Oil Drops as U.S. Launches War on Iraq

Thu March 20, 2003 05:05 AM ET By Tom Ashby

LONDON (Reuters) - Oil prices tumbled to three-month lows on Thursday after the United States began bombing Iraq and dealers bet on a swift U.S. victory with little disruption to Middle East supply.

OPEC exporters pledged to fill any supply gap from the conflict in the oil-rich Gulf, while the West's energy watchdog, the International Energy Agency, said it saw no reason to release emergency stocks for the time being.

Hours after U.S. cruise missiles hit targets in Baghdad, officials in neighboring Kuwait said crude output was normal, despite two Iraqi missiles hitting the north of the country.

Supplies from the world's top exporter, Saudi Arabia, were also running smoothly, shippers said.

Benchmark Brent crude oil fell 53 cents to $26.22 per barrel, having touched a three-month low of $25.50.

Brent futures have shed 25 percent of their value in the last six days on a massive bet by investment funds that war will end quickly without major damage to oil installations.

U.S. crude futures fell 75 cents to $29.31.

"The war premium is diminishing on a growing certainty that coalition forces will prevail and allow Iraq to increase production," said Peter Gignoux of Schroder Salomon Smith Barney.

Industry consultant Geoff Pyne said there were still dangers ahead that could drive prices back up.

"Most obviously, there is a danger that Saddam may blow up the Iraqi oilfields," he said.

Iraqi Oil Minister Amer Rasheed denied a Kuwaiti television report that oil wells near the southern city of Basra were on fire.

OPEC TO FILL SHORTFALL

The Organization of Petroleum Exporting Countries said it would tap its spare capacity to make up for any shortage from Iraq. OPEC President Abdullah al-Attiyah of Qatar said he had spoken with cartel members following the U.S. attack.

"As a result of those consultations, I am herewith reiterating OPEC's resolve to make up for any supply shortfall resulting from developing events," he said in a statement carried on OPEC's official news agency.

"To this end, member countries have pledged to use, in the interim, their available excess capacities to ensure continued supply."

A Saudi source said OPEC's leading producer was poised to respond to any oil supply disruptions following the U.S. attack on neighboring Iraq. However, he also said that world markets were currently well supplied.

"The market is well supplied. What everyone fears is Saddam Hussein burning the oilfields," said the Saudi source. "Events are going to be the dictating factor here."

Riyadh has already ramped up production well beyond nine million barrels daily -- versus an OPEC quota of eight million -- in part to cover outages from strike-hit Venezuela.

The International Energy Agency said there was no need for import-dependent Western nations to release emergency stocks as it was confident OPEC could cover the shortfall.

"At the precise hour we speak, I think it is not necessary (to release stocks)," IEA executive director Claude Mandil told Reuters. "We had a very strong statement from OPEC, which has said they will ensure any shortfall and we are confident they will do their best."

Iraqi exports have ground to a virtual halt this week after the United Nations evacuated its staff overseeing Baghdad's oil-for-food program.

The International Energy Agency, which oversees some four billion barrels of oil inventory in 26 industrialized countries, said a release would become necessary only in case of a shortage that could not be covered by OPEC.

msnbc.com MSNBC NEWS SERVICES

March 21 — Several oil wells were on fire in southern Iraq on Friday, but exactly how many was unclear, with U.S. military officials estimating seven fires and Britain saying up to 30 oil wells could be ablaze. Officials noted that in any case, the number is far fewer than the 400 wells in the area, which is near Basra. “PUT INTO context, that’s perhaps not as bad as we might have feared,” British Defense Secretary Geoff Hoon told reporters in London. The oil fields of southern Iraq pump about half of the country’s daily output of 2.5 million barrels. A British military spokesman said the fires were set by Iraq. “Several of the oil heads have been set on fire by (Iraqi President) Saddam Hussein’s forces in an attempt to deflect us from the task,” Capt. Al Lockwood told Reuters. Another British spokesman, Col. Chris Vernon, told Reuters that “U.S. Marines are moving well into the ... oil fields and it seems like we will be able to seize much of the oil structure intact.” The picture in northern Iraq was less clear amid unconfirmed reports U.S. special operations forces had secured the giant oilfields around Kirkuk, the biggest of Iraq’s 15 operational fields. A U.S. official said earlier this month that Iraq had placed explosives at the Kirkuk oilfields to prevent them being captured in the event of a U.S. invasion.

