolidating a trend set during the past few trading sessions as war has become increasingly likely.

But President George W Bush's speech on Monday night, giving Saddam Hussein and his sons 48 hours to get out of Iraq, sparked a more dramatic movement.

Traders are betting on a rapid war with minimal disruption to deliveries, and on Iraqi forces leaving the wells in Mosul and Kirkuk intact.

"The oil market is working on the basis that there will be an overwhelming allied victory," said Simon Games-Thomas, an independent oil analyst in Sydney.

Airline comfort

The price falls had a knock-on effect, helping to support comfortable gains across European stock markets as investors moved back out of commodities and into equities.

Russian oil traders work behind a desk bearing a replica of an oil well
Traders are betting on a short, sharp war
Airline shares in particular were in demand, with British Airways climbing almost 9% and Lufthansa up more than 5%.

But despite Tuesday's falls, the trend in the oil market is far from clear, dealers warned.

Prices could soon start rising again if the action against Iraq does not go as planned, and the integrity of some Saudi fields, some reports say, could be under threat as the kingdom pumps extra oil to keep supply within touching distance of demand.

The "blowtorch" scenario, as some economists are calling it - the torching of Iraqi wells - could see prices shooting up as high as $50 a barrel, they fear.

And German chemicals firm BASF predicted the price would surge back above $35 a barrel if war starts, slowing world economic growth.

Foreign oil companies have stopped buying Iraqi crude after the United Nations suspended the oil-for-food programme it has run for the past 12 years, although most shipping ceased on Monday thanks to a moratorium by shipping insurers.

Andrew Walker, BBC Economics Correspondent
"The price of crude oil has fallen around $4 in the last 24 hours. It's a dramatic reversal..."

Shares in Europe move higher
18 Mar 03 |  Business
The fight over Iraq's oil
14 Mar 03 |  Business
US to tap oil reserves in crisis
11 Mar 03 |  Business
Opec plans for war footing
10 Mar 03 |  Business
Oil marches higher on war fears
10 Mar 03 |  Business
Headaches ahead for Opec
13 Jan 03 |  Business

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