11 - 17 April 2002
Issue No.581
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Al-Ahram Weekly Online 11 - 17 April 2002 Issue No.581 |
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Who will hurt first?
Iraq has announced it will stop oil supplies for a month. It may be shooting itself in the foot. Jasper Thornton reports
Iran and Iraq, recently accused by American President George Bush of acting in cahoots along an "axis of evil," have combined to revive an old US fear: the oil weapon.
Can an Arab oil embargo be used as an effective weapon once again?
Last Friday Iran's supreme leader, Ali Khamenei, urged all Islamic countries to halt oil supplies for a month to "countries close to Israel." Khamenei's call was immediately supported by Libya, but OPEC rejected the suggestion, and at a meeting of Arab foreign ministers last Saturday, nothing was said about an oil embargo. It has fallen, then, to US arch-foe, Saddam Hussein, to turn talk into action. On Monday, he announced that Iraq would suspend oil exports for "30 days, after which we will review the decision, or until the armies of the Zionist entity have unconditionally withdrawn from the Palestinian territories they have occupied." At the time of writing, the Iraqi oil ministry announced that it had ceased pumping oil to Mina Al-Bakr and the Turkish port of Ceyhan.
Markets reacted swiftly. The oil price peaked at over $27 a barrel for the benchmark Brent crude on Monday, though it later subsided to $26.91. This was an increase of over 92 cents from the Friday close price.
Economic analysts, however, seem unimpressed by Iraq's gambit. ABN Amro trader Philip Oxley told Agence France Presse that Iraq supplies only about 1.5 million barrels of oil a day to world markets, which "is not a great deal. OPEC can make up any shortfall quite quickly." Toby Dodge, Iraq expert at London's Royal Institute of International Affairs, agreed. He told Al-Ahram Weekly that, whether or not it was announced publicly, it was "understood" that Saudi Arabia would meet any oil shortfall. Russia is also keen to export more of its vast reserves, and is not a member of OPEC, so is not bound by the group's decisions. Iraq's oil has also periodically stopped flowing before under the oil-for-food programme (launched in 1997), and the US has built up a strategic reserve as a hedge. Dodge commented that Baghdad seemed unwilling to accept that the threat of withdrawing oil was far more destabilising than the act itself.
Nevertheless, some groups may suffer from Saddam's scheme. The UN disburses a fifth of the money earnt from oil sales under the oil-for-food programme to Kurds in the North of Iraq, whose lives, it says, were particularly harrowed by the Gulf war and its aftermath. The remainder goes to buy food and medicine for the Iraqi people. They may now be even harder pressed. Nevertheless, we are unlikely to see barricades in the streets. Dodge told the Weekly: "Saddam's grip on his country is as strong as it has been since the 1980s. Internally, any effective, organised opposition has been broken. The vast majority of the population in south and central Iraq depend for at least half of their daily food intake on government rations. The government effectively controls them through a ration card that stops people travelling. Ordinary people have to pick up their food from the same place every month." The UN has also often complained that Iraq's president spends far less than his UN "allowance" and is stockpiling medicine and food, so a month of no income need not necessarily affect the Iraqi people. Issam Rasheed Howaish, governor of Iraq's central bank, said he had sent instructions to the bank's financial departments to intervene to support the Iraqi dinar. Nevertheless, other analysts, such as Amr Kamal Hammouda, director of energy and strategic studies think-tank Al-Fustaat, suspect Hussein's intention is to jostle US Secretary of State Colin Powell, visiting the region this week, and that the oil faucets will not be shut fast for a whole month. "I think this may only last for a few, strategically timed days," Hammouda said.
If not, Turkey is another country that could suffer. Much of Iraq's oil is routed through the Turkish port of Ceyhan. A rise in oil prices will also bother oil importers. But the general view among analysts is that no general energy shortage will ensue.