An arrow points to smoke plumes seen in an image taken Thursday by a U.S. satellite. The plumes are consistent with oil fires detected from space before, the National Oceanic and Atmospheric Administration said.

MARKETS HAPPY Oil markets seemed to take comfort from the speed of the U.S.-British advance and shrugged off the latest news of an increased number of Iraqi oil well fires. The lack of an impact from the war on oil shipments from Kuwait also inspired confidence.

     Kuwait<ampersand/>#8217;s state-run radio said Kuwaiti ports were operating normally Friday, and an oil industry source said crude shipments from Kuwaiti oil terminals were continuing without interruption.
   The Pentagon has said it would try to secure Iraq<ampersand/>#8217;s oil fields quickly to prevent Iraqi forces from damaging the country<ampersand/>#8217;s 1,685 wells.

Saddam uses oil as weapon in 1991

1 / 6 Oil as a weapon Jan. 15, 1991 - In the lead up to the Gulf War, military analysts considered how Saddam Hussein might use oil to thwart coalition air strikes, clog desalination plants in the Gulf and disrupt Kuwaiti oil production for years to come. NBC's Fred Francis reports.

2 / 6 A trip into hell March 16, 1991 - In the Kuwaiti desert 500 oil wells burn out of control. Coping with land mines and the spectacular sights, sounds and searing heat of roaring fires, teams of well control experts struggle to control the blazes. NBC's Bill Lagatuta reports.

3 / 6 Gushers and blazes March 26, 1991 - The Wild Well Control team from Texas began trying to cap a gushing oil well, but not enough water and equipment had yet arrived to wrestle the blazing fires. NBC's Deborah Roberts reports.

4 / 6 Still a prisoner of Saddam March 21, 1991 - Burning petroleum containing high levels of sulphur and lead poisoned the air, while a slick larger than the world had ever seen blackened the waters; a health and environmental nightmare. NBC's Deborah Roberts reports.

5 / 6 The health debate June 10, 1991 - If hell had a national park it would be here, but what is the impact on global health. NBC's Robert Hager reports.

6 / 6 380 down, 370 to go Sept. 13, 1991 - Six months after Desert Storm, half of the 750 burning oil wells still burn. NBC's Arthur Kent reports.

1991 FIRES
Even before the current war began, the Pentagon had expressed fears that Saddam Hussein had planned to sabotage Iraq’s oil fields. In 1991, Iraqi troops destroyed more than 700 well heads in Kuwait, turning its oil fields into a desert inferno that took seven months to extinguish. When Iraqi troops retreated from Kuwait in February 1991, they attached plastic explosives to well heads and piled sandbags against them to direct the force of the explosions for maximum effect. The result was geysers of burning crude at 603 wells, serious damage at more than 100 others and widespread environmental degradation. Teams of firefighters from the United States, Canada and eight other countries worked from April until November to put out the fires.
Most of the teams used seawater pumped through Kuwait’s empty oil pipelines to battle the fires. The heat was so intense, at more than 2,000 degrees Fahrenheit, that water sometimes continued boiling on the ground for two days afterward, said Mark Badick of Safety Boss, Inc. “We’ve had fire helmets melt on our heads,” said Badick, whose Calgary-based firm put out 180 of the Kuwaiti well fires.
Firefighters from Hungary had a different technique, using two jet engines mounted horizontally on a tank chassis — a homemade vehicle they called “Big Wind” — to blast flame-retardant foam at the fires. It took Kuwait more than two years and $50 billion to restore its oil output to prewar levels. If Iraq sabotaged its oil fields, any cleanup could take far longer and cost much more.

