Iraq oil flowing again

Production resumed at Iraq’s vast southern oil fields after authorities reached an accord with militant Shiites who had threatened to attack the country’s vital export pipelines for crude, an Iraqi oil official said.

Oil markets welcomed the news, with US crude futures falling by 44 cents a barrel in late New York trading.

Iraq’s South Oil Company reversed a decision it made to curtail output as a precaution against sabotage by supporters of radical Shiite cleric Muqtada al-Sadr. The cleric’s followers had warned they might attack pipelines in southern Iraq unless the government halted crude exports.

Iraq exported 1.75 million barrels a day before South Oil curtailed production.

Global oil markets – already worried about possible supply constraints on crude from Russia and Saudi Arabia – grew anxious about the sharp reduction in Iraqi output.

“It slowed down considerably. Now it is resuming full blast,” said the official, speaking from Baghdad.

Iraq has the world’s second-largest proven crude reserves, most of them in the southern region, and oil is the country’s only major source of export earnings needed to rebuild its devastated economy.

Oil futures reached new highs yesterday, with September contracts of US light crude hitting $45.04 a barrel on the New York Mercantile Exchange. US crude contracts slid in afternoon trading to $44.40, down 44 cents from Monday’s record New York close of $44.84.

In London, September contracts of Brent crude touched $41.69 a barrel on the International Petroleum Exchange. They dropped in late trading to $41.35, down 21 cents from Monday’s all-time high closing price of $41.56.