News Analysis: Will Oil Crisis Break out Once Again?

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Last updated at: (Beijing Time) Tuesday, November 26, 2002

News Analysis: Will Oil Crisis Break out Once Again?

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Of all the energy resources, the petroleum oil reeks much more of "the politics". In the past few weeks, the prices for crude oil in the international market saw frequent rises and falls, changeable just like the situation "thermometer" in the Gulf Area. The oil price falls whenever Iraq speaks softly while it rises when the wind of war blows hard.

September 23,2002 saw the price for a barrel of crude oil reach 30.48 US Dollars in the New York market, hitting a record high ever since the beginning of 2001. But October witnessed a drastic downturn in oil price. With Iraq agreeing to accept the UN Council resolution the market breathed a sigh of relief. However, this did not last long. With the US and UK pressed forward with war threat and the ceaseless conflicts between the Palestine and Israel these days again have seen the price to exceed 26 US dollars for each barrel of the crude oil.

Judging from the price tendency, this year will see it fluctuate somewhere between 20 to 30 US dollars for each barrel of crude oil. It is at large within the price range as controlled by the OPEC, i.e. the price buoying up and down between 22 to 28 US dollars for each barrel of crude oil.

This is not only because the situation in the Middle East is still under control, showing a glimpse of hope for a peaceful solution of Iraqi issue but also due to that the major oil producing countries have recently increased their production including that of Iraq.

Like prices for many other products, the oil price dances attendance to the needs. It is not very hard to make an estimation of the needs in the world market under the normal condition. Only by taking a look at the relation between the increase of the world economy and the needs of the oil in the past one can easily get a rough calculation of the increase in the oil needs.

According to the estimation by the US Energy Information Administration, next year will see the daily oil needs of the world increase by more than 1.3 million barrels as needed this year because it will see an acceleration in the recovery of global economy. To increase by 1.3 million barrels doesn't mean a very big difference and it is possible for those countries outside the OPEC to produce more than one million barrels daily. Even if the OPEC countries do not increase their oil production there won't be a big shortage of oil supply next year.

However, the aforesaid estimation is based on a supposition that there won't be a great commotion in the global situation, especially no big disturbance in the situation in Middle East. If the global economy sees an accelerated recovery next year, calling for a big increase of oil, yet at the very moment the US kicks off its military attack at Iraq, causing a great turmoil in the Middle East there will see a big rise in oil price.

Experts of the Center for Strategic and International Studies of the US are of the opinion if Iraq makes a big destruction of the oil extraction equipment at the withdrawal the oil price will shoot up to 80 US dollars a barrel. It is an astronomical price, which will cause a catastrophe to the world economy.

History serves a mirror for us that the occurrence of such a situation requires the other two conditions: one being that the major industrial countries haven't got their oil reserves beforehand and another the war to be a prolonged one.

After the outbreak of oil crisis in 1973, the developed countries with the US at the head formed an international energy organization to cope with the possible occurrence of the oil crisis. It requires all its member countries to have an oil reserve for some 90 days as needed in the previous year. For the moment, the 20 more member countries own a reserve of around 4 billion barrels of crude oil, a volume equivalent to that as imported in 114 days. The amount of oil reserve in the US is estimated to be at 589 million barrels, which, though under the required amount, is still sufficient to last for two months if the oil importation come to a full stop. In 1990, the outbreak of the Gulf War made the oil price to shoot up to 41 US dollars per barrel. The organization kicked off the emergency plan by putting into the market a reserve of 2.5 million barrels daily, thereby causing the oil price to slump by over 10 dollars a barrel in one day.

Nevertheless, the emergency plan is by no means omnipotent for the reserve is after all limited. The oil crisis in 1979 serves a fine mirror to learn some lessons. It was caused by Iranian Revolution and followed with the outbreak of the war between Iran and Iraq. With the drastic reduction of the oil output the global market saw a shortage of 5.6 million barrels daily, causing the oil price to hit a record high ever since 1970. And what's more serious is that such a situation lasted for more than half a year, dragging at last the economy of the western countries into the quagmire of recession.

Looking back into the history we can come to find out that the crux of the matter lies in how sure the US is going to win victory within a short time if it is to kick off the war in Iraq? This is the very problem in which many oil-experts are concerned for.

According to the recent data provided by the US, about 55 percent of the crude oil needed in the country depend on import, around 10 million barrels of oil daily. This is by no means a small figure, let alone that the attack on Iraq also needs a great amount of oil. Even if the Bush's government has made some preparations before the outbreak of the war the prolongation of the war will claim for more oil. And how long the reserved oil can last this is again an unknown number. Suppose that the Middle East is plunged into turmoil for a long time the oil price can not be "manipulated" only by some reserved oil and so the recovery of the global economy will be severely affected.

By People's Daily Online

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