Experts: Iraq Unlikely to Explode New Oil Weapon on Feverish Markets
The US nightmare scenario of Iraq slashing crude production and panicking world markets is unlikely to happen, experts said Thursday underlining that oil income is vital to Saddam Hussein's regime.
"If Iraq takes such a decision, prices will go up for sure and there will be panic," said Manouchehr Takin of the Centre for Global Energy Studies.
"If Iraqi exports go out of the market, the situation will become very serious, at least until March, when demand is supposed to decrease," Takin told AFP.
Concern that Iraq, which has reserves of 112 billion barrels, the largest in the world after Saudi Arabia, could attempt to manipulate the oil market by cutting output has been mounting along with oil prices.
But Takin said it would make no sense for Iraq to use the weapon it has gained as a swing producer during a supply squeeze. It also contradicts Iraq's declared policy of pumping a maximum amount of oil.
"Politically, I do not think such a move is logical since it will deprive it of its revenues and antagonize the West at a time at which Baghdad is trying to gain sympathy for the lifting of sanctions," Takin told AFP.
"But the actions of (Iraqi President) Saddam Hussein have not always been logical," he added.
Baghdad badly needs the maximum return from oil revenues to boost production, which does not fall under OPEC's quota system, and it has even set a target of double its current three million barrels per day (bpd).
US State Department spokesman Richard Boucher said Wednesday Washington would be ready in the "highly unlikely" event that Saddam Hussein cuts oil production, adding that Saudi Arabia and other oil producing nations had excess production capacity that could cover any shortfall in supplies.
Baghdad reacted Thursday by blaming Washington for the instability of the oil market, saying US threats against Iraq were responsible for encouraging market speculation and high prices.
Iraq was opposed to OPEC's decision on September 10 to release an extra 800,000 barrels of crude a day onto the market to calm the oil markets, and accused Saudi Arabia and Kuwait of plotting against the cartel under pressure from Washington.
Four days later Baghdad launched a series of threats against Kuwait which it accused of stealing oil from border fields, increasing concern on the markets and driving prices to highs not seen since the 1991 Gulf War.
Mohammad Abdeljabbar, senior associate with Washington-based Petroleum Finance Co. said Iraq's rhetoric was understandable.
"It wants to expand capacity but is limited by sanctions. It also does not want to appease the United States," the Oman-based expert said.
"I really don't see Iraq cutting its production. If it were to, it would have to be for a sustained period of time of more than two or three months in the run-up to winter, the high-demand season, for it to take any effect," Abdeljabbar told AFP.
"Given the tightness in the market, such a cut would be a big blow to all efforts to calm the market, and it would be extremely difficult for even OPEC giant Saudi Arabia to make up and prices would rocket up."
Abdeljabbar said he thought the meeting between Group of Seven (G7) finance ministers and central bankers this weekend in Prague would address the oil price and move OECD countries to release crude from their stockpiles to lower prices.
"But this will only serve to stabilise prices at strong levels, and would not be significant enough to bring about a major drop in prices," he contended.
The International Energy Agency said Wednesday that OPEC can quickly increase its daily oil output by 2.2 million barrels per day (bpd).
But according to the specialist Middle East Economic Survey (MEES) all but Saudi Arabia and Iraq are producing "at or near capacity levels".
Oil prices fell slightly in London Thursday with benchmark Brent North Sea crude oil for November delivery selling at 33.68 dollars a barrel as the market anticipated a release from US reserves – DUBAI (AFP)
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