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Friday, 15 September, 2000, 13:20 GMT 14:20 UK
Gulf tension fuels oil price rise
Gathering Station 14, destroyed in the Gulf War
Kuwaiti oil depots were destroyed during the Gulf war
By economics correspondent Andrew Walker

World oil prices have risen again, this time following increased political tension in the Middle East.

In early London trading, Brent crude was about 60 cents higher at just under $33 a barrel.

Kuwait says Iraq has been trying to plunge the region into a new conflict. Iraq has accused Kuwait of stealing oil from two fields close to their joint border, but Kuwait says the oil fields are within its territory.

The world oil market is in a nervous state with stocks of oil products, notably petrol, diesel and heating oil, very low.

Heating fuel fears

There are real concerns about the possibility of shortages of heating fuel if the coming winter in the northern hemisphere turns out to be unusually cold.

Last week prices hit their highest level since the Gulf crisis 10 years ago. Then, the problem was the sudden loss of supply from two major producers, when Iraq invaded Kuwait.

With prices already high, any sign of renewed tension in the region makes traders uneasy.

There is also an underlying longer term concern in the market about Iraq's attitude to United Nations sanctions. Under a UN deal, it is allowed to export a certain amount of oil and use the revenue to pay reparations to Kuwait and to buy food and medicines for Iraq.

Baghdad is not happy with the deal, and it could maximise its bargaining power during the coming months by threatening to withhold oil.

This would be a substantial threat. Iraq is now producing around three million barrels a day of crude oil. That makes it the third biggest supplier in OPEC, the 11-member oil producers' cartel.

Iraqi production is roughly the same as the total increases that OPEC has agreed over the course of the year in an attempt to meet demand and bring prices down.

If, in the middle of the northern winter, Iraq were to withhold its oil supplies - or even hint at it - that could have a dramatic effect on the market.

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See also:

24 Mar 00 | World
Oiling the world economy
04 Aug 00 | Middle East
Pollution legacy lives on in Kuwait
11 Sep 00 | Middle East
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