April 10, 2002
Mideast and Venezuela Turmoil Sends Oil Prices Into Wild Swing
By NEELA BANERJEE
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| Reuters |
| Iraqi oil technicians work at a refinery near Baghdad on Monday. Iraqi leader Saddam Hussein said Iraq suspended its oil exports on Monday for one month in protest of Israel's invasion of Palestinian areas on the West Bank. |
Oil prices, already up 40 percent this year, swung wildly yesterday, with political turmoil from the Middle East to Venezuela threatening to crimp energy supplies just as seasonal demand in the United States is starting to rise.
Prices jumped almost 4 percent on the New York Mercantile Exchange after the Iraqi leader, Saddam Hussein, said in a television address that he would halt his country's oil exports for 30 days to protest Israel's military action on the West Bank. [Page A12.]
Energy markets also were responding to events in Venezuela, a major supplier of oil to the United States, where a simmering labor protest at the state oil company seemed poised to spread, with a nationwide general strike called for today. [Page A3.]
By late yesterday afternoon in New York, crude oil prices fell back to settle at $26.54, up 33 cents, after Alí Rodríguez, the secretary general of the Organization of the Petroleum Exporting Countries, reassured the markets that there were sufficient worldwide production and supplies of oil to soften any losses from Iraq's temporary embargo. The Venezuelan government denied reports that its refineries had drastically reduced output.
But many industry experts said yesterday that disruptions had occurred, and warned that if they were prolonged — and if oil prices continued to rise as a result — the economic recovery in the United States could be hobbled.
The nation is approaching the warm-weather driving season, when gasoline consumption jumps, and the increase could be particularly sharp this year as a result of the growing numbers of gasoline-hungry light trucks and sport utility vehicles, the sales of which surpassed those of automobiles for the first time last year.
"This summer, you will see the impact of Detroit's zero percent finance rate," said Philip K. Verleger Jr., an independent oil analyst based in Newport Beach, Calif., alluding to the automobile industry financing programs that increased the sales of sport utilities and other vehicles last fall. "All these S.U.V.'s will be on the road and demand will be up."
At a news conference yesterday, the Energy Department painted a more optimistic picture, projecting that average gasoline prices this summer would be $1.46 a gallon nationwide, or about 8 cents less than last summer, despite a 20 percent increase in prices over the last month. But the estimate relies in part on the assumption that the Iraqi embargo will not spread to other countries and that other OPEC members will make up the difference.
The Saudis and other members of OPEC have said that they will not impose oil embargoes in the hope of swaying Washington's policy in the Middle East. But the leaders of Muslim countries that represent 80 percent of OPEC's production face growing pressure from their people to stand up to the United States over policies that that many Muslims regard as too sympathetic to Israel while ignoring the concerns of the Palestinians.
"This puts Arab members of OPEC in an extremely difficult position," said Yasser Elguindi, managing director at Medley Global Advisors, a New York consulting firm. "On the one hand, they have to be extremely subtle in getting the message out that they want to stabilize oil markets, but they don't want to seem as if they are at the beck and call of the U.S. This will be very hard, given how their local populations feel."
Over the last 16 months, Iraq has twice suspended oil exports for various political purposes, and Saudi Arabia, among the few countries with extra production capacity to bring on line, has stepped up its production to compensate.
Even with those interruptions — and despite the bitter differences between Baghdad and Washington going back to the Persian Gulf war of 1990-91 — Iraq last year was the sixth-largest oil supplier to the United States, according to the Energy Information Administration, the analytical arm of the Energy Department.
Iraq exports its oil under the United Nations' oil-for-food program, with the proceeds going into an escrow account overseen by the United Nations to buy essential goods for the Iraqi people. But oil industry experts said that rampant oil smuggling outside the United Nations-approved system had padded Iraq's treasury.
The proceeds, and the escrow account, experts said, give Mr. Hussein leeway to use an embargo to burnish his popularity in the Arab world and tweak his regional rivals.
"He has everything to gain politically and nothing to lose," said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation. "He's been trying for the last several years to be seen as the leader sensitive to global Arab politics, and this puts additional pressure on the Saudis. The message may not be to the oil markets, but to the Arab people."
Mr. Hussein said that he would re-evaluate his embargo in 30 days. It will take at least that long for refiners and consumers to feel the pain, if any, from the embargo, given that oil travels from the Persian Gulf to American gas stations over four to six weeks.
But the impact of political turmoil in Venezuela, the third-largest exporter of crude oil and petroleum products to the United States, could be felt in eight days or so, said Charles T. Maxwell, senior oil analyst for the brokerage house of Weeden & Company.
Over the last five weeks or so, employees of the state-run oil company, Petróleos de Venezuela, have orchestrated a successful work slow-down to protest moves by President Hugo Chávez to exert greater control over the company and to divert more of its profit to the national treasury.
The largest Venezuelan refinery is operating at 50 percent of its capacity, and others have shut down, according to workers' groups and independent experts. But the Venezuelan government denied yesterday that such disruptions had occurred.
The strikes seem poised to spread far beyond the oil industry. People with long involvement in Venezuelan affairs said that a broad range of the nation's citizens — from business people to laborers to clerics — had banded together against what they regard as Mr. Chávez's autocratic rule.
The president has pledged to quash the one-day nationwide work stoppage called for today by the opposition, and many analysts fear an intensification of the social conflict.
"This has brought together large swaths of society, and they see it as an opportunity to get rid of Chávez," said Moises Naim, a former Venezuelan trade minister who is now editor of Foreign Policy magazine in Washington. "But Chávez won't go quietly. If the strike is successful or it lasts for more than a day, you can expect troubles."
Copyright 2002 The New York Times Company