12 YEARS OF SANCTIONS Iraq’s fields and pipelines are badly run down after 12 years of U.N. economic sanctions. Its fields are also much farther from the sea than those in Kuwait, meaning a ready source of water might not be so easily available. Destruction could be especially bad if Iraqis set off explosives underground, deep within the well shafts themselves. If that happened, firefighters would have to drill a new “relief well” and pump a mixture of sand, gel and mud into each damaged shaft to try to plug it up and stop the blowout. “It’s a long, arduous process,” Badick said. Whereas he and his crews put out as many as five fires a day in Kuwait, cleaning up after a single underground explosion can take two months.

US braces for possible sabotage of Iraqi oil fields

www.sfgate.comBRUCE STANLEY, AP Business Writer Thursday, March 20, 2003
(03-20) 08:55 PST LONDON (AP) --

Iraqi troops needed just a few days and some plastic explosives to destroy more than 700 wellheads and turn Kuwait's oil fields into a desert inferno.

Fears are growing that Saddam Hussein might have organized a much more meticulous sabotage of Iraq's own oil fields, in a scorched-earth tactic that could cripple Iraqi production.

The oil industry has buzzed with rumors in recent weeks that Iraqis are rigging their wells with explosives in the hope of slowing a U.S.-led attack and making the country's oil wealth worthless for any new government. A loss of oil from Iraq -- home to the world's second-largest oil reserves -- could crimp supplies for importing countries, including the United States, which depends on Iraq for 2 percent of its imported crude.

Oil exports are also a major source of the money that would be needed to pay for Iraq's reconstruction after a war. Due to their strategic importance, the U.S. Defense Department says it would try to secure Iraq's oil fields quickly to prevent forces loyal to the Iraqi president from damaging them.

"We can confirm reports that (Saddam) has taken measures to booby trap oil wells by wiring the wells so that one person can blow them up," said Defense Department spokeswoman Megan Fox.

"If the worst happens and he does detonate something that causes the oil wells to catch fire, we'll do everything we can. Those assets belong to the Iraqi people, and as much as possible we'd like to keep them intact," she said.

Already, those fears may have become reality. Defense Secretary Donald H. Rumsfeld said Thursday that three or four Iraqi oil wells may already have been set afire in southern Iraq. Witnesses in Kuwait heard explosions and saw orange flames in the sky across the border.

Conventional explosives attached to wellheads and other vital facilities could halt production at any of Iraq's 1,685 wells. With more than twice as many oil wells as Kuwait, Iraq could suffer an even greater economic and environmental disaster.

When Iraqi troops retreated from Kuwait in February 1991, they attached plastic explosives to wellheads -- clusters of pipes and valves protruding from underground wells -- and piled sandbags against them to direct the force of the explosions for maximum effect.

The result was Dante-esque geysers of burning crude at 603 wells and serious damage at more than 100 others. Teams of firefighters from the United States, Canada and eight other countries worked from April until November of that year to douse the last flames.

Most of the teams used seawater pumped through Kuwait's empty oil pipelines to battle the fires. The heat was so intense, at more than 2,000 degrees Fahrenheit (1,093 degrees Celsius), that water sometimes continued bubbling on the ground for two days afterward, said Mark Badick of Safety Boss, Inc.

"We've had fire helmets melt on our heads," said Badick, whose Calgary-based firm put out 180 of the Kuwaiti well fires.

Firefighters from Hungary had a different technique, using two jet engines mounted horizontally on a tank chassis -- a homemade vehicle they called "Big Wind" -- to blast flame-retardant foam.

It took Kuwait more than two years and $50 billion to restore its oil output to pre-Gulf War levels. Iraq, if it sabotaged its oil fields, could take longer and cost much more.

Iraq's fields and pipelines are badly run-down after 12 years of U.N. economic sanctions. Its fields are also much farther from the ocean than those in Kuwait, so firefighters might be unable to pump seawater to tackle burning wells there.

Destruction could be especially bad if Iraqis set off explosives underground, deep within the well shafts themselves. If that happened, firefighters would have to drill a new "relief well" and pump a mixture of sand, gel and mud into each damaged shaft to try to plug it up and stop the blowout.

"It's a long, arduous process," Badick said. Whereas he and his crews put out as many as five fires a day in Kuwait, cleaning up after a single underground explosion can take two months.

Manouchehr Takin, an analyst at the Center for Global Energy Studies, said he doubts that Saddam would go so far as to place explosives 100 meters (yards) into well shafts.

