Home > Iraq sabotage fear deepens oil crisis
Motorists and air travellers hit as crude prices reach new record
by Larry Elliott
The price of crude on futures markets rose to record levels in both London and New York last night after the threat of sabotage by rebels forced Iraq to shut down production in its southern oilfields.
Fears of prolonged disruption to supply led to a fresh wave of speculative buying in markets already rattled by the prospect of dearer energy, prompting a slowdown in the global economy.
After falling back early in the day, prices surged as threats from the militia of Shi’ite cleric Moqtada al-Sadr prompted emergency action from the Iraqi authorities to protect oil installations and pipelines.
"Pumping from the southern oilfields to storage tanks at Basra was stopped today after threats made by al-Sadr," an official said. "It will remain stopped until the threat is over."
Guards were yesterday patrolling the length of two pipelines which link Iraq’s southern fields with two terminals in the Persian Gulf from which the crude is exported. Reports said, however, that militiamen loyal to al-Sadr were controlling key road junctions in Basra, Iraq’s second city and the heart of its oil industry.
Airlines have already started increasing surcharges on passengers to offset the rising cost of aviation fuel and motorists were last night bracing themselves for a further increase in petrol prices.
Brent futures rose more than $1 a barrel to $41.65 by the close in the City and US light crude traded within a whisker of the key support level of $45 a barrel in early dealing.
The Iraqi official said militiamen from al-Sadr’s Mehdi Army had threatened to sabotage production by the state-owned Southern Oil Company, based in Basra.
He said storage at the Basra terminal was sufficient to keep exports running for about two days.
Despite attempts to calm the markets, news that Iraqi armed militiamen were freely roaming the main southern oil production centre and that insurgents had fired mortar rounds at the oil ministry compound in Baghdad prompted speculation that the cost of US crude would soon be testing the $50-a-barrel level.
Iraq has been exporting about 1.9m barrels a day, but a week of violence in the country has rekindled concern about the ability of oil supplies to keep up with strong global demand. With the threat of bankruptcy still hanging over the Russian oil company Yukos, analysts were gloomy about the outlook.
"It looks like the insurgency might threaten oil supply, and that’s enough to get this speculative momentum going again," said Marshall Steeves, analyst at Refco Group.
Prices have rallied more than 30% this year as demand growth, especially in the United States and China, has left little leeway for any supply disruptions. Consumption is accelerating at its fastest pace in more than 20 years.
The oil cartel Opec, which controls about half of the world’s crude export supply, has said it is pumping at the highest levels since 1979. Its president, Purnomo Yusgiantoro, said last week the group was ready to lift production by 1m to 1.5m barrels a day if deemed necessary when ministers meet next month.