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Iraq attack could trigger $75 oil, says Canadian economist
Gary Park, PNA Canadian correspondent
Here’s one to boggle the mind — oil hitting $75 a barrel.
A remote prospect, but not out of the question either according to an assessment by Vincent Lauerman, a senior economist at the Canadian Energy Research Institute.
And even that figure falls short of the $80 “worst-case” scenario developed by the U.S. Center for Strategic and International Studies.
Lauerman’s “most extreme” forecast, released during a CERI World Oil Conference in Calgary Jan. 27 and 28, assumes that a war to overthrow Saddam Hussein is “relatively long and brutal.”
His conditions include a full-scale assault launched in late March, slow progress due to urban combat and extensive use of chemical and biological agents by the Iraqi forces.
That could send oil prices soaring to $75 for a few months, despite a major release from strategic reserves.
In addition, CERI’s hypothesis suggests, oil facilities in neighboring Persian Gulf countries would suffer “fairly significant damage” from Iraqi attacks along with acts of sabotage by Islamic militants and Arabs sympathetic to Hussein.
Widespread sabotage Some oil facilities elsewhere in the world would also be shut down by acts of sabotage.
In this “full-scale case,” CERI projects West Texas Intermediate would average $40 a barrel through 2003.
The institute, a research organization jointly funded by governments and industry, also offered two less drastic scenarios:
• The “most benign” assumes an air campaign starts in late February and lasts about one month, while Hussein is assassinated by members of his regime who want to avoid a ground attack. WTI would spike at $40 for a few weeks, despite no major disruptions outside Iraq and average $30 for 2003.
• The intermediate case assumes a two-month war, including one month of ground fighting. WTI would spike at $50 for a few weeks, partly because of damage to regional oil facilities. Member countries of the Organization for Economic Cooperation and Development would orchestrate a minor release from their strategic reserves to dampen prices. WTI would average $33 for 2003.
In the event that there is no Iraq war, nor an oil price war, CERI has raised its 2003 forecast average price to $26.50, up $0.75 from its earlier projection.
War would stall recovery Whatever U.S. or world economic recovery may have been under way, it would be stalled by war in Iraq and likely lead to a global recession within a year, Lauerman said.
Michael Lynch, a research affiliate at the Massachusetts Institute of Technology Center for International Studies, told the CERI conference that a combination of rising tensions over Iraq and continued internal strife in Venezuela has the oil market “as tight as a violin string,” with little prospect of significantly lower prices for months.
He said oil could soar to $50 following an invasion, causing President George W. Bush to release the U.S. strategic petroleum reserves, which could supplement the domestic markets by 2.8 million barrels per day for six months.
Carl Michael Smith, assistant secretary of fossil energy with the U.S. Department of Energy, said the U.S. has 600 million barrels in reserve and can deliver those volumes “very quickly.”
Guy Caruso, administrator of the U.S. Energy Information Administration, forecast average prices for 2003 of $30 because of tight inventory levels.
But there could be extreme spikes of $40 to $50, although it would need something to go “seriously wrong” to push the level much above $40, said Paul Horsnell, head of energy research at J.P. Morgan Chase Bank.
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