"I'm not sure there are enough engineers and rig operators in Iraq to do this kind of work," he said.

Even if the Iraqis did booby-trap their oil fields, Takin argued that Saudi Arabia, Venezuela and other OPEC member countries could ramp up their production to offset Iraq's 2 million barrels a day in exports.

Saudi Arabia, which has the world's largest crude reserves, has indicated repeatedly that it would boost its output to keep supplies flowing. Also, the United States and other oil importing nations could tap into their 4 billion barrels in strategic petroleum reserves, if necessary, to cover a shortfall.

Brown & Root Services of Houston has drawn up a plan for the U.S. Defense Department for containing and assessing any damage to Iraqi oil installations. The Pentagon has invited companies to express interest in this possible work but has yet to award any contracts.

The challenge for such companies would multiply if Iraq used chemical, biological or radioactive material to sabotage its oil fields.

"That's a whole new ball game," said Peter Gignoux, head of the oil desk at Salomon Smith Barney.

Such a nightmare scenario gives pause even to well-fire veterans like Badick.

Special suits designed to protect a wearer against biological or chemical agents would disintegrate in the heat of a burning well. Firefighters might have no choice but to wait until the fires burn themselves out.

WAR IN IRAQ: High Stakes--The aftershocks of war in Iraq will reach every corner of the globe: The U.S. and world economies, big-power relations, and domestic politics

MARCH 20, 2003

Around the White House, George W. Bush is known as a soul of punctuality, a clockwork manager whose aides are met with a stern glare for being late to a meeting. So it should come as no surprise to anyone, least of all Saddam Hussein, that at roughly 9:30 p.m. on Mar. 19 -- just 90 minutes after his 48-hour "leave, or else" ultimatum expired, the President initiated a series of attacks that he termed the "opening stages of what will be a broad and concerted campaign" to topple "an outlaw regime." He ordered a pinpoint bomb and cruise-missile strike on Iraqi leadership sites in Baghdad. Anti-aircraft batteries ringing the Iraqi capital opened fire, and the skies briefly lit up with explosions. Then, all fell eerily silent.

Appearing on national TV less than an hour later, President Bush vowed "we will prevail." With full-scale bombing and a land invasion to follow, thus began the nation's second Iraq war in a little over a decade, a conflict that has sent tremors throughout the Middle East and put the entire world on edge.

In all, 300,000 U.S., British, and Australian troops, 1,000 warplanes, and five carrier battle groups were set to join the campaign to oust Saddam. That has led to predictions that it would be a matter of weeks, not months, before the battle would be over. But despite this awesome array of firepower, the world doesn't view this conflict with universal optimism.

MANY FUTURES IN DOUBT. Instead, there's gloom in many capitals over the wide ripples the intervention could cause. Because the U.S. and Britain had to mount a preemptive strike without U.N. support, relations with France, Germany, Russia, and other nations have soured, and a wave of anti-Americanism swept the world. That has put the future of the U.N., NATO, and other multilateral institutions in question and raised doubts about America's role as a superpower.

The stakes are equally large for the world economy. Months of debate over the war have paralyzed U.S. business. The result is a malaise that Federal Reserve Chairman Alan Greenspan terms a "soft spot" and that less sanguine economists believe has left the country vulnerable to a second dip into recession. With Japan and many of Europe's economic locomotives losing steam, a strong U.S. rebound is essential to kick-start global growth. But until it's clear that the President's Iraq intervention is a success and that it will not draw America into a costly quagmire, both the U.S. and the global economy are hostages.

Also at stake is Bush's political future. The Texan "hasn't done a compelling job of convincing people this is the right thing to do," says Thomas J. Corcoran Jr., CEO of FelCor Lodging Trust (FCH ) in Irving, Tex. Yet Bush is risking more than his own fate. If his strategy succeeds, it could pave the way for a GOP juggernaut in 2004. If it fails -- because the war drags on, terrorists strike, or the economy sinks -- Bush and his party could face the voters' wrath.

