Saddam's oil trick rocks the markets
By Peg Mackey
LONDON (Reuters): Iraqi President Saddam Hussein has flexed his muscles yet again -- playing the oil card against the United Nations and catching diplomats and oil executives on the hop.
Baghdad on Monday suspended its oil export program after rejecting at the weekend a short-term UN resolution extending by two weeks its oil-for-food exchange with Iraq.
The Iraqi leader has picked his moment well -- interrupting deliveries when the world oil market is facing a shortage of supply this winter.
"We've not seen this kind of politicking by Saddam lately," said one Western oil executive. "But when oil prices were low, this gesture wouldn't have made such a big impact."
Iraq's move pushed oil prices to a fresh nine-year high on Monday with London Brent futures hitting US$25.90 a barrel -- a price not seen since allied forces prepared to eject Saddam's troops from Kuwait in January 1991.
"Clearly the West doesn't want oil prices to go any higher and Saddam knows that," said Nauman Barakat of ABN Amro in New York. "His timing is impeccable."
But in Washington, the United States said it saw no immediate crisis resulting from the Iraqi action.
"There is a lot of oil in the system, and food stocks, so this is not a crisis situation," State Department spokesman James Rubin said.
U.S. Secretary of State Madeleine Albright called the Iraqi action a "cynical" move.
"To me it's a sign of the great cynical approach that Iraq -- Saddam Hussein -- has taken, both towards his own people...(and) vis a vis the international community," Albright said on a visit to Slovakia.
Saddam's latest intervention comes just as pressure mounts on fellow OPEC member states to ease the supply curbs which have more than doubled the price of oil this year.
Iraq may well resume its 2.2 million barrels per day of exports -- around five percent of global trade -- in about two weeks time, when the UN is expected to vote on the next full round of oil-for-food.
But with stockpiles in the West sinking fast, oil dealers are taking no chances.
"Saddam has unveiled the oil weapon again and it might not be a quick experience," said Peter Gignoux, head of the energy desk at brokers Salomon Smith Barney.
Iraqi Oil Minister Amir Muhammed Rasheed was keeping the international oil market guessing. Asked in Baghdad when Iraq would resume oil exports, he said: "We will wait and see."
Rasheed confirmed that oil exports were ending under the sixth phase of the $5.26 billion UN oil-for-food program which expired late last Saturday. The deal was put into play three years ago to help ease the impact on Iraqi civilians of stringent UN trade sanctions.
Awaiting the United Nation, a western diplomat said it was unclear as yet whether Iraq had officially notified the UN of its rejection of the oil deal extension, which it said was "orchestrated" by the United States to blackmail other Security Council members.
"The decision taken by the (UN) Security Council is meaningless...therefore, Iraq will not deal with it," Foreign Minister Mohammed Saeed al-Sahaf said in a statement carried by the official Iraqi News Agency INA.
Britain said it did not expect the United Nations to bring forward a vote on the seventh phase of its oil-for-food exchange with Iraq despite Baghdad's rejection of a two-week extension of the sixth phase.
"I don't think so. We are not in that position," said a spokesman at the UK foreign office. "It's very much an Iraqi decision. We can't force them to cooperate."
In New York's early hours, the reaction at UN headquarters was muted. "We're just going to sit tight," said a western government source. "This is just another bit of game playing by Iraq."
The UN Security Council passed the 14-day extension of oil-for-food deal to allow further dialogue on a package that would reinstall a weapons inspection regime in Iraq and ease sanctions put in place after Baghdad's 1990 invasion of Kuwait.
London said it would continue to press forward with the comprehensive resolution.
The package links a suspension of trade sanctions to the return of a UN disarmament commission in Baghdad, forbidden in Iraq since bombing raids against Iraq last December.
For now, Russia and the United States are deadlocked over the longer term resolution.