Iraqi crisis disturbs black gold markets
Gulf Region, Analysis, 12/3/1997

The recent crisis which had erupted as a result of Iraq's expulsion of the US members of the UN teams inspecting sites suspected of being associated with Iraqi weapons of mass destruction and the negotiations and mediations that led to the inspectors' return caused a great tumult in the international oil markets. The price per barrel of oil reached $20 after many dealers expected a US strike against Iraq in light of the US military buildup in the Gulf.

Panic spread in Europe and the USA because of the possibility that the flow of oil from the Gulf region could stop due to this strike which would badly affect international markets. In a report, the US Oil Institute said that the crude oil reserves in the USA had decreased to 301.01 million barrels on October 17, compared to 304.65 million barrels earlier in the year.

The primary indications suggested that the military operations would target Iraqi oil refineries which would cripple Iraqi oil production. Later, Washington expressed its desire to solve this crisis through diplomatic means, and Iraq declared its willingness to allow the UN inspection team back.

This was followed by the news that Washington is ready to reconsider the oil-for-food agreement in a way that allows Iraq to sell more oil to buy more food and medicine. These developments brought some stability back to the markets.

The US initiated efforts a long time ago to depend more on Venezuelan oil within its strategy to vary its sources of oil. But soon the US discovered that this strategy was not feasible as it is difficult to ignore the Gulf oil, especially that from Saudi Arabia.

The US imports 1.5 million barrels from Saudi Arabia compared to 1.444 million barrels from Mexico, and 1.31 million barrels from Venezuela. The US dependence on the Gulf oil is also deepened by the fact that many US oil companies work in the Gulf.

Saudi Arabia's importance springs from the fact that it has the biggest oil reserves, thus it is capable of increasing its production to more than 10 million barrels a day. Any country with a big economy like the USA finds it inevitable that it depends on Saudi oil, especially in the short and intermediate run.

There are many oil projects between the US oil companies and the Saudi Company Aramco in the fields of gas stations, producing oil derivatives and petrochemicals. The commercial interests of those companies give Gulf oil great importance to the US market.

It should be noted that the international need for oil is increasing year after year. It increased by about 2.2.% last year, which is the highest increase since 1987.

Though OPEC's production of oil exceeded the specified quota, the international market still has a great need for more oil. The of the OPEC's production increased by about 1.4 million barrels during 1997. This increase represents only 00.07 of OPEC's total production in 1998.

Previous Stories:
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  Oil slips as Saudi seek OPEC consensus   (11/27/1997)
  402 Projects with the Capital of $19.836 billion in Gulf Countries   (11/3/1997)

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