- The Washington Times - Tuesday, June 5, 2001

VIENNA, Austria OPEC oil ministers tried to reassure nervous energy markets yesterday that the producers' cartel would make up for any shortage of crude after Iraq halted most of its oil exports.
Crude prices shot higher initially on the Iraqi announcement but lost those gains as it became apparent that OPEC members will not allow a shortfall to occur.
"We're going to make sure that demand is met… . I'm not worried," OPEC President Chakib Khelil said in this Austrian capital, where the group's representatives are to meet today to set future targets for output. Mr. Khelil gave no details of how the Organization of Petroleum Exporting Countries planned to replace the missing Iraqi crude.
Iraqi Deputy Oil Minister Taha Hmoud Mousa later dispelled some of the uncertainty about Iraq's intentions, telling reporters his government has suspended exports for only one month. The halt was made as a protest against the U.N. Security Council's decision to extend by one month instead of the usual six months the program under which Iraq can sell oil.
Nevertheless, the Iraqi maneuverings initially sent July contracts of North Sea Brent crude up to a six-month high of $29.71 on the International Petroleum Exchange in London, before they fell back to $29.12, up 5 cents on the day.
On the New York Mercantile Exchange, contracts of light sweet crude for July delivery peaked at $28.74 in early trading before slipping back to $28.13 in afternoon trading, up 20 cents.
The move by Iraq cast an element of doubt into this week's meeting, during which OPEC officials are expected to decide to maintain oil production at current levels.
Mr. Khelil reiterated that view, saying supplies were "good and sufficient" to meet global demand. OPEC has an official output target of 24.2 million barrels a day, and its members pump about 40 percent of the world's crude.
OPEC is meeting as motorists in the United States are seeing stiff prices for gasoline, with drivers in some parts of the country paying more than $2 a gallon. However, OPEC has argued that bottlenecks at U.S. refineries are the cause, not tightness in crude supplies.
Even though Iraq removed some 2 million barrels a day from those supplies, the cartel hastened to allay fears of possible shortages and a spike in energy prices.
"OPEC will manage the market, and I'm not concerned [about] any shortage," Iranian Oil Minister Bijan Namdar Zangeneh told reporters upon his arrival at a Vienna hotel. Iran is OPEC's second-largest producer, while Iraq ranks third.
Analysts were also anticipating that the oil ministers would simply re-approve their current production volumes.
Leo Drollas, chief economist of the Center for Global Energy Studies in London, envisioned OPEC's talking a "wait and see" approach toward Iraq, which doesn't participate in production agreements reached by the group's other 10 members.
OPEC decided in March to trim its official output by 4 percent in an effort to buoy prices. That cut followed an agreement in January to reduce output by 5 percent.
Mr. Drollas said these combined cuts of 2.5 million barrels a day could lead to a shortage later this year of heating oil, a product that is refined from crude. But for the immediate future, he predicted that crude prices weren't likely to jump much higher.
Gasoline prices, which began leveling off late last month, have peaked, he said, noting that U.S. refineries were operating at 96 percent of their capacity and that gasoline imports were flooding into the United States.
By making good on its threat to halt exports, Iraq played a new card in its game of political brinksmanship with the United Nations, which regulates Iraq's oil trade.
The Iraqi government is desperate to shake off the U.N. economic controls imposed after Iraq's 1990 invasion of Kuwait; it has disrupted crude exports before, and its shipments have been somewhat sporadic since December.
"We would be ready to ready to resume exporting" after this period, Mr. Mousa told reporters, so long as the Security Council extends the program. Mr. Mousa said he would ask the other OPEC members not to increase their production during the one-month suspension.
War and sanctions have crippled the Iraqi economy, leaving many Iraqis dependent on government rations financed by the U.N.-supervised oil exports. Iraq needs the revenue from oil its sole foreign exchange earner to buy food. It has cash reserves, but it was not clear how long it could survive without further sales.
Iraqis see the U.N. oil-for-food program as an attempt to control what the government can buy, including food. The United Nations set up the program to allow Iraq to buy humanitarian goods, but not weapons.
Iraqi Oil Minister Amer Mohammed Rashid said pumping oil through an Iraqi-Turkish pipeline to Turkey's Mediterranean port terminal at Ceyhan stopped yesterday morning. Exports through Iraq's southern al-Bakr oil terminal were also shut off, sources close to the Oil Ministry said on condition of anonymity.
The sources said oil exports by road tankers to Turkey and Jordan were not affected.
OPEC's No. 1 producer, Saudi Arabia, is the only cartel member with sufficient ability to make up quickly for the loss of Iraq's oil, as most of the group's other members are pumping at or near their limits.
OPEC has at least two options for boosting output if Iraq stays out of the market. Should prices rise uncomfortably high, members could meet later this summer to approve a production increase aimed at forcing prices back down. However, Mr. Khelil said OPEC was unlikely to meet before September.


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