- The Washington Times - Saturday, August 16, 2008

DUBAI, United Arab Emirates | Perhaps only during a summer in which the price for a barrel of oil has swung in a $30 span could a shooting war in the oil-rich Caspian region already be priced in by traders on the New York Mercantile Exchange.

Western leaders engaged in intense diplomacy on Friday to persuade Russia to pull its troops out of Georgia, but regional tensions soared after a top Russian general warned that Poland could face attack over its missile-defense deal with the United States.

Even if it was never far from anyone’s mind, Moscow’s influence over oil and natural-gas reserves in the region came roaring to the forefront when it sent armored columns into neighboring Georgia, which controls key pipelines that deliver crude from Central Asia.

But so far, there is little evidence that the conflict has stemmed the slide in crude prices.

On Friday, with Russian troops still in control of strategic cities like Gori, light, sweet crude for September delivery fell $1.24 to settle at $113.77 a barrel on the New York Mercantile Exchange after falling to $111.34, its lowest price since May 2 and more than $35 - or 24 percent - below its July 11 trading record above $147.



Part of the reason, analysts said, is that traders have already priced a large amount of geopolitical risk into the market. In addition, prices already had plenty of downward momentum after weeks of declines, making it harder for market bulls to spark a rally.

Another factor is that the Baku-Tbilisi-Ceyhan pipeline, by far the largest of three crude oil pipelines that pass through Georgia, had been shut down before fighting broke out because of an apparently unrelated fire on a segment of the conduit in Turkey.

Yet Kurdish separatist rebels took responsibility for the sabotage.

Trader and analyst Stephen Schork said that even with “Russians camping out in Georgia,” spot prices for Brent Crude Futures on the Intercontinental Exchange (ICE) close lower for the 17th time in the past 24 sessions.

Russia exports more oil than any country except Saudi Arabia and is the world’s leading producer of natural gas.

Peter Zeihan, vice president of analysis at Austin, Texas-based geopolitical research firm Stratfor, said the conflict highlighted how quickly Russia is able to gain control of the key pipelines in Georgia.

“Those are only going to continue to operate on the terms that the Russians are OK with,” he said. Gaining effective control of the pipelines is “not the primary goal of the invasion, but it’s a nice side effect,” from Russia’s point of view, he added.

Still, analysts cautioned that the Russia-Georgia dispute could have an affect on future oil prices.

“The key question is this: How safe is it to transmit oil and gas through the Caucasus? That political risk calculation will have altered in the past couple of weeks,” said Michael Denison, lecturer in international security at the University of Leeds and associate fellow at London-based international-affairs research firm Chatham House.

Mr. Denison noted, however, that Russia is just as dependent on seeing its oil get to lucrative markets in Europe as it is for the West to ensure oil and natural-gas supplies continue to arrive from their larger neighbor to the east.

“There is nowhere else for Russian gas to go. It has to go to Europe,” he said.

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