Persian Gulf Oil Disruptions Have Begun

www.nytimes.com Agence France-Presse By NEELA BANERJEE

As the United States military completed its plans to invade Iraq, disruptions of oil supplies and shipments from the Persian Gulf appeared to have already begun yesterday, industry experts said.

Most notably, exports from Iraq under the United Nations oil-for-food program dwindled to a trickle, a spokesman for the program confirmed, after Kofi Annan, the secretary general, suspended the program within Iraq on Monday. More broadly, some oil tankers scheduled to arrive at other Middle Eastern countries are refusing to enter the Persian Gulf because of security concerns, said Nader Sultan, chief executive of the Kuwait Petroleum Corporation.

"Companies are saying, `Do I send my ships up to the gulf?' " Mr. Sultan said in a phone interview from Kuwait. "And it's not just to Kuwait. Then, the question is up to the captain. Beyond insurance, it's safety, and someone has to make a judgment as to whether it's safe."

He added: "It's already happening, already in the whole of the gulf, there are tankers not going up. Certain shipping companies and certain countries are rethinking that their ships shouldn't come here."

So far, the oil markets have shrugged off concerns that such disruptions could be substantial or last long. At the end of trading on the New York Mercantile Exchange yesterday, oil for May delivery dropped to $29.36 a barrel, while oil for April delivery fell $1.79, to $29.88 a barrel. The price of oil has fallen 21 percent this week on the belief that a war in Iraq will be quick and that there will be little damage to Iraq's oil fields and facilities.

Iraq shipped some of its biggest loads last week, averaging about 1.8 million barrels a day, according to Walid Khadduri, editor in chief of the Middle East Economic Survey and an expert on Iraq's oil industry. But shipments began to shrink considerably by the end of the week, he said.

Now, with the suspension of the oil-for-food program, the loading of oil from the port of Mina al-Bakr, Iraq, on the Persian Gulf has stopped, said Ian Steele, a program spokesman. He said that oil was still flowing from Iraq's northern Kirkuk field to the Turkish port of Ceyhan, where one tanker took on oil Tuesday and another is expected tomorrow.

Oil traders and other industry experts said they expected Iraqi exports to end soon, even from Ceyhan, because the Iraqis would probably shut down most production in preparation for the war. Iraq sends about 35 percent of its oil to the United States, according to PFC Energy, a Washington consulting group, and substantial shipments also go to European oil companies like Eni of Italy and TotalFinaElf of France.

Representatives of the oil industry said the industry would not be badly hurt by the suspension of Iraqi exports because it had already scaled back imports from Iraq over the last year.

A pricing plan for Iraqi oil under the oil-for-food plan proved particularly onerous and discouraged oil sales to many foreigners, oil traders and companies said. Iraq's own decisions throughout the year to increase and decrease exports at will also frustrated buyers. Over the last two months, Iraqi exports have increased as Baghdad compensated for a shortfall of oil from Venezuela because of the general strike there. Still, the growing probability of war over the last few months sent many companies looking elsewhere for more stable oil supplies.

"People have anticipated the possible cutoff of Iraqi oil for months now," said Sara Wachter, a spokeswoman for TotalFinaElf, whose own imports have fallen to "pretty minuscule levels" now from 2.5 million barrels a month in November.

Ms. Wachter said that oil companies operating in OPEC states were producing more oil along with OPEC members, which are producing far above their quotas to make up for the sharp decline in Venezuelan exports and for a possible halt in Iraqi oil. They are also buying up some of the extra OPEC output, she said.

But oil companies buying oil from other Persian Gulf states now face increasingly more expensive insurance rates that are making the journey to that region particularly difficult, industry experts said.

Mr. Sultan of Kuwait Petroleum said that the broad hesitation to bring tankers into the gulf arises from memories of the Iran-Iraq war in the 1980's, when oil tankers were strafed and bombed by the warring sides. He said he thought that this time, as in the first Persian Gulf war, Navy ships might be willing to escort tankers requesting such protection. A spokesman at the Navy Central Command in Bahrain could not be reached for comment.

Moreover, the Persian Gulf countries will be willing to ship the oil themselves to foreign tankers that are reluctant to enter their waters, Mr. Sultan said. "If they're not prepared to come here, we're prepared to take the oil to them," he said. "There won't be a supply disruption. It will be more like a blip in programming. A country like Kuwait, we can make up for a shortfall by delivering oil south of Hormuz. All the logistics are in place. We just need to give the green light to put it all in motion."

Industry experts said that although official Iraqi oil shipments had all but stopped, a chance remained that Iraq could illegally export oil as it has long done, though in far smaller quantities.

Over the last few weeks, oil traders have received reports that five to seven Jordanian-chartered tankers had each loaded about a million barrels of Iraqi crude oil at the Khor al-Amaya port on the Persian Gulf, a transaction and a port outside the purview of the United Nations. The tankers then moved through the gulf without being stopped by the United States-led Multinational Interception Force, which, traders say, routinely searches even small boats.

A spokesman, however, said United States forces do not routinely check ships belonging to allies. He added: "We consider Jordan to be a vital ally in the global war on terrorism."