Expansionary Institute

Michael Zey
futurist3000@aol.com

By Peg Mackey

 
DUBAI, Dec 3 (Reuters) - Iraq's drive to punish companies selling its oil to hostile states may realign global oil trade once exports start rolling again, oil industry sources said on Sunday.

Iraqi exports dried up on Friday after even those on best terms with Baghdad -- Russia, China and France -- refused to honour its demand for payment of a 50-cent per barrel surcharge outside the terms of the United Nations oil-for-food deal.

Iraq toughened its stance on Saturday, threatening to boycott companies and countries that sold its crude oil to states it regards as hostile.

That decision is likely to leave U.S. refiners who have acquired a taste for some 750,000 barrels per day (bpd) of Iraqi oil scrambling for alternative sour crude oil supplies.

Washington has repeatedly said it can look to key ally and OPEC power Saudi Arabia to help fill the gap. The kingdom, the world's largest oil exporter, has vowed to step in to offset any shortfall.

It will also mean companies -- many from Russia and China -- which have been supplying Iraq's enemy number one, the United States, will need to secure new outlets.

"It's going to be hard for third-party sellers to find replacements for U.S. refiners unless Baghdad drops the surcharge for non-hostile countries," said an industry source.

But Iraqi Trade Minister Mohammed Mehdi Saleh said on Sunday that Iraq was not prepared to waive its demand, which lifters regard as a blatant violation of U.N. trade sanctions.

"We are determined," the minister said on Sunday. "There is no back-tracking."

Saleh delivered Baghdad's latest hard line at a news conference in Dubai.

"Any company found supplying Iraqi crude to a country in a state of war with Iraq (the U.S. or Britain) will be put on the blacklist and there will be a partial or full ban in dealing with it or any additional punishment that will be decided upon by the president of the republic," he said.

WITHER A WAIVER?

Industry sources speculated that Iraq could eventually waive the surcharge to politically supportive countries -- especially those prepared to refine its barrels.

If that were the case, the Far East could be a major beneficiary, they added.

Market sources are speculating that Baghdad might have lined up a big oil contract in a barter deal with India last week and that other deals might be in the pipeline for Korea, the Philippines and even Japan.

"The jury is still out on whether Iraq might waive the surcharge to the Russian companies because they don't refine the oil themselves," said a market source.

Iraq has consistently rewarded its political supporters -- Russia, China and France -- with high volume crude oil contracts since the early days of the United Nations six-month oil-for-food programme.

Russian companies currently account for about 30 percent of Iraq's total eighth phase contract volume of more than 430 million barrels.

Baghdad has barred direct crude oil liftings by major oil companies from the U.S., UK and Japan since August 1997 -- one of Iraq's first apparent political gestures made during the oil-for-food programme's infancy.

U.S. and British companies since then have worked through third parties -- many from Russia and China -- to lift Iraqi barrels and recently secured around one-third of overall sales of some 2.3 million barrels per day (bpd), industry sources reckon.

Refiners in the United States alone lifted some 750,000 bpd of Iraqi oil during the third quarter of this year, according to the U.S. Energy Information Administration.

Washington, for its part, has repeated its official line that any Iraqi supply gap could be filled by key U.S. ally and OPEC power Saudi Arabia or by drawing down industrialised nations' strategic reserves.

Saudi Arabia, the world's largest oil producer, renewed its assurance on Saturday that it would take steps to calm world oil markets.

"The kingdom is currently discussing the situation in the oil market with OPEC states and the International Energy Agency (IEA), Saudi Oil Minister Ali al-Naimi told the official Saudi Press Agency on Saturday.

"In case we are assured of a stoppage of supplies then these consultations will develop into a clear and practical position which would ensure the stability of the oil market."

The oil-for-food programme allows Iraq to sell crude on the open market and, under strict U.N. control, use proceeds to buy food, medicine and other supplies to alleviate the impact of sanctions imposed when Baghdad invaded Kuwait in August 1990.

12:59 12-03-00

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