Oil prices surge after Iraq halts crude exports, Venezuelan strife compounds fears

Monday, April 8th 2002, 12:00 am
By: News On 6

LONDON (AP) _ Oil prices surged Monday in a fresh wave of anxiety after Iraqi President Saddam Hussein cut off crude exports to demonstrate support for the Palestinians in their struggle with Israel.

Saddam announced that Iraq would suspend oil exports starting Monday for 30 days or until Israel withdraws from Palestinian territories. His unilateral cutoff could put more pressure on other Arab leaders to move against Israel in retaliation for its offensive.

Iranian supreme leader Ayatollah Ali Khamenei on Friday urged Islamic nations to stop shipping oil for one month to countries with close relations with Israel. Libya announced Monday that it supported the call. Both nations are OPEC members.

Despite their earlier expressions of support for an oil boycott, Iran and Libya were unlikely to join with Iraq, said Jan Stuart, head of research for global energy futures at ABN Amro in New York.

Iran's economy is too weak to go for long without precious oil revenues, and Libya is worried about jeopardizing its slowly warming ties with the United States, Israel's main backer, Stuart said.

Although OPEC hadn't received formal notice from Iraq about its embargo, U.N. oil monitors said the transfer of oil from Iraq to the Ceyhan loading terminal in Turkey ceased at midmorning Monday, U.N. spokesman Fred Eckhard said in New York.

At Iraq's other loading terminal, Mina al-Bakr in the Gulf, one vessel completed loading on Monday and two other vessels were waiting to be loaded. It wasn't clear if they would take on their oil cargo, Eckhard said.

Iraq, which has a daily production capacity of 2.3 million barrels, exports about 1.8 million barrels a day under the close supervision of the United Nations. Iraq also is believed to export an estimated 250,000 barrels a day illegally, via pipeline to Syria and by truck to Turkey.

Iraq's main customers are refiners and oil trading firms in the United States and Europe.

Some analysts expect 11-member OPEC's biggest producer, Saudi Arabia, and other moderate members of the group to quietly raise output to make up for an Iraqi shortfall.

OPEC officials have argued that prices must not rise so high as to choke off an economic recovery.

``That volume of crude can be made up overnight,'' said Michael Rothman, senior energy analyst at Merrill Lynch in New York.

An OPEC source, speaking on condition of anonymity from cartel headquarters in Vienna, Austria, said oil ministers were conferring about how to respond.

May contracts for North Sea Brent crude spiked up $1.44 a barrel, or 6 percent, at $27.43 in London before falling back to $27.02. On the New York Mercantile Exchange, contracts of light, sweet crude for May delivery jumped to $27.23 before easing back to $26.55 a barrel, up 34 cents from Friday.

``This isn't a shock price, but it is the Iraqis being mischievous and trying to wage a little economic warfare against the West,'' said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney.

Politics and labor problems in Venezuela, a top U.S. oil supplier, compounded the impact of Iraq's action. Venezuelan exports almost dried up Monday because of an escalating dispute at the national oil company, Petroleos de Venezuela, between dissident managers and new executives appointed by populist President Hugo Chavez.

Refining volumes at Venezuela's 950,000-barrels per day Paraguana complex dropped by half, and other refineries also experienced lower production levels. Labor strife is likely to intensify Tuesday, when Venezuela's largest labor and business associations stage a 24-hour general strike in support of the Petroleos de Venezuela dissidents.

The Organization of Petroleum Exporting Countries warned disruptions there, combined with an Iraqi decision to stop exports, could trigger an oil crisis.

``After the announcement of Iraq to suspend exports and the effect of Venezuela's exports, we could go directly to an oil crisis,'' OPEC Secretary-general Ali Rodriguez told Venezuela's Radio Caracas Radio in an interview from Qatar.

Iraq and Venezuela jointly export about 4.5 million barrels a day, or about 6 percent of global supplies.

Crude prices have risen in recent weeks to levels not seen since September, and this provides an additional incentive for other countries, including independent producers such as Russia and Norway, to boost production.

Mexico, also a non-OPEC producer, declined to comment Monday on Iraq's decision to suspend crude oil exports for a month.

Mexico, one of the top four suppliers of crude oil to the United States, agreed in January to cut its crude exports by 100,000 barrels a day as part of an effort by OPEC and non-OPEC producers to keep prices up amid a drop in global demand.