Oil prices hit four-month low

Oil prices dived by 4% to a four-month low today as news of US-led military advances in Baghdad and Basra boosted hopes of a swift end to the war and minimal damage to Iraq’s oil fields.

In London the price of industry benchmark Brent crude slipped more than a dollar to 23.61 dollars a barrel – its lowest point since mid-November.

Dealers said that if the Iraqi capital fell expectations were that there would be no need for coalition forces to fight for control of the oil fields.

Iraq’s exports of around 1.8 million barrels of oil a day have trickled to a stop since the war began almost three weeks ago.

Before fighting started, economists feared a Vietnam-style protracted engagement with mass casualties which would have battered the already fragile world economy.

Now, with analysts confident that the war will be contained within Iraq, the price of oil is set to remain lower.

Once peace has been re-established in Iraq, a fledgling democratic system is likely to pour huge amounts of oil into the market in an effort to raise funds for reconstruction of the country, lowering global oil prices.

During the Gulf War in 1991, oil prices hit a high of 41 dollars and analysts believed this could have been matched again this time.

Higher crude oil prices filter down to other parts of the economy, forcing up the price of petrol at the pumps, as well as sending the cost of heating oil and other fuels higher. In turn this raises the cost of energy and transport for households, industry and motorists.

Gold, also seen as a safe haven investment in times of uncertainty, also fell sharply in trading today. Gold prices had risen alongside oil during the build-up to war and the subsequent start of fighting.

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