'Down with Saddam' War Affects World Oil Market

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Last updated at: (Beijing Time) Wednesday, January 22, 2003

'Down with Saddam' War Affects World Oil Market

With the Bush administration busily moving military forces to the Gulf region, the sense of an impending war has begun to make an impact on the world petroleum market.

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With the Bush administration busily moving military forces to the Gulf region, the sense of an impending war has begun to make an impact on the world petroleum market. The price of crude oil to be delivered in February in the New York Mercantile Exchange has recently risen to US$33.66 per barrel, hitting a record high since November 2000, and the February futures price for crude oil of London's International Petroleum Exchange also climbed to US$31.66. In the opinion of some American economists, many people, worrying about the coming war, hope to buy oil futures of February and March, so as to prepare against any contingency.

As an important resource, petroleum plays a significant role in the global economy, and the fluctuation of oil price has all along been an important factor affecting the world economy since the eruption of oil crisis in the 1970s. According to an article carried in the New York Times on January 2, the year 2003 will face the most violent fluctuation of oil price in a decade. Once the war to be launched by the USA against Iraq breaks out, experts estimated, the price would surge to US$ 40 or more per barrel. That will trigger inflation which, in turn, will likely press the central banks of European and American countries to change their current relatively relaxed monetary policies to avoid inflation by lifting interest rate. The international petroleum market is likely to fall short of supply if the war drags on or Iraq resorts to tactics of damaging oil facilities of its own or of its neighbors. The prospect inevitably arouses worry and concern from the international community.

Energy security has all along been an important part of US national security strategy, and to ensure energy security and supply has been listed as one of the essential tasks by the Bush administration. The United States depends mainly on oil for its energy, and two-thirds of its oil consumption need to be imported, of which 60 percent from the Gulf region. After the "September 11" incident, what influence will the continued turbulence in the Middle East, plus military attacks on Iraq, produce on the oil market is hardly predictable, given this, the US government has put the question of diversified oil supply channels high on the agenda. Beginning from the end of last year, Washington has silently set about looking for possible oil resources in Africa, Brazil, Russia and other regions.

Africa has seen rapid oil production in recent years and the quality of its crude oil is fine, for its advantageous location on the coast of the Atlantic, convenient transportation and being far removed from the turbulent lands like the Middle East and the Gulf region, and most of its oil producers not belonging to OPEC, so African oil naturally becomes the target of priority consideration in US diversity of the sources of energy resources. However, from the perspective of oil reserve, the Gulf region's current proven oil reserve stands at 450 billion barrels, or 45 percent of the world total, which is incomparable to any other regions of the world. For this reason, it's hard for the United States to shake off its oil dependence on the Gulf region at least in the near future. The war against Iraq, once breaks out, will doubtlessly make an impact of various magnitude on US oil supply, and proceed to affect its economic growth. This seems to be an important factor affecting the Bush administration's determination in regard to peace or war.

By PD Online Staff Member Li Heng

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