PERKIER BUCK. Still, for all the unknowns, a sense of relief ran through the markets as it became clear that the onset of war was at hand. For six successive sessions leading up to Bush's Mar. 19 "Get out of Dodge" deadline, the stock market advanced, as investors bet on a short war that would be followed by a return to growth. And while the minutes on the 48-hour deadline ticked off, the rally broadened, and the dollar perked up.

More important for Bush, his popularity shot up in tandem. His job approval rating hit 64% in a Mar. 17 CBS News poll, up from 54% a month earlier. And despite earlier misgivings about going to war without U.N. backing, popular support for removal of Saddam by force hit 71% in a Mar. 17 Washington Post/ABC News Poll, an all-time high. Bush's wartime standing could quickly soar even higher, at least initially. "Once the first shot is fired, the country unites strongly behind the President and military," observes Henry A. McKinnell Jr., CEO of Pfizer (PFE ).

The question, of course, is how long the rah-rah mood will last. Administration officials insist that when the smoke clears, pessimists who predict Vietnam-style entanglements will be proved wrong. But even Bush partisans concede that the President has bet the ranch on proving the skeptics wrong. Here's how the intervention could cast a long shadow over the U.S. and world economy, big-power diplomacy, and domestic politics:

• The Economy. The key to the U.S. economic outlook, say many executives, is a short, decisive war. That could provide relief from higher oil prices, which have risen from $25 per barrel last November to a peak of $38 earlier this month. War jitters drove consumer sentiment in the Conference Board's February survey to its lowest level in nearly a decade.

Triumph on the battlefield could pierce this gloom. Indeed, even before the troops moved into Iraq, the Standard & Poor's 500-stock index rose 8.5% on Mar. 12-19, while oil prices fell 27%, to $29.88. "We have the preconditions for a [postwar] surge in economic activity," says Steve Grossman, CEO of MassEnvelopePlus in Boston.

Most execs agree. "If we could get this war thing off our shoulders," says Stephen P. Wolfe, chief financial officer of Toro Co. in Bloomington, Minn., "we'd be poised for a breakout."

Yet, together with the underlying threat of new terrorist attacks, the price of oil is one of the big unknowns for the economy. If Saddam knocks out key oil fields, the resulting shock could trigger a slump. Saudi Arabia has promised to boost capacity to offset a temporary price jump. But because global stockpiles are short and instability is roiling the oil-producing states of Venezuela and Nigeria, that may not be enough. "The U.S. and world economy are extremely fragile," says Allen Sinai, chief global economist of Decision Economics Inc. consultants. "A prolonged war would likely trigger a full-fledged global recession."

Certainly, some industries will be hit harder than others, notably the airlines. Many are already canceling flights and bracing for the worst. Bankrupt UAL Corp. (UAL ), parent of United Airlines, could even face liquidation. "I would be surprised if no one else went into bankruptcy as a result of this war," says J. George Mikelsons, CEO of ATA Airlines (ATAH ), a carrier based in Indianapolis. Adds Thomas J. Pritzker, CEO of Hyatt: "If the first Gulf War is any indication, the hospitality industry will be damaged for some time."

And it isn't only travel-dependent executives who are fearful. Some techies have the blues, too. "As soon as [the shooting starts], customers may freeze," says Phillip Merrick, CEO of webMethods (WEBM ), a software company based in Northern Virginia.

While execs debate how strongly the economy may rebound, one thing seems likely: President Bush's economic plan may be an early casualty of the conflict. As worries have grown about a war and reconstruction tab that could exceed $100 billion, so has the feeling that the Administration's $1.45 trillion package of tax cuts should be sharply trimmed. It's now "a real uphill battle" for Bush's tax cuts, says a top GOP lobbyist.

Facing budget pressures, Bush may be forced to accept a scaled-back program that moves up scheduled 2004 and 2006 personal-rate cuts and provides modest investment incentives for business. Says Bruce L. Downey, CEO of drugmaker Barr Laboratories (BRL ) in Pomona, N.Y.: "I'm a big fan of eliminating double taxation. But realistically, a package that large will be deferred because of the cost of the war."

The ability of the world economy to weather Iraq-shock depends on how smartly America snaps back postwar. With Japan in a funk, Germany skirting recession, and much of the euro zone in the doldrums, U.S. growth of 3% to 3.5% is needed to spark a global recovery. But that may not be realistic in light of Bush's mounting war obligations.

