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Oil for thought

Whatever be the outcome of the Iraq war, an issue that will continue to haunt economies like that of India is whether there will be an assured supply of oil at affordable prices.

india Updated: Apr 05, 2003 13:23 IST
PTI

Whatever be the outcome of the Iraq war, an issue that will continue to haunt economies like that of India is whether there will be an assured supply of oil at affordable prices. After Gulf War I in 1991, the world oil market witnessed low crude prices for a long period, which boosted the global economy.

In the subsequent years, though, one crisis after another caused global oil prices to rise. Incidentally, those were the years when sanctions-hit Iraq, sitting on the world’s second-largest oil reserves, could not produce more than what was needed to pay for food imports under the United Nations’ oil-for-food programme.

While there has been no change in that aspect, the fear of a beleaguered Saddam Hussein adopting a scorched earth policy in order to deny the US-led coalition forces a chance to seize Iraqi oil fields might add a new dimension to the emerging scenario. As it is, since the onset of war, virtually no oil has been pumped out of the Iraqi fields. Moreover, the continuing UN sanctions over one decade discouraged new investment in the Iraqi oil industry, which is in a dilapidated condition. This could mean that it will take quite a while — assuming that the war ends earlier than imagined — before Iraqi oil flows into the world market.

After its failure to stop the war, it is widely felt that the UN will assert itself after the war on matters relating to Iraq’s reconstruction. This is in contrast to earlier reports which suggested that US authorities had already farmed out major contracts to its national companies for the reconstruction work. Even if such reports are dismissed as speculation, one still does not know what kind of government will be installed in post-war Iraq and whether it will follow OPEC and effect output cuts to maintain higher prices. Alternatively, will the new government follow the US objective of Iraqi oil paying for the country’s reconstruction and extract the maximum oil in the shortest possible time? These are some imponderables that hold the key to the future of the global oil industry.

First Published: Apr 05, 2003 00:46 IST