Interview: Oil Prices Could Hit 40 Dollars in Case of War on Iraq

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Last updated at: (Beijing Time) Monday, February 17, 2003

Interview: Oil Prices Could Hit 40 Dollars in Case of War on Iraq

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If a United States-led war against Iraq would not end quickly, oil prices on the world market could go beyond 40 US dollars per barrel, a Chinese petrochemical economic expert said in an interview published on Friday.

Zhu He, the vice chief engineer of the China Petrochemical Economic and Technology Institute based in Beijing, said a prolonged war in Iraq would severely affect oil supplies from the Middle East region and push crude oil prices to 35 to 40 dollars per barrel or even higher.

Zhu told noted that Iraq may learn from the lessons in the 1991 Gulf War and take all kinds of measures to plunge the United States into a prolonged war.

"If Iraq sets its oil wells on fire, entangles the US troops into street-fights or launches missiles and spreads the war to neighboring countries, the situation in the region will deteriorate," Zhu said.

Earlier Western media reports said the Iraqi military has secretly deposited large amounts of explosives near oil wells in north and south Iraq, which aroused concerns that Iraq may blow up these wells even though it would not engage US troops in combat.

However, the Iraqi side has repeatedly confirmed it will not destroy any oil wells.

As oil prices kept on rising as a war was looming closer, Zhu said even if the United States launched the attacks soon and finished it quickly, the oil prices would not drop immediately.

"The price may be hiked to 35 to 40 dollars in a month after the war begins", he elaborated.

But prices would drop to a normal level of between 25 and 26 dollars in the following second or third quarter and to set a yearly average of about 27 dollars, because a quick end to war would not damage oil production in the Middle East and US strategic oil reserves have reached a historically high level, Zhu added.

However, if the war uncertainties continued as the United States has so far failed to secure enough international support for a military action, oil prices could still be volatile.

World oil supply was predicted to exceed demand in the first half of 2003 had war not loomed on the horizon. So it was also possible that the prices may drift lower because of market fundamentals and register a 24-dollar yearly average, he said.

Anyway, the best thing would be the crisis ending peacefully. With the uncertainty of war disappearing, oil prices may slide sharply to as low as 20 dollars, he pointed out.

Whether there is a war or not, oil prices would not dip to 16 dollars per barrel because world oil production and market trends were still under the control of the Organization of Petroleum Exporting Countries (OPEC) and oil production costs have increased since the beginning of the new century, Zhu said.

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