A panicky spurt in the price of crude oil this week showed how widespread re mains the fear of a politically inspired embargo on oil exports from the Middle East.
Reality check: There will be no embargo of Middle Eastern oil exports unless delusional fools displace leaders of the region's oil-producing countries.
Whenever bullets fly and bombs explode in the Middle East, there is reason for the oil market to worry, of course. The tragedy under way in Israel certainly puts oil supply in jeopardy.
Warfare in Israel might spread to oil-producing countries. Risk of damage to production equipment, pipelines, and terminals therefore rises. So does the risk that delusional fools might indeed displace leaders of major oil-producing countries.
But refusal to sell oil by sane exporters needing money isn't a probable dimension of the hazard.
This is not 1973. At that time, Arab exporters had little to lose by refusing to sell oil to buyers from importing nations with which they had a quarrel over Israel. At that time, logistical rigidity made the market easy to spook.
Exporters now have modern nations to sustain, growing populations to serve, and large debts to pay.
A vastly more fluid market adjusts to upsets better than it could in the 1970s. Importers have strategic inventories, which didn't exist then.
When Iraqi President Saddam Hussein this week evoked the 1970s with his appeal for an embargo in response to US support for Israel, the New York futures price for light sweet crude nevertheless jumped to a 6-month high of $28.35/bbl.
Analysts estimated the panic premium at $5-6/bbl, some of it no doubt related to the threat of war expansion rather than of embargo.
After the Iraqi menace's call for an embargo, fiscally challenged Iran finessed to Arab producers, who shrugged and kept selling oil.
President Bush recommitted US diplomacy to the struggle for peace in Israel. The crude price dropped by $1/bbl.
Exporters showed yet again that they know who would suffer most from a politically motivated embargo on oil exports.
When will oil traders learn?
(Online Apr. 5, 2002; author's e-mail: [email protected])
