US oil firms boost use of Iraqi crude

www.boston.com By Colum Lynch, Washington Post, 2/23/2003

UNITED NATIONS -- American oil refineries have dramatically increased their reliance on Iraqi crude, even as the Bush administration steps up preparations for a military attack against Baghdad, to offset a shortfall in oil imports caused by a recent political crisis in Venezuela.

The United States has more than doubled its consumption of Iraqi crude over the past two months, buying more than $1.6 billion in Iraqi oil through foreign middlemen between Dec. 5 and Feb. 1, according to unpublished UN figures. The US Department of Energy, whose Iraqi import figures typically lag behind, by about 40 days, those of the United Nations, also recorded a sudden surge of Iraqi oil imports into the United States recently to more than 1 million barrels a day, according to US officials.

''We did have a large increase in Iraqi imports, but we don't know if that is sustained,'' said Doug MacIntyre, an international energy analyst at the Department of Energy who produces an unpublished weekly report on oil imports. MacIntyre declined to provide specific figures, citing concerns that the underlying data were too preliminary, but he said it was ''a doubling over the averages we have seen over the last several weeks.''

Iraqi exports to the US market, which includes the Caribbean, averaged nearly 500,000 barrels a day during the first 11 months of 2002. US firms purchased only 39 percent of Iraqi oil exports during the second half of last year. Between Dec. 5 and Feb. 1, US buyers consumed about 1.1 million barrels per day, accounting for 62 percent of Iraq's exports during that period, according to UN figures. The trend marks a significant reversal by US oil companies, which drastically cut their dependence on Iraqi oil last summer because of rising illicit Iraqi surcharges and concerns that the Bush administration was preparing for a war.

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Under the terms of the United Nations-supervised Iraqi oil-for-food deal, Iraq is permitted to sell oil to purchase food, medicines, fund the repair of the country's infrastructure, and finance UN weapons inspections. Under the humanitarian program, established in December 1996, the UN sets the prices of Iraqi exports and monitors Baghdad's spending.

Although Iraq rarely sells oil directly to American oil companies, Exxon Mobil Corp., ChevronTexaco Corp., Valero Energy Corp., and other US firms have purchased more than half of Iraq's oil through foreign middlemen since the oil-for-food program came into existence. Spokesmen for Exxon Mobil and Valero could not be reached for comment.

Some American oil giants, hit with rising surcharges and facing criticism that they may have indirectly paid illegal kickbacks to President Saddam Hussein, began scaling back their imports of Iraqi crude last summer. UN officials claimed that Iraq was imposing surcharges of 20 to 50 cents on each barrel last year, amounting to hundreds of millions of dollars in illicit profits for the Iraqi regime.

But oil analysts say that Iraq's decision to stop demanding a surcharge in September, and a sudden stoppage of Venezuelan exports following a national strike, has renewed American interest in the Iraqi oil market.

''The loss of Venezuelan oil complicated everybody's life,'' said Lawrence Goldstein, president of the New York-based Petroleum Industry Research Foundation. ''Iraqi oil is close to the Venezuelan-type oil, and it turned out to be the only large-volume alternative available'' over the past two months.

He suggested that American dependence on Iraqi oil is likely to diminish in the coming months as Venezuelan exports ''creep back'' up to normal levels and as the recent commitment by Saudi Arabia to increase production bears fruit.

Other analysts believe that Venezuela's oil exports will continue to be plagued by political uncertainty. They note that while Venezuela's oil strike has ended, the country is exporting only about half of the 3 million barrels it normally exports daily.

''I think that as the surcharge has faded, the concern that kept some people away from Iraqi oil has also faded,'' said George Beranek, the manager of market analysis at Washington, D.C.-based PFC Energy. ''It's a good large-volume source of oil. The risk of a decline [in potential Iraqi exports] was nothing compared with the fact of a loss of Venezuelan barrels. A bird in the hand is worth two in the bush.''

This story ran on page A25 of the Boston Globe on 2/23/2003.