Saddam seen powerless to hit Saudi, Kuwait oil

NEWSDESK   21 Jan 2003 14:56

By Peg Mackey

DUBAI, Jan 21 (Reuters) - Jittery oil dealers will breathe easier knowing that when the end is near for Saddam Hussein, he is likely to lack the firepower to destroy the oilfields of neighbouring Saudi Arabia and Kuwait, analysts say.

Crude prices have shot well beyond $30 a barrel amid fears that a U.S. assault on Iraq could trigger widespread supply disruptions in the oil-rich Gulf.

Saudi Arabia and Kuwait, which combined export over eight million barrels per day (bpd), are still haunted by the Gulf War when Iraqi troops blew up Kuwaiti oil wells and were seen as a threat to the Saudi oil sector, the world's biggest.

This time round Saddam will still put up a fight but with a substantially reduced arsenal, said Mustafa Alani, of London's Royal United Services Institute.

"Saddam has no spare capacity to destroy the oilfields of Kuwait and Saudi Arabia. A high degree of accuracy would be needed and that cannot be achieved with Scud missiles," Alani said.

"If he is backed into a corner, Saddam will concentrate his very limited military capability on his own survival by defending Baghdad."

Lashing out at his Gulf neighbours would be self-defeating for the Iraqi leader, who is trying to win popular Arab support.

"Saddam has been trying to appeal to the Arab street over the heads of their governments," said Daniel Neep, head of the Royal United Services Institute's Middle East programme.

"Much of his popular appeal would be lost if he were to torch the oilfields which are the bedrock of most Arab economies."

SCORCHED EARTH? Though a remote possibility, if he is going down, the Iraqi leader might be inclined to blow up his own oil facilities to stop Washington from taking control of the country's huge reserves, the world's second biggest after Saudi.

"When his back is against the wall, there is no telling what Saddam will do," said Neep.

"But if he calls for Iraq's oilfields to be set alight and it looks like military action will destroy his grip on power, how loyal will the Iraqi elite be?"

Not very, is the conventional wisdom.

"I find it hard to believe that the Iraqis would willingly destroy their principal natural resource, particularly one they fought so long to gain control of," said Raad Alkadiri of Washington's Petroleum Finance Corp.

And much of Iraq's oil wealth is concentrated in the two no-fly zones, which are under 24-hour supervision by U.S. and British air patrols.

"The attempt to secure the southern fields is a primary objective to prevent him inflicting permanent or temporary damage to the oilfields," said Peter Gignoux, head of the energy desk at Schroder Salomon Smith Barney.

IRAQI OUTAGE Predicting Saddam's reaction to a U.S. assault is impossible, but certain in the minds of oil traders is that war will disrupt Iraq's oil exports -- now running at some two million bpd.

"Are we going to lose Iraqi exports? Yes," said Gignoux. "But that's already priced into the oil market."

Most major oil refiners, anticipating a February or March strike on Iraq, have bought enough oil to cover themselves through the first quarter.

But supply problems could arise if a military campaign begins before an already seven-week-old strike in oil exporter Venezuela is settled or if a U.S.-led attack drags on.

"We will have a real problem on our hands if we have a combined loss of output from Iraq and Venezuela," said an oil executive.

The Organisation of the Petroleum Exporting Countries has just agreed to raise supplies by 1.5 million bpd to make up for the Venezuelan shortfall.

But, save Saudi Arabia and the United Arab Emirates, that output increase has left the cartel stretched near to capacity.

Others say if a supply crunch develops, Washington and/or the International Energy Agency would probably order a release of strategic stockpiles.