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Iraq: Will Baghdad's Suspension Of Oil Shipments Have The Desired Effect?

Iraqi President Saddam Hussein has announced Baghdad will stop exporting oil through the UN oil-for-food program for 30 days to protest Israeli military actions in the Palestinian territories.

Prague, 9 April 2002 (RFE/RL) -- Baghdad is again seeking to turn its oil exports into a potent political weapon by vowing to suspend shipments for 30 days in reaction to the Israeli-Palestinian crisis.

Iraq's President Saddam Hussein said in a nationally televised speech yesterday that he will cut off oil exports "starting from this afternoon, 8 April." He said the embargo will continue for 30 days, after which it will be reviewed, or until Israeli forces "are unconditionally withdrawn from the Palestinian territories."

The Iraqi announcement had an immediate impact on world oil prices, which had already been rising due to events in Venezuela, where a labor dispute has threatened to disrupt oil exports. The price of benchmark North Sea Brent crude oil closed yesterday at almost $27 a barrel, a dollar higher than the price on 5 April. The benchmark price is expected to remain close to $27 as oil trades on global markets today.

The Iraqi move comes just days after Baghdad called on other Muslim countries to place a blanket oil embargo on the United States over Israel's military operations in the West Bank. That call has gained verbal support from Iraq's fellow OPEC members Libya and Iran, which said they would join any embargo backed by all Arab producers. But it has also seen two of OPEC's largest exporters, Saudi Arabia and Kuwait, reject the use of oil as a political weapon.

Analysts say that by suspending Iraq's oil exports, Saddam is again seeking to portray himself as the sole Arab leader striking out against the United States -- Israel's main ally -- on behalf of the Palestinians. That is a public image he has frequently sought to create by offering compensation to families of Palestinian suicide bombers and by forming armies of Iraqi volunteers who claim to be ready to fight for the Palestinian cause.

Pierre Shamas, a regional expert with the Cyprus-based Arab Press Service, says the Iraqi oil stoppage looks certain to build further what many regional commentators say is strong street-level support for the Iraqi leader for championing the Palestinians. "People who are demonstrating for the Palestinians against Israel, with the [anger] as it is now over the so-called American bias for Israel, [see] the Iraqis [as the only ones] brave enough to cut off [their oil exports] completely, when no one else is willing to join Saddam Hussein in making such a declaration."

At the same time, the embargo seems intended to persuade the Arab public again that the Iraqi crisis and the Israeli-Palestinian conflict are deeply intertwined. Saddam has often described both the Palestinians and the sanctions-hit Iraqis as the victims of U.S. aggression aimed at dominating the Arab world. That image has helped to build street-level Arab support against the UN sanctions that have been imposed on Baghdad since its 1990 invasion of Kuwait. The lifting of the sanctions is dependent on arms inspectors' certifying that Iraq has no weapons of mass destruction.

But if Iraq's export stoppage looks certain to gain him the attention of the Arab public, it remains to be seen what effectiveness it may have as a foreign-policy lever. The export suspension is the fourth by Baghdad since 1999 in what has become a continuous, if intermittent, effort to use its oil resources to exert pressure on its adversaries. Iraq currently exports about 1.5 million barrels of oil a day, representing about 2 percent of world output.

Shamas says Iraq's current oil stoppage is well-timed to take advantage of unusual nervousness in the global oil market over future supplies. That nervousness is driven partly by recent events in Venezuela and partly by more general worries about Middle East stability due to the Israeli-Palestinian crisis. The desire of oil buyers to protect themselves against any future shortages has propelled prices upward in recent weeks, despite the fact there is presently an ample supply of oil available. Shamas says: "By itself, the Iraqi move is not significant, technically speaking. There are plenty of supplies that could make up for the shortage. ...[But] it will have an immediate impact simply because it coincides with what is happening in Venezuela."

Shamas says that how much oil prices will now rise depends more upon what happens in Venezuela's labor dispute than upon Iraq's export stoppage. But once the flow of Venezuelan oil is again assured, he expects prices to drop again as oil producers step in to fill the Iraqi shortfall at a profit to themselves.

The oil expert also says that Saudi Arabia and Kuwait are likely to be among the first producers to compensate for Iraq's oil cutoff. But he adds that they are likely to do so with as little notice as possible in order to avoid any Iraqi accusations they are undermining Saddam's support for the Palestinians.

"If the Saudis, Kuwaitis, and others are going to make up for [shortages of] supplies, they are going to do it as quietly as possible. Probably they will even deny that they are making up the shortfall of supplies. But the market will balance itself in the end, because there is going to be so much more supply searching for the extra money."

Oil-industry analysts say Saudi Arabia and Kuwait will make up the shortfall because they want to regain market share they have lost in recent years to other non-OPEC producers, such as Russia. The International Energy Agency reported recently that OPEC's share of world production, including Iraq's output, has fallen to about one-third of world oil production, its lowest level in 10 years.

That could mean that Iraq will have difficulty in making its current oil cutoff any more effective a political weapon in the long term than its previous export suspensions have been.

Baghdad cut off all of its then-2.4 million barrels a day of exports for almost a month in late 1999 to underline its demands that the UN Security Council end the sanctions regime. That stoppage pushed benchmark oil prices up to $26, at that time the highest price in a year. But the Security Council maintained the sanctions regime, voting to suspend them only if Baghdad cooperates with a new weapons-monitoring commission.

Most recently, Baghdad cut off exports for several weeks last summer to protest a U.S.-led attempt to tighten the UN sanctions regime against it. That move unexpectedly led to a decline in oil prices, as OPEC said it would compensate for any shortfalls. The crisis ended with the U.S. and Russia postponing any decision on modifying the sanctions regime until it comes up again for renewal at the end of May.

Washington said last month that it has since agreed with Moscow over how to restrict goods useful to Iraq's military while easing imports on civilian goods.