Quotes

Stock Quote

ANALYSIS-West worries Iraq could wield oil weapon

September 15, 2000 7:58am Source: Reuters

By William Maclean

LONDON, Sept 15 (Reuters) - With exquisite timing, Iraq is reviving a quarrel with former Gulf War foe Kuwait to push its campaign against sanctions firmly back on the global agenda, energy analysts and diplomats said.

To make his point, Iraqi President Saddam Hussein has no need to go to war with the tiny desert neighbour he occupied in 1990-91.

He only needs to shut off crude exports to send already high world oil prices through the roof and pile pressure on Western governments hit by fuel protests and fears of economic damage.

``Iraq has plenty of reasons to do something silly,'' said a senior Western diplomat.

``They would lose revenue by cutting off their exports. But they may figure they have nothing to lose politically,'' he said.

``The higher prices go, the more their money goes to people who are not Iraqis via compensation payments, or to the Kurds, or it sits mostly unused in an escrow account.''

Iraq has a long list of complaints to address, most of them rooted in strict U.N. sanctions imposed after its 1990 invasion of Kuwait. A U.S.-led alliance ejected Iraq in 1991.

IRAQ RAISES STAKES

Iraq raised the stakes on Thursday by accusing Kuwait of drilling on the border to steal Iraqi oil -- a clear echo of a decade-old grievance cited in 1990 as a motive for its invasion.

Kuwait says the accusation was, and remains, nonsense.

But Iraq jangled nerves in Western capitals this week by saying it planned unspecified steps to stop the alleged theft.

Events on world oil markets have conspired to provide Baghdad with enough clout to threaten sharp short-term damage on Western economies if its campaign against sanctions is not heard.

With all producers bar Saudi Arabia pumping at capacity, the loss of 2.3 million barrels daily of Iraqi exports worth almost five percent of world crude trade could light a fire under already red-hot prices.

``Timing is very, very important,'' said Mehdi Varzi, director of research at bankers Dresdner Kleinwort Benson.

``Iraq may catch the market at the peak of winter demand.''

Rich and poor oil-importing nations are worried that oil's rally threatens world economic growth and may stoke inflation.

Varzi said a complete Iraqi cut-off was unlikely short-term, but potential existed for major disruption when the current, eighth phase of Iraq U.N.-monitored exports ends on December 5.

Analysts say the market impact of an export rupture at that time would depend on whether heating oil demand has peaked -- an issue that depends partly on how cold winter turns out to be.

Some suspect Saudi concern about Iraq's growing market clout lent momentum to the kingdom's push for a sizeable output hike agreed on Sunday by the Organisation of the Petroleum Exporting Countries.

Throughout the 1990s Baghdad showed it was prepared to go to the brink of fresh conflict to gain attention for a multitude of grievances by triggering repeated border crises with Kuwait.

Analysts said that for Iraq, commercial measures were now preferable to military gestures since a cessation of oil flows offered no pretext for armed Western reprisals.

OIL PRICES VULNERABLE TO IRAQ

One diplomat said a total export cut in coming days could not be ruled out, especially since Baghdad had taken note of how vulnerable prices had proved to earlier interruptions in flows.

``Iraq has repeatedly shown how comfortable it is when it confronts,'' he said.

For Iraq, its latest threat has the added bonus of throwing a potential security complication into Kuwait's bid to win foreign investment for big oilfields near the Iraqi border.

The diplomatic temperature could rise again later this month when Gulf War reparations officials meet to consider a recommendation by independent arbitrators that Iraq pay Kuwait $15.9 billion for oil destroyed during its occupation.

Iraq has fired off a preemptive verbal barrage against Kuwait and its ally Saudi Arabia, accusing the Gulf War's main paymasters of bribery to prolong U.N. sanctions.

Bagdhad has also lambasted the two states as ``partners in the crimes'' because they provide bases for U.S. and British planes which patrol a no-fly zone in southern Iraq.

Iraq does not recognize no-fly zones set up by Western nations after the war to shield a Kurdish enclave in the north and Shi'ites in the south from potential attack by Iraqi troops.

Another issue is Iraq's dire need for spare parts to repair its delapidated oil industry. It is chafing under restrictions imposed mainly by Washington on its purchases of new hardware for fear Baghdad will use it for weapons programmes.

Yet another is the larger issue of Iraqi opposition to moves to revive U.N. arms inspections, halted since December 1998 when U.S. and British forces made military strikes against Iraq.

Iraq has so far said it will not let a new arms inspection team do its work, arguing it has already destroyed all banned weapons of mass destruction and sanctions should end.

A 1999 U.N. Security Council resolution makes any easing of sanctions conditional on a return of arms inspectors to Iraq.

Under Iraq's U.N.-monitored oil for food exchange, two-thirds of proceeds are earmarked for buying humanitarian goods for Iraqi people, suffering under 10 years of economic sanctions.

The remainder goes to compensation payments to victims of its occupation and to fund U.N. programmes in Iraq.

http://finance.individual.com/display_news.asp?doc_id=RTI15a8390reuff&page=news

For Kuwait, the latest turbulence portends little good.

``The latest Iraqi claims and threats sound exactly like language used in July prior to the invasion,'' a senior Kuwaiti official said. ^ REUTERS@

-- Martin Thompson (mthom1927@aol.com), September 15, 2000