• International Relations. In the messy runup to war, just about everything that could go wrong in the Administration's star-crossed drive to build support for "regime change" did go wrong. The Bush team's unilateralism left a trail of wreckage at the U.N. and within NATO. As France, Germany, and Russia blocked Bush's and British Prime Minister Tony Blair's plans to win Security Council approval for war, a U.N. that has tried to keep the peace for a generation seemed to come unglued. One GOP foreign-policy guru says that Bush's ham-handed diplomacy has "left fissures that won't heal easily."

Now, Bush officials are weighing ways to undo the damage. Overtures are being made to France, Germany, and Russia as U.S. diplomats look for areas of agreement. One way to smooth differences will be to offer trade concessions and a stake in Iraqi reconstruction for some of the war holdouts. Administration officials "clearly don't want to make [rebuilding] a unilateral effort," says Richard H. Solomon, president of the U.S. Institute of Peace.

What's still unclear, though, is how accommodating Vice-President Dick Cheney, Defense Secretary Donald H. Rumsfeld, and other hawks will be to such a warmup. Hard-liners have repeatedly warned of "consequences" for the refusenik countries when it comes to doling out postwar rebuilding contracts.

A punitive approach could worsen trade relations between the U.S. and European trading partners. And that, in turn, might set back a U.S.-led drive for a major market liberalization, with potentially huge costs for the global economy.

That's why U.S. companies with overseas interests will be at the forefront of reconciliation. "I'm very hopeful that nations will get together and stop acting childish," says James D. Sinegal, CEO of Costco Wholesale (COST ) in Issaquah, Wash. "Costco sells a lot of goods to foreign countries."

If the war is neither quick nor easy, inter-Alliance tensions will boil. Blair could face further rebellion in Labour Party ranks, vilification of America could intensify, and U.S. moral leadership on other looming crises -- such as North Korea's nuclear weapons push -- could be strained. The danger is that current global resentment of American "hyper-power" could isolate the U.S.

• Political Fallout. White House strategists concede that, despite a wave of war support at the moment, Bush will need to turn quickly to the economy. If he can oust Saddam on his terms, the Texan will acquire some muscle for his stalled domestic priorities. Says Republican consultant Scott W. Reed: "If he wins a swift victory, he'll be able to pave the streets with whatever policies he desires." For the White House, that means brushing aside deficit qualms to win a hefty tax cut from Congress.

Convinced that Democrats have been stridently antiwar and have let liberals such as Senator Edward M. Kennedy (D-Mass.) and Senate Minority Leader Tom Daschle (D-S.D.) define the opposition, GOP strategists dream of a replay of the 2002 midterm elections. "The theme of the next election is: 'It's national security, stupid,"' says GOP pollster William D. McInturff.

Indeed, a Mar. 3-8 bipartisan poll by McInturff and Democrat Stanley B. Greenberg found that Republicans had opened huge leads over Democrats on a wide array of defense-related issues. White House strategist Karl Rove hopes he can fashion that advantage into an issue that trumps concerns about Bush's handling of the economy.

But if history is any guide, a President can coast only so far on his war record. And in an age of unconventional wars and terror threats, clear victories are hard to come by. True, Bush has an opening to transform the political landscape in his favor if America's Iraqi adventure goes well. But more likely, his future will be decided by a battle closer to home. That means reviving an economy mired in a post-boom funk and meeting America's mountain of new commitments with a budget that's awash in red ink.

Doable? For sure. But it could be tougher than consigning Saddam to the ash heap of history.

By Lee Walczak, Richard S. Dunham, Stan Crock, and Howard Gleckman in Washington, with Michael Arndt in Chicago, William C. Symonds in Boston, Stephanie Anderson Forest in Dallas, and bureau reports

www.sunherald.com Posted on Thu, Mar. 20, 2003
BRUCE STANLEY Associated Press

LONDON - Saddam Hussein may have organized a meticulous plan for sabotaging Iraq's oil fields in a scorched-earth tactic designed to cripple Iraqi production.