Even so, condemnation of the Iraqi president has been swift. A Russian government spokesman said the Iraqi leader was "damning his people to continued suffering, while keeping his country isolated from the world." Britain accused him of playing fast and loose with his people's misery. And a Turkish diplomat told the Weekly that Turkey was growing used to suffering from Iraq's maverick ways.
Arab governments had not taken public stances by the time of writing. But some Arab and Egyptian analysts who spoke to the Weekly supported Iraq's move, agreeing, though, that it needed other oil exporters to join in to be effective.
The chances of that seem slim. OPEC responded immediately to Iran's suggestions of a general embargo last week, with General-Secretary Ali Rodriguez saying Friday that "an oil embargo goes against the basic and primary objective of OPEC: stability of the market and security of oil supplies." After Iraq's Monday move, OPEC sources were quoted as saying that OPEC is for order and harmony in the oil market and should not be dragged into a regional political crisis which would create havoc. Nevertheless, analysts have warned that if Libya and Iran become involved, too, the crisis could become of a different order.
Otherwise, the world seems unlikely to be moved by Iraq's suspension of oil exports. The danger of an oil embargo seems not to have the fearful tread it once did. No energy crisis is expected, and unless others join Iraq, analysts do not expect the oil price to reach much higher. Baghdad's only reward may be the glee of the Pentagon hawks, currently looking for yet more reasons to put their endless jeremiads against Iraq into practice.
Autumn, 1973
A COLLECTIVE Arab oil embargo has not been used for almost three decades. Jasper Thornton looks at how it worked beforeAn oil embargo against the "friends of Israel" was last used during the 1973 war. Although such a ploy had been mooted before, (since the 1950s), times had never been propitious. Until the 1970s, the US was not producing at 100 per cent capacity, and the Middle East was not the world supplier of last resort. That honour went to Texas. Between 1970 and 1973, however, prices doubled as US production shunted against its limits, and demand began dramatically to outpace supply. By 1973, Saudi Arabia was the world's swing producer.
By then, Middle East countries also had pragmatic reasons for cutting production. Saudi Arabia was operating at capacity to meet world demand and earning more than it could spend. Libya and Kuwait had already reined production back, arguing that paper money lost its worth faster than the "black gold in the ground." Many in Saudi ruling circles began to think the same way.
The day Egypt and Israel went to war, OPEC took a decisive step towards wresting control of oil from the international companies that had hitherto dominated its destiny. Up until then, the two sides had bargained together over everything from concessions to the market price. But on 6 October, OPEC delegates in Vienna demanded that the companies accept a 100 per cent increase in the oil price. This would allow the OPEC members to cut production, yet still enjoy an enviable income. The oil companies, pressured by their home governments, tried to settle for a mere 15 per cent increase. To no avail: 10 days later, the exporters unilaterally raised the price of oil by 70 per cent. With the enormous pressure on world demand, heightened by the massive mobilisations of war, the companies were pressed into a corner. They needed to keep supply going. In the face of OPEC's stroke, they could only gibber and squeak.
Heartened by this successful show of independence, and hard-pressed by popular demands for an oil embargo of the US for its support of Israel, Arab leaders made their move. On 20 October, oil taps across the Arab world were twisted shut. The US and the Netherlands, and later Portugal, South Africa and Rhodesia were cut off from supply. At the same time came a general cutback in production, imposed on the whole world, in order to lift prices. Not all Arab states joined in, however. Saddam Hussein, for one, ramped up Iraq's production and took advantage of spiralling oil prices, with the excuse that the Saudi move was an insulting shadow of his own master plan for utter economic warfare against the United States.
The oil embargo lasted until March of the following year. During its enforcement, panic buying, under-the-table dealing, splits among the Western allies and fear dominated world events. US President Richard Nixon was also beset by the Watergate scandal, and it fell to Henry Kissinger, his secretary of state, to negotiate an end to the embargo. This he at last achieved, after visiting the region and engaging in strenuous disengagement efforts between Israel and its Arab neighbours.
Change followed. In June, Kissinger's beleaguered boss visited Egypt and received an ecstatic welcome from the Egyptian people.
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