Iraqi war won't cause oil shortage

October 10, 1994|By New York Times News Service

NEW YORK -- Should the suddenly tense Persian Gulf erupt into fighting, energy analysts say they do not expect any shortages of oil but do think prices will rise, perhaps sharply.

Even if Kuwait lost its ability to produce the 2 million barrels a day of oil that it currently pumps, others in the Gulf Cooperation Council of which it is a part could pick up the slack, Mehdi Verzi, an oil analyst at Kleinwort Benson in London, said yesterday. "There is enough capacity within the Gulf area to counter a big drop in production in Kuwait," he said.

Yet it is virtually certain that fighting would nudge up prices. "If we had another war, there would be at least a short-term upward push in prices, just as we had in 1990," said Marion Stewart, an energy economist at National Economic Research Associates in White Plains, N.Y. Such a worst-case scenario could send crude oil prices as high as $25 a barrel this week from last week's close of under $19, Mr. Stewart said.

Crude oil prices hit their highest levels in two months during the trading on Friday, reacting to news that Iraqi forces had neared the border of Kuwait. But, after reaching $18.70 a barrel, crude oil for November delivery closed up only one cent at $18.26 on the New York Mercantile Exchange.

Gary Ross, the chief executive of the PIRA Energy Group in New York, said the markets settled down in part because of the perception that Saddam Hussein does not have much room to dTC maneuver -- and thus little room to wreak havoc with the oil markets.

"Iraq is very frustrated, and Saddam seems to be thinking that through intimidation he will get us to ease up on sanctions," which have reduced Iraqi oil output to 500,000 barrels a day from 3 million, he said, adding, "Part of his problem is that he has no leverage, so maybe he is trying to get leverage through this bluster."

Because the international oil markets have been relatively calm recently, analysts said, even a war might have limited impact on prices.

Mr. Verzi said yesterday that the markets could remain stable despite fighting in Kuwait for a number of reasons, including that heating oil inventories in the United States are 10 percent above where they were this time last year, when the country faced its coldest winter in 25 years.

Also, Mr. Verzi said, the Organization of Petroleum Exporting Countries "has actually been a stable element in the market in the past year," producing a steady 24.5 to 25 million barrels a day.

Of the 7.2 million barrels a day of crude oil the United States imported in the second quarter of the year, only 300,000 barrels came from Kuwait, said Mr. Ross of PIRA Energy.

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