The oil industry has buzzed with reports in recent weeks that Iraqis are rigging their wells with explosives, hoping to slow a U.S.-led attack and making the country's oil wealth worthless for any new government.

"We can confirm reports that (Saddam) has taken measures to booby trap oil wells by wiring the wells so that one person can blow them up," said U.S. Defense Department spokeswoman Megan Fox.

"If the worst happens and he does detonate something that causes the oil wells to catch fire, we'll do everything we can. Those assets belong to the Iraqi people, and as much as possible we'd like to keep them intact," she said.

Already, those fears may have become reality. Defense Secretary Donald H. Rumsfeld said Thursday that three or four Iraqi oil wells may already have been set afire in southern Iraq. Witnesses in Kuwait heard explosions and saw orange flames in the sky across the border.

In 1991, Iraqi troops needed just a few days and some plastic explosives to destroy more than 700 well heads and turn Kuwait's occupied oil fields into a desert inferno.

A loss of oil from Iraq - home to the world's second-largest oil reserves - could crimp supplies for importing countries, including the United States, which depends on Iraq for 2 percent of all the crude it consumes.

However, both Saudi Arabia and Venezuela have pledged to keep the oil flowing in wartime.

Oil exports are also a major source of the money that would be needed to pay for Iraq's reconstruction after a war. Because of their strategic importance, the Defense Department says it will try to secure Iraq's oil fields quickly to prevent Iraqi forces from damaging the country's 1,685 wells.

When Iraqi troops retreated from Kuwait in February 1991, they attached plastic explosives to well heads and piled sandbags against them to direct the force of the explosions for maximum effect.

The result was geysers of burning crude at 603 wells, serious damage at more than 100 others and widespread environmental degradation. Teams of firefighters from the United States, Canada and eight other countries worked from April until November to put out the fires.

Most of the teams used sea water pumped through Kuwait's empty oil pipelines to battle the fires. The heat was so intense, at more than 2,000 degrees Fahrenheit, that water sometimes continued boiling on the ground for two days afterward, said Mark Badick of Safety Boss, Inc.

"We've had fire helmets melt on our heads," said Badick, whose Calgary-based firm put out 180 of the Kuwaiti well fires.

Firefighters from Hungary had a different technique, using two jet engines mounted horizontally on a tank chassis - a homemade vehicle they called "Big Wind" - to blast flame-retardant foam at the fires.

It took Kuwait more than two years and $50 billion to restore its oil output to prewar levels. If Iraq sabotaged its oil fields, any cleanup could take far longer and cost much more.

Iraq's fields and pipelines are badly run-down after 12 years of U.N. economic sanctions. Its fields are also much farther from the sea than those in Kuwait, meaning a ready source of water might not be so easily available.

Destruction could be especially bad if Iraqis set off explosives underground, deep within the well shafts themselves. If that happened, firefighters would have to drill a new "relief well" and pump a mixture of sand, gel and mud into each damaged shaft to try to plug it up and stop the blowout.

"It's a long, arduous process," Badick said. Whereas he and his crews put out as many as five fires a day in Kuwait, cleaning up after a single underground explosion can take two months.

Even if the Iraqis did booby-trap their oil fields, Manouchehr Takin, an analyst at the Center for Global Energy Studies, said Saudi Arabia, Venezuela and other OPEC member countries could increase production to offset Iraq's 2 million barrels a day in exports.

Saudi Arabia, which has the world's largest crude reserves, repeatedly has suggested it would boost its output to keep supplies flowing. Also, the United States and other oil importing nations could tap their 4 billion barrels in strategic petroleum reserves, if necessary, to cover a shortfall.

Brown & Root Services of Houston has drawn up a plan for the Defense Department for containing and assessing any damage to Iraqi oil installations, but the Pentagon so far has awarded no contracts.

The challenge for such companies would multiply if Iraq used chemical, biological or radioactive material to sabotage its oil fields.

Special suits designed to protect a wearer against biological or chemical agents would disintegrate in the heat of a burning well. Firefighters might have no choice but to wait until the fires burn themselves out.

"That's a whole new ball game," said Peter Gignoux, head of the oil desk at Salomon Smith Barney.