Thursday, November 14, 2002

WASHINGTON: Crude oil prices could triple to US$80 a barrel during the first quarter of next year and strangle the world economy under the worst case scenario of a US attack on Iraq, according to energy experts.

Crude prices are likely to spike that high if Iraq destroys its oil facilities while retreating from US forces and uses weapons of mass destruction, and key oil facilities in next-door Saudi Arabia and Kuwait are damaged by Iraqi missiles – that is the conclusion of energy experts who met at the Centre for Strategic and International Studies (CSIS) to discuss the impact of a US war against Iraq on the oil market.

Such a huge jump in oil prices would devastate the global economy, which is already struggling, they said.

“All you need is US$40 oil to bring the economy to a complete standstill. If we have US$80 oil we’re going to be in the hole,” said Adam Sieminski, global oil strategist at Deutsche Bank.

Consumers would be hit with skyrocketing gasoline prices at the pump. The price of crude oil accounts for about 44% of cost for a gallon of gasoline.

Commercial jet fuel prices might not take as bad a hit, because the US military had been planning for an attack on Iraq and had stockpiled fuel for its fighter aircraft, the experts said.

Under the worst case war scenario, after oil hit US$80 a barrel in the first quarter of 2003, prices would eventually decline to US$60 in the second quarter, and then fall to US$50 in the third and fourth quarters, according to CSIS analysis.

Currently, a barrel of crude trades for about US$26 at the New York Mercantile Exchange.

The Bush administration could help calm the energy markets by announcing ahead of an attack on Iraq that it planned to release oil from the US Strategic Petroleum Reserve.

The reserve, which was created by the US Congress in the mid 1970s after the Arab oil embargo, currently holds 589 million barrels of oil in deep underground salt caverns located at four sites in Texas and Louisiana.

“You have to be prepared to make an early release of the reserve,” said Larry Goldstein, president of the Petroleum Industry Research Foundation.

He said President George W. Bush would not have to actually draw down the emergency oil stockpile, because just the prospect of putting more crude in the market could stabilise prices. – Reuters

-- Anonymous, November 14, 2002