- The Washington Times - Wednesday, April 3, 2002

From combined dispatches
Crude oil rose to almost $28 a barrel yesterday as Iraq tried to drum up Arab support to cut off oil to Israel and the United States.
Baghdad's call for Arab petroleum producers, who account for half of world supplies, to use the oil card for the first time since the 1973 crisis has fallen on deaf ears, though it has helped drive crude prices to a six-month high.
The rise in crude-oil prices this year has helped send the cost of gasoline higher. Crude oil accounts for 36 percent of the retail cost of gasoline.
Iran said it also would consider using the oil weapon, with the proviso that the use of Arab oil to turn the screws on Washington to force Israel to withdraw from the Palestinian territories depends on a collective decision by Islamic countries.
"The big oil companies, the refiners, are buying oil on fears that some sort of coordinated action might be taken to cut supplies," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, a wholesale energy marketer. "The crude oil is needed for the refineries, and the companies don't want to take any chances."
Crude oil for May delivery rose to $27.71 a barrel on the New York Mercantile Exchange, the highest price since Sept. 19. Oil prices have risen 39 percent this year.
In London, where markets were closed during Monday's rally in New York, Brent crude oil for May settlement rose as much as $1.20, or 4.6 percent, to $27.12 a barrel on the International Petroleum Exchange.
If producers "decide to use oil as a weapon, certainly it would be very effective," Iran's foreign minister, Kamal Kharazi, told reporters at the Islamic Conference of Foreign Ministers on Terrorism in Kuala Lumpur, Malaysia.
Others disagreed.
"There is a big question mark over whether any Arab producers would join Iraq or Iran," said Leo Drollas, chief economist with the Center for Global Energy Studies in London.
"I doubt whether key producers Saudi Arabia and Kuwait would join, considering the long-term damage to their reputations and future Western support if they were seen to be allying, as in 1973, with threatening embargoes for political reasons," he said.
After the Arab-Israeli war in October 1973, the Arabs initiated an oil embargo on the United States and the Netherlands as punishment for their support of Israel in the war with Syria and Egypt.
The Organization of the Petroleum Exporting Countries agreed to production cuts that drove up crude prices fourfold.
Baghdad's appeals garnered short shrift from other members of the Organization of the Islamic Conference (OIC) meeting in Malaysia, from OPEC and the U.S. administration, which dubbed them "random musings."
"It is totally out of the question that oil will be used as a weapon," said an OPEC source in Vienna, Austria.
The minister of Justice and Human Rights of Southeast Asian oil producer Indonesia, Yusril Ihza Mahendra, said he believed it was "quite impossible" to use oil as a weapon.
"It is quite difficult now. Oil is not so easy to be used as a weapon. A lot of other countries like South America and China are also producing oil as well as other countries outside OPEC."
For many oil-dependent Gulf states, a steady stream of crude revenues is seen as crucial to guarantee stability of governments that appease disenfranchised populations with generous cradle-to-grave welfare benefits.
Officials from Saudi Arabia, the world's largest oil exporter, the United Arab Emirates and Kuwait declined to comment on Mr. Kharazi's statement. A Qatari oil ministry official said it was "unlikely" that Arab producers would use oil as a weapon in support of the Palestinians.
"With about 23 million barrels a day being produced in the region, anytime there is trouble the markets will react," said Andrew Lebow, senior vice president and broker with Man Financial Inc. in New York.
Oil-producing nations in the Middle East and North Africa account for more than two-thirds of oil reserves. Arab producers haven't restricted supplies for political reasons since the oil crisis of 1973.
Gasoline futures for May delivery rose 1.3 cents to 86.2 cents a gallon in New York, the highest price since Sept. 14. U.S. retail gasoline prices followed futures higher. Prices rose 2.9 cents to a six-month high of $1.37 a gallon last week, the Energy Department said yesterday.
The average nationwide pump price for regular gasoline rose for a fifth straight week to the highest level since Oct. 1, the weekly survey showed.


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