- The Washington Times - Monday, July 5, 2004

BAGHDAD (AP) — Oil prices moved higher yesterday after new attacks on Iraqi oil lines forced the country to reduce its exports by half. News of Russian oil giant Yukos’ expanding legal and financial troubles added to traders’ anxiety.

Iraqi repair crews worked frantically to fix one of two key southern crude oil pipelines, officials in the state-run South Oil Co. (SOC) said. The disruption — coming about two weeks after exports were halted because of sabotage attacks on the two export lines — heightened concern among traders and analysts about the security of Iraq’s oil flow at a time when global spare capacity for crude is thin.

The shutdown plunged exports of crude oil from Basra to about 960,000 barrels per day, roughly half the postwar level there.

“This is extremely disruptive,” said Conrad Gerber, president of PetroLogistics Ltd., a Geneva firm that tracks tankers. As a result of the attacks and the disruption in supplies, “the market has subtracted Iraqi oil out of the equation … simply because of volatility in supply.”

In London, contracts of North Sea Brent crude for August delivery were trading at $36.30 per barrel, up 38 cents on the International Petroleum Exchange. U.S. markets were closed in observance of the Independence Day holiday.

The current Iraqi disruption began Saturday when the line was breached, reportedly by smugglers, an oil company official said on the condition of anonymity. On Sunday, saboteurs blasted another strategic line stretching north to south, but SOC officials said that line had not been used extensively for years and would have no effect on exports.

South Oil officials predicted repairs would be completed later this week. Repeated efforts to reach officials in the Oil Ministry were unsuccessful and one official with the State Oil Marketing Organization, which is responsible for crude contracts, declined to comment on the export situation.

Also yesterday, besieged Russian oil giant Yukos came a step closer to bankruptcy after a group of Western banks signaled they might call in a $1 billion loan to the company. Societe Generale, the lead arranger for the lenders’ syndicate, said the banks don’t want to “jeopardize” the besieged company, but the notice issued yesterday means the banks can call in their debt at any time.

Yukos has been ordered to pay $3.4 billion in back taxes by Thursday. Its bank accounts were ordered frozen last week and a freeze on its assets remains in place, giving the company no way to raise money to pay the bill.

The company’s former chief executive officer, Mikhail Khodorkovsky, remains jailed on tax-evasion charges and faces trial later this year. His supporters say he is being prosecuted because of his support of opposition political parties.

With a daily output of 1.72 million barrels, or nearly one in every five that Russia extracts, Yukos is the country’s largest in terms of production. There are fears that its disintegration could tarnish Russia’s image abroad and slow growth in the oil sector — the country’s main cash earner.

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