- The Washington Times - Saturday, August 31, 2002

U.S. companies have scaled back oil purchases from Iraq, as talk of war against Saddam Hussein intensifies, making the loss of Iraqi oil less important to energy markets should fighting erupt.
Still, energy traders worry that an attack against Iraq might embroil the Persian Gulf in chaos and disrupt supplies from other countries, including Saudi Arabia. Those concerns contributed to the increase in oil prices last week when crude jumped to $30 a barrel for several days.
Energy analysts said Saudi Arabia, the world's largest oil producer, may well be the key to whether any U.S. attack on Iraq has worldwide repercussions on oil markets. Soaring oil prices could choke off the struggling U.S. economic recovery by forcing up the cost of everything from gasoline and heating oil to airfares.
That is one reason the Bush administration has been busy mending frayed relations with Saudi Arabia. The kingdom's ambassador, Prince Bandar bin Sultan, paid an unusual visit to President Bush's ranch in Texas this week.
But industry analysts say the loss of Iraqi oil if other supplies are not affected should be of little consequence. Iraq's exports already are a fraction of what they were earlier this year.
U.S. imports of Iraqi oil dropped from more than 1 million barrels a day earlier this year to 137,000 barrels a day last month, according to industry estimates. U.S. oil companies slashed their Iraqi purchases because of concern over future supply and frustration over cumbersome purchase and pricing procedures.
Iraqi production also has been hampered severely by U.N. sanctions and a decimated oil infrastructure.
"We've seen Iraqi supplies shut down completely this year for a month and you didn't have any dramatic swings [in supply or prices]," said John Felmy, chief economist for the American Petroleum Institute, the industry trade group. "There's excess capacity throughout OPEC and non-OPEC countries."
But traders still are fretting about Middle East war prospects and about what oil ministers of the Organization of the Petroleum Exporting Countries will do Sept. 19 when they map out future production levels.
After the OPEC meeting in June, "the assumption was that they would increase production in September," said John Kingston, global director for oil for Platt's, a subsidiary of McGraw-Hill Cos. But with OPEC countries already producing 1.8 million barrels more than the levels agreed to in June, a higher production quota is unlikely.
No one knows what influence the Iraq situation might have on the meeting.
The recent oil price increases are the result of "a war premium," said John Lichtblau, chairman of the Petroleum Industry Research Foundation. "If it weren't for this nervousness, [oil] prices would be in the mid-20s."
Instead, the price of benchmark West Texas crude soared past $30 a barrel last week as Vice President Richard B. Cheney forcefully outlined the administration's case for attacking Iraq and as Mr. Bush continued his criticism of the Iraqi regime.
The increases have not been felt by consumers. Gasoline prices, despite strong demand, have increased only slightly, averaging $1.40 a gallon this week, 8.5 cents cheaper than a year ago, the Energy Department's Energy Information Administration said.
In the event of a war, Saudi Arabia will be looked upon to make up any supply losses. Saudi officials have tried to reassure that they are prepared to take actions to stabilize oil markets.

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