Oil prices fall a seventh day after allies capture key fields

Safe from sabotage, wells may help fund rebuilding of Iraq after war's end

War In Iraq

March 22, 2003|By Marego Athans | Marego Athans,SUN NATIONAL STAFF

Oil prices slid for a seventh consecutive day yesterday on word that Iraq's major oil fields in the south were under American or British control, available for use in the postwar rehabilitation of Iraq.

The markets were apparently buoyed by the knowledge that the bulk of the Iraqi oil industry was safe from sabotage and that the fires that flared in oil fields Thursday affected only a few wells. Crude prices dropped $1.21 to $26.91 a barrel.

"The situation is surprisingly normal compared to what was expected," said John Lichtblau, chairman of the Petroleum Industry Research Foundation in New York. "As of now, none of the disaster scenarios have turned out to be correct.

"This means that Iraqi oil is likely to be available soon."

Prices had rocketed to nearly $40 a barrel last month amid worries that Iraqi President Saddam Hussein would sabotage his oil fields and those of neighboring countries as he did in Kuwait during the gulf war in 1990-1991. Then, it took Kuwait seven months to extinguish the fires, set at more than 700 wellheads by retreating Iraqi troops.

The Defense Department has said the Iraqis have booby-trapped many wells.

Seven oil wells were on fire in the Rumaila fields near Basra yesterday, said British Adm. Michael Boyce, chief of British defense forces. Rumaila, with more than 600 wells, is Iraq's largest oil field, producing about 1.2 million barrels a day or about two-thirds of Iraq's oil field output.

Boyce said there had been confusion about the number of burning wells - early reports had put the figure at 30 - because Iraqi troops had lighted trenches full of oil, obscuring the nature of the fires.

Civilian contractors were expected within two days to begin extinguishing the burning wells, he said.

Defense Secretary Donald H. Rumsfeld said that "only about 10 wells that we know of, out of possibly 1,000 in that area," had been damaged. Several were on fire or gushing oil, but firefighters and repair crews would be sent soon, he said.

Fox News reported that two offshore Iraqi oil terminals where tankers docked had been seized in commando attacks by Navy SEALs, who found planted explosives.

A successful seizure of Iraq's oil fields makes it likely that Iraq can resume oil production quickly, possibly within a few weeks, analysts said yesterday.

Iraq exported roughly 2 million barrels a day last year under a United Nations program set up after the gulf war that allowed the country to use oil revenues for food and humanitarian aid.

The quick return of Iraqi exports wouldn't necessarily affect the world market because Saudi Arabia and other major Persian Gulf exporters have pledged to make up for any war-related shortages.

But the revenues from Iraqi fields would help the United States and its allies rebuild Iraq, whose oil wells and equipment have languished under decades of neglect and would need billions of dollars for a proper rehabilitation.

Also calming the volatile oil markets were assurances from the International Energy Agency, a watchdog group for the world's major oil importers, that global oil supplies were adequate

The agency said there was no reason to release emergency crude oil stocks despite the situation in Iraq and civil unrest in Nigeria, a major oil producer. Ethnic clashes in Nigeria's oil-rich Niger delta have disrupted production of about 250,000 barrels a day. The OPEC member's total output is 2 million barrels a day.

Despite the positive developments, oil analysts were still cautious about the fate of Iraq's oil industry. Substantial fields are also located near Kirkuk, in the north, where long-standing ethnic rivalries between Kurds, Turks and Arabs - even in a postwar period - could damage oil fields and disrupt operations.

"If there's violence or the threat of violence, investors will not be very interested" in rehabilitating the northern facilities, said Joe Barnes, a research fellow at the James A. Baker III Institute for Public Policy at Rice University.

The United States and Turkey have not agreed on what sort of access U.S. forces will have to Iraq from the north. Until that issue is resolved, no one can count on smooth operations in those northern fields, said Robert Johnston, oil markets director for Medley Global Advisors in New York.

"I think the markets have discounted the possibility of unrest in the north, but I have not discounted it until we figure out what the Turkish government is going to let us do," Johnston said. "Until we do, there's more uncertainty, with the possibility that the Turks and Kurds could clash. We are needed as a buffer."

About 570,000 barrels a day typically move from Iraq to the Turkish port of Ceyhan on the Mediterranean for export.

Moreover, Lichtblau said, the U.S. conflict with the Iraqi regime is far from over, with one huge question still looming. "Everybody's wondering, where is Mr. Saddam Hussein?" he said. "And is he going to do something?"

Wire reports contributed to this article.

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