LONDON: Predicting Saddam Hussein’s next move has never been easy.
So oil companies making contingency plans for a possible US military campaign to topple the Iraqi president are preparing for the worst-case scenario — a cornered Saddam attacking oil facilities in Saudi Arabia and Kuwait.
That would deprive consumers of millions of barrels of crude as oil prices rocket.
“If Saddam feels that he is toast and has three or four weeks left in power, he is going to cause as much mayhem as possible and hit out at Saudi Arabia and Kuwait in the worst case scenario,” said a trader with a leading oil major.
“We have factored this into our calculations.”
Oil dealers have focused on the fate of Iraq since US President George W. Bush branded the OPEC producer part of an “axis of evil” supporting terrorism and developing weapons of mass destruction and demanded that Baghdad allow UN weapons inspectors back in.
Uncertainty has deepened because this time around the United States is spoiling for Saddam’s overthrow, raising fears that his retaliation could be radical.
Iraq would not have to look far to wreak havoc. The country borders fellow OPEC oil giants Saudi Arabia, Kuwait and Iran — all sworn enemies of Baghdad over the years.
“The abstract fear is that he may lash out against the (Saudi) Ras Tanura facilities and Kuwait. The combined supply loss of Iraq, Saudi Arabia and Kuwait is irreplaceable,” said Michael Rothman of Merrill Lynch.
Even a short-lived threat of such unmanageable losses, amounting to about 11 million bpd of crude, could send prices higher than the $40 level hit after Iraqi tanks rumbled into Kuwait in August 1990.
UNLEASHING THE OIL WEAPON: Saddam already took the market by surprise with a month-long oil embargo in April to protest Israel’s treatment of Palestinians.
Traders have learned to live with temporary losses in Iraqi exports, which are running at just 1.2 million barrels per day so far this year, a million bpd below capacity.
And the world’s biggest oil exporter Saudi Arabia has promised to fill any Iraqi supply gaps.
But traders worry a Saddam fighting to survive may fire the ultimate oil weapon after removing Iraqi crude from the market.
Oil traders make painstaking forecasts of everything from refining margins to weather patterns to safeguard profits.
Now they are attempting the impossible — trying to read the mind of a man accused of gassing his own people and who once threatened to burn half of Israel.
“We are cautious. We are looking at contingency plans. Trying to figure out if A leads to B how should we react. But we don’t have a strategy yet for the different scenarios,” said another oil trader.
SAUDI, KUWAIT NOT EASY TARGETS: Oil companies may take comfort in knowing that making a significant hole in Saudi and Kuwait crude exports would not be easy. Iraq’s Scud missiles, Saddam’s inaccurate weapon of choice to rattle neighbours in the Gulf War, are not seen as a serious threat.
But firing them at oil installations would rattle the market.
“The ability of the Iraqi regime to respond to an attack by hitting oil installations or using chemical weapons is overblown, but one should prepare for the worse when going to war,” said Major General Saad Obeid, who was in charge of psychological warfare for Saddam before defecting.
Mustafa Alani, a consultant at the Royal Institute for Defence Studies, said that Iraq would more likely carry out “terrorist” acts to sabotage neighbouring oil installations, not launch an air assault.
“Iraq doesn’t have the military capability but they have the terrorist capability to sabotage pipelines and platforms in Saudi Arabia and Kuwait. What they have is Scuds and they are not accurate enough to inflict serious damage,” he said.
Both countries are still haunted by memories of the Gulf War — when Iraqi troops set Kuwait oilfields ablaze and were seen as a threat to Saudi Arabia’s energy industry — and they have no doubt the United States would quickly come to their rescue.
Even if Saddam is removed from power smoothly, there are no guarantees of political stability in Iraq.
One big worry is that Iraq would be torn apart as Kurds in the north, Sunni Muslims in the center and Shia in the south compete to fill a power vacuum in one of the world’s most volatile and ethnically explosive regions.
“Iraq is a major oil producer that shares a border with Iran, Kuwait and Saudi Arabia. If you destabilize Iraq this could spill over the border into a create more instability,”said Alani.
While some oil traders hold strategy sessions to map out scenarios of gloom, others are hoping the mayhem can be avoided altogether if Saddam manoeuvres out of trouble.
“I don’t have a crystal ball. If you look at the background of this man he plays his cards one by one,” said another trader from a European oil company, a buyer of Iraqi oil. “Maybe at the last minute he will let the weapons inspectors back in.”—Reuters
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