Markets & Stocks : War wrangling over Iraq lifts oil

money.cnn.com 10, 2003: 10:01 AM EST

Iran's opposition to free pumping also boosts bid for crude as armed conflict in Iraq looms.

LONDON (Reuters) - War jitters boosted oil prices Monday as the United States seemed confident of gaining U.N. support for a resolution allowing it to disarm Iraq by force.

London benchmark Brent for April rose 24 cents to $34.34 a barrel while U.S. light crude rose 26 cents to $38.04, about $3 under highs hit in the buildup to the 1991 Gulf War.

In Vienna, OPEC oil ministers were assembling to discuss output policy ahead of a possible attack on cartel-member Iraq.

Iran said Monday it will oppose any proposal to suspend output limits should war break out in Iraq as this could imply support for a U.S.-led war.

Saudi Arabia and Kuwait have signaled they could allay supply fears by allowing cartel members to pump oil freely. But Saudi Arabia faces stern opposition from Iran for a plan that Tehran says implies support for a U.S. attack by controlling oil prices.

"Iran will not back politically motivated decisions," Iranian Oil Minister Bijan Zanganeh told the official IRNA news agency.

OPEC should refrain from taking decisions which would imply support for a "U.S. military assault against one of OPEC's member states," Zanganeh said.

"It looks like it could be a very strong week for crude and products as war fears mount," said GNI Man Research analyst Lawrence Eagles. Related stories Kuwait to shut oil fields OPEC: speculation driving oil prices Saudi seeks OPEC plan to stop oil shock

"It's difficult to see oil going lower with the potential of conflict so close. There's really nothing to push prices down very quickly, the risks are all skewed to the upside," said David Thurtell, strategist at Commonwealth Bank in Sydney.

Price hurtled higher Friday after a new draft resolution proposed by the United States and Britain set a deadline of March 17 for Iraq to destroy all weapons of mass destruction, or face war. Iraq denies having such weapons.

The showdown vote could come as soon as Tuesday.

The resolution has sparked a wave of intense lobbying in the 15-member U.N. Security Council and U.S. Secretary of State Colin Powell said there was a "strong chance" of getting up to 10 votes in favor of the document.

The issue of Iraq's compliance with U.N. demands has created a bitter divide in the U.N. Security Council.

The United States, Britain, Spain and Bulgaria seek support for military action from Pakistan, Chile, Mexico, Angola, Cameroon and Guinea, while veto powers France, Russia and China say U.N. arms inspections should continue.

But, analysts say war will go ahead even if the resolution is defeated, as Washington intends to lead a "coalition of the willing" against Iraq even without U.N. approval.

"The U.S. position is no longer about avoiding a veto but of demonstrating that if a veto is used, that a majority of the Security Council members support such action," Eagles said. OPEC Quotas

OPEC, which supplies over a third of the world's crude oil, wants to prevent any oil price shocks that could dampen future global economic recovery, but it is expected to stick to its current 24.5 million barrels per day (bpd) output limit for now.

"There may be no formal suspension of quotas but the two or three who can do so will be given freedom to pump at will to cover any losses," predicted one delegate.

Although OPEC has pledged to fill any supply gap should war halt Iraqi exports of two million bpd, many in the group are already pumping close to full capacity.

Only Saudi Arabia has any appreciable room to turn up the taps and analysts estimate OPEC has little over 1.7 million bpd of untapped capacity -- the equivalent of daily Iraqi exports.

But the war threat, hot on the heels of a strike which crippled Venezuela's oil industry, is coming at a time when stocks in the United States, the biggest oil consumer, are at low levels unseen since the Arab oil embargo of the mid-1970s.

Heating oil stocks are especially worrying as cold weather is expected to persist over the U.S. Northeast in coming days.