Former ‘face of OPEC’ warns of soaring oil prices - If costs hit $50 per barrel, ‘it will ruin the world’s economy’

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LONDON: Sheikh Ahmed Zaki Yamani, famed as the face of Organization of the Petroleum Exporting Countries (OPEC) during the oil price shocks of the 1970s, warned Friday a war on Iraq could drive oil above $50 a barrel and wreck the world economy. “If the absence (of Iraqi crude) is long enough and it can’t really be corrected and reduced by strategic reserves, prices can go to a very horrible ceiling and the price will be above $50,” the former Saudi oil minister told journalists on the sidelines of a seminar organized by his London-based think tank, the Center for Global Energy Studies (CGES). “It will ruin the world’s economy,” he warned. US oil prices surged to nearly $40 a barrel on fear that a war could disrupt Baghdad’s 1.7 million barrels per day of exports, but have since calmed after Saudi Arabia promised to make up any shortfall. World crude prices slumped again Friday as investment hedge funds bailed out of oil in anticipation that an American war could finish quickly. US light crude shed $2.11 to $33.95 a barrel for a 10 percent fall in two days as a series of automatic sell stops were triggered on the futures market. London Brent fell $1.28 to $31.15, an eight-week low. “Last time in the 1991 Gulf War there was a big collapse when the shooting started and perhaps this time traders are getting in ahead of the game,” said Christopher Bellew of brokers Prudential-Bache International. Also dragging prices down was a Reuters report that Saudi Arabia had snapped up 14 tankers to move a massive 29.5 million barrels of crude oil to the US for May delivery. Oil traders said the chartering spree shows Riyadh will keep supplies running high into May on top of sharp increases in recent months to fill shortages from strike-hit producer Venezuela and allay supply fears ahead of a possible war. Asked how much war premium was factored into prices, Yamani said: “You can’t really quantify.” But he added there were also fundamental reasons for current price strength, such as low US oil inventories, which have fallen to a 27-year low. Yamani said prices would fall to less than $25 a barrel if any conflict were short and did not do any permanent damage to oil fields, but he doubted OPEC could make up in the short term for any outage of Iraqi supplies. “With the absence of Iraqi crude from the market for some time, I don’t think OPEC will really stand up to the present offer to make up for the difference, especially if the Venezuelan problems are not solved quickly,” Yamani said. Asked later by journalists if that meant that the International Energy Agency (IEA) would have to tap into emergency stockpiles to meet demand, he said: “I hope so, I think they have to.” Both the Paris-based IEA and Washington have indicated a preference for OPEC to meet any shortfall, although both remain ready to act swiftly should extra oil be needed. Among the worst case scenarios would be if Iraqi President Saddam Hussein set out to destroy Iraqi oil wells, something the Iraqi leader has denied he would do, though Yamani said he didn’t take Saddam’s denial very seriously. He cited research that because pressure in Iraq wells was low ú in contrast with Kuwaiti wells torched during the Gulf War ú setting fire to them could destroy them for good. Provided, however, any war ended quickly and damage to oil fields was limited, prices could slump and the producers’ cartel could lose its power. “OPEC has a lot of problems … (it) has to reduce production in order to stabilize prices. To what extent can Saudi Arabia continue to reduce production I don’t know. OPEC has problems even without a war,” Yamani said. Should foreign investment pour into Iraq, production could soar, heralding an era of far cheaper oil. “Foreign oil companies injecting billions of dollars have to have a return on their investment, Iraq will produce without restriction,” he said. ú Agencies