Prices up but Saddam's oil ban shouldn't cause shortage

Iraqi President Saddam Hussein today cut off all oil exports for 30 days - or until Israel withdraws from Palestinian territories - a move that sent prices up but was not expected to hurt world supplies.

Saddam’s unilateral cut-off could put more pressure on other Arab leaders to move against Israel.

Ordinary Arabs have taken to the streets demanding their governments cut ties with Israel, wield the oil weapon or supply the Palestinians with tanks, but moderate Arab leaders have moved cautiously while calling on the United States to make Israel retreat.

Analysts have said a cutoff, which Saddam had earlier threatened, would not affect world oil supplies because other major members of the Organisation of the Petroleum Exporting Countries have not agreed to join Iraq’s call and other producers likely would make up the difference.

The United States and Europe are the main buyers of Iraq oil. Opec says Iraq has a maximum production capacity of 2.3 million barrels per day and that it pumped an average of 1.96 million barrels daily last year.

In a nationally televised speech, Saddam said Iraq’s top leaders decided ‘‘in the name of the people of Iraq ... to stop exporting oil totally as of this afternoon through the pipelines flowing to the Turkish ports and the south for 30 days’’ unless Israel withdrew earlier.

He said that if Israel had not withdrawn within the 30 days, Iraq would consider what action to take.

The oil weapon would be ineffective without the participation of Saudi Arabia and Kuwait, who have rejected Iraq’s call. Many Gulf states depend on oil revenues for more than two-thirds of government income and cannot afford to stop sales.

Nonetheless, Iranian supreme leader Ayatollah Ali Khamenei called on Islamic countries to stop supplying oil for one month to countries with close relations with Israel. Libya announced today that it supported the call.

Opec, which supplies a third of the world’s crude, would intervene if necessary to offset a shortfall in Iraqi shipments, a source at the oil producers’ group said today.

Opec hasn’t received formal notification yet from Iraq about its embargo, and it was still unclear whether Iraq planned to halt all of its shipments, the source said. Oil ministers were conferring about what action to take once they learn details about the boycott, the source added.

Arab oil was last used as a political weapon was in 1973, when reduced exports caused a global energy crisis. Since then, the world’s wealthiest nations have created the International Energy Agency to provide a cushion against any similar disruption.

The Paris-based IEA can tap into about four billion barrels of oil and oil products in reserves maintained by member countries, including about 1.2 billion barrels in strategic reserves, according to the IEA. The four billion barrels equals about four years of Iraqi production, based on January IEA estimates.

In November 2000, Saudi Arabia led the adoption of a producers’ pledge that oil would not be used as a political weapon.

Iraq’s trade with the outside world is restricted by UN sanctions imposed to punish it for its 1990 Kuwaiti invasion. Under so-called oil-for-food programme exemptions dating to 1996, Iraq is allowed to sell unlimited amounts of oil to buy food, medicine and other humanitarian supplies, and to pay war reparations.