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Oil Prices May Drop with War NewsMax StaffWith war looming, Iraqi forces concentrating for battle around that nation’s oil fields, and with Saddam’s unconventional weapons reportedly zeroed-in on the oil facilities of northern Kuwait, the International Energy Agency, the Organization of Petroleum Exporting Countries, Kuwait and the U.S. are all poised to keep vital petroleum flowing to the world.
Members of the OPEC, led by Saudi Arabia, which produces more than eight million barrels a day, have promised to increase production in the event of the loss of Iraqi supplies.
This means oil prices could actually drop if war begins.
Also, President Bush began topping up the nation’s Strategic Oil reserves soon after Sept. 11, and officials in Washington have hinted that the administration may move to release oil from the stockpile if the war causes any slow-up in oil deliveries.
Backing up this first line of defense, the IEA says it stands ready to release petroleum reserves “swiftly and, if necessary, massively,” according to a report in the Wall Street Journal.
Claude Mandil, IEA executive director, said that within the first few hours of any war crisis in the Gulf region, he would immediately work with the oil ministers of Saudi Arabia and other key exporters to cushion the supply shock. According to Mandil, the IEA would then step in to make up any remaining shortages.
This intercession by IEA appears more likely not, as the OPEC cartel might not have enough reserve capacity to make up for a loss of Kuwaiti production as well as that of Iraq. Currently, Kuwait exports about two million barrels of oil a day, or 2.7 percent of total world supply of some 75 million barrels, while Iraq averages about 1.7 million barrels a day. Ready to Release Reserves
Meanwhile, administration officials have said that the U.S. would release its oil reserves if needed in conjunction with any move by the IEA. The U.S. is one of the IEA’s 26 member nations, which control reserves of oil earmarked for emergency use. These strategic reserves are located in the U.S., Europe, Japan and South Korea.
U.S. reserves are safeguarded in underground salt domes on the Gulf Coast. When such reserves are released, private companies may bid for the petroleum, transporting it by tanker or pipeline. Kuwait, once again in the line of fire as in the 1991 Gulf War, has been busy with designing emergency contingencies both on the production and shipping ends of its oil business. According to the Journal report, Kuwait is ready to shift gasoline production to refineries farther from the expected cite of hostilities.
Furthermore, the Kuwaiti Army has stepped up security around oil installations, and plans are in place for the country to ship its oil with its own tankers and transfer it to other vessels waiting outside the Gulf, a tactic that Kuwait used successfully during the Iran-Iraq war of 1980-1988 when foreign tankers were remiss to visit its ports. Some Civilians Getting Out As the war clouds gather, the British oil titan BP PLC is in the midst of evacuating two-thirds of its employees and their families from Kuwait. Meanwhile, employees and dependants of U.S. companies operating in Kuwait are also getting out, according to the Journal. Adding to the mix, a strike in Venezuela has dwindled supplies, sending oil prices surging as well.
The IEA, which controls four billion barrels of oil -- 114 days worth of oil imports by its member nations -- is standing by to offset all contingencies, having the potential to turn loose more than 12 million barrels of oil during each day of a war crisis.
Notwithstanding the expected contributions of OPEC, this amount alone is more than seven times the Iraqi daily output, restrained as it is from long standing sanctions following the Gulf War.
“We are ready to cope with the situation we will find,” Mandil told the Journal. “We will assess the situation…and if there is a necessity we can act in a matter of hours.” The IEA’s current posed-for-action position is in stark contrast to its stance after Iraq invaded Kuwait in August 1990 when the agency waited until after the start of the Gulf War in January 1991 to finally release 2.5 million barrels a day. However, according to the Journal, OPEC members had already pitched in by then, easing the price pinch.
According to Mandil, even war critics France and Germany are aboard the decision to release emergency oil reserves.
“It would be crazy [to do otherwise],” said Mandil. “What we are doing has nothing to do with a decision about the war. What we have to deal with is a supply disruption.”
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