Iraq Helping Fill American Oil Supply Gap

seattlepi.nwsource.com Wednesday, January 15, 2003 · Last updated 2:03 p.m. PT By MASOOD FARIVAR DOW JONES NEWSWIRES     Iraqi President Saddam Hussein, right, receives unidentified Jordanian tribal leaders in Baghdad, Wednesday, Jan. 15, 2003. (AP Photo/INA)

NEW YORK -- Under sanctions and an erratic leader, Iraq has hardly been a reliable global oil supplier.

But in an odd twist, the United States has grown increasingly reliant on Iraqi oil exports to replace supplies cut off by a seven-week-old strike in Venezuela - even as the Bush Administration steps up preparations for a possible invasion - raising further concerns about the impact a U.S. attack would have on the oil market.

"The United States gets several hundred thousand barrels a day of crude oil from Iraq," said John Lichtblau, chairman of PIRA Energy in New York. "That's not insignificant."

Unpublished, preliminary government data indicate exports of Iraqi oil to the United States have been rising in recent weeks. Since the Dec. 2 start of the labor strike in Venezuela, Iraq's crude oil exports to the United States have averaged more than 500,000 barrels a day, nearly double the volume reported during the September-November period, the data show.

Last week, Iraqi oil exports to the United States jumped to 830,000 barrels a day, their highest level since early last year and nearly 10 percent of total U.S. imports that week, according to an Energy Department analyst.

While Iraq's exports remain below levels seen in 2001 and early 2002, the recent surge, including the shipments to the United States, is making a difference, analysts said.

The surge in Iraqi shipments helped boost total crude oil imports into the United States by 200,000 barrels a day last week to 8.5 million barrels a day.

"That's probably in reaction to the loss of Venezuelan exports," said Aaron Brady, an analyst at Energy Security Analysis Inc., a consulting firm in Wakefield, Mass. "You need to make it up somehow. Iraqi oil is doing its share filing in that gap."

Iraqi oil exports have been erratic since the start of the United Nations oil-for-food program six years ago. The program allows Iraq to sell as much oil as it likes provided revenue go into a U.N. account and are used mostly for humanitarian purposes.

After topping 1 million barrels a day in January and February of last year, Iraqi oil exports to the United States nose-dived. The decline came in response to the onerous conditions of a new U.N. pricing policy imposed to frustrate Baghdad's efforts to collect an illegal surcharge from traders.

Iraq compounded the problem by cutting off its exports in April in an ill-fated effort to spark a broad oil embargo in support of the Palestinians.

For much of last year, Iraqi exports averaged less than 1 million barrels a day, with less than half coming to the United States.

Faced with a sharp loss of revenue and U.S. threats of military action, Iraq quietly dropped the surcharge demand in September. Some analysts saw the move as an attempt to build commercial ties as a bulwark against a U.S. attack.

Whatever the motive, the change prompted major international oil companies to return to the Iraqi market for the first time in nearly two years, according to industry analysts and U.N. diplomats.

The result has been a clear rise in Iraq's oil exports, according to U.N. figures. Since the start of September, Iraqi exports have averaged about 1.5 million barrels a day, the figures show.

Iraq typically ships between 40 percent and 50 percent of its oil exports to the U.S. market. But even if more oil goes to Europe, in a global market it makes little difference, Brady said.

"It frees up other oil to be sent to the United States," Brady said. "It's helping right now."

With Iraqi oil exports rising and Venezuelan oil largely off the market, analysts are increasingly concerned about the prospect of losing both producers at the same time.

Those concerns have driven oil prices up over $33 a barrel to two-year highs in New York. Prices are now 75 percent higher than they were a year ago.

To help offset the loss of Venezuelan oil, the Organization of Petroleum Exporting Countries agreed Sunday to hike production by 1.5 million barrels a day beginning Feb. 1.

Iraq, an OPEC member, wasn't part of the agreement, because its exports are controlled by the U.N.

OPEC officials said they will hike production again if Iraqi oil supplies are disrupted by a war.

The Bush administration has so far resisted pressure to release oil from the nation's Strategic Petroleum Reserve to counter the Venezuelan supply shortfall. Observers believe the administration wants to have the option of tapping the reserve if there is a war with Iraq.