Saddam Rides To Opec'S Rescue Again

Iraqi strongman Saddam Hussein has done more to bolster oil prices in recent years than all his fellow Opec members put together, even though Iraq's oil has been banned from the world market since 1990.

Baghdad's incursions into Kurdish areas of northern Iraq and yesterday's retaliatory US missile attack have sent prices to their highest level since October 1990 "" when Saddam's invasion of Kuwait was the author of a global burst in oil prices.

Poor Saddam is helping to improve the income of his Gulf War enemies Saudi Arabia and Kuwait. Opec should be very pleased with his work, a senior Opec official said.

 

Ever since Saddam stunned the world with his invasion of neighbour and fellow Opec member Kuwait in August 1990, oil prices have gyrated on his every move.

The Organisation of the Petroleum Exporting Countries recently seemed ready to collapse when faced with having to set new production quotas to take account of the easing of the United Nations' Gulf War ban on Iraqi oil sales.

By attacking the Kurds, raising Middle East tension and delaying the implementation of the UN oil sale plan, Saddam has ridden involuntarily to the rescue once again.

You could say that Saddam is oil's hidden benefactor. With prices being where they are now, Opec members themselves see no reason to cut production, said Mari Buglass, senior oil analyst at Smith, Barney in London.

When they last met in June to set production levels for the rest of 1996, not one of the other 10 Opec members was willing to cut its own output to give way to Iraq.

With the notable exception of heavyweight Saudi Arabia, most are producing above mandated quotas.

And many Opec-watchers doubt if the once-mighty cartel has the political will left to cut production again to boost prices.

Front-month Brent Blend crude futures hit a post-Gulf War high of $23.60 per barrel in Asian trading on Tuesday on news of the US strike. It eased in London by 1100 GMT to $22.60 but had still added 60 cents to a gain of $1.21 on Monday.

Although such prices are way below the record $40.95 set for Brent during the Iraqi occupation of Kuwait in 1990, they are a big $6 above this time last year.

We're seeing the Gulf War syndrome coming out in the oil markets, said Charles Gray, an energy analyst at broker Prudential Bache in London.

The Centre for Global Energy Studies (CGES), a London energy think tank headed by former Saudi oil minister Sheik Ahmed Zaki Yamani, reckons Opec producers stand to earn $2 billion more in the fourth quarter 1996 than was previously forecast.

Opec has had a very good ride this quarter and things look better for the fourth quarter. We have seen a dramatic change in market sentiment, says Leo Drollas, CGES chief economist.

In May, after five months of arduous talks resulted in the United Nations agreeing to allow a limited resumption of Iraqi crude oil exports to buy food and medicine, oil prices tumbled on fears of a glut.

But now that Baghdad's attacks on Kurdish strongholds have put an indefinite delay on implementing the $2 billion food-for-oil deal, oil analysts are asking if there will be enough oil around to meet peak winter demand.

Low heating fuel stocks in the United States and Europe and general uncertainty in the Middle East have resulted in a radical switch from bearish to bullish sentiment.