Watching The World Jordan's balancing act over Iraqi oil

In early August, two of Saddam Hussein's sons-in-law, among his key political allies, defected to Jordan.

One was Lt. Gen. Hussein Kamel Hassan, the man responsible for developing Iraq's weapons of mass destruction.

Jordan's King Hussein, traditionally an ally of Saddam, has since publicly criticized Saddam's regime. This move has opened avenues to secure oil imports for Jordan in the event of a change of government in Iraq.

The Organization of Petroleum Exporting Countries, of which Iraq is a member, has no official stance on the Iraq-Jordan issue. OPEC sees a return to oil exports by Iraq as inevitable, along with a subsequent fall in prices.

While Jordan has no plans to stop oil trade with Iraq, OPEC members see Jordan as distancing itself from Saddam's regime. Jordan's move is seen within OPEC as a shrewd balancing act.

If Saddam retains power, Jordan's imports of Iraqi oil will continue. If he is overthrown, Jordan's criticism is thought to be severe enough to persuade a new government it can continue exports to Jordan without compromising its own position.

Iraq's U turn

An OPEC official said Kuwait appears to be easing its usual frosty treatment of Jordan and is eager to help meet any loss in oil supplies from Iraq. Saudi Arabia too was said to be eager to provide Jordan with oil.

Information on Iraq's weapons program has been the sticking point in talks on lifting United Nations embargoes against Iraq. With the loss of Kamel, who knows more about Iraq's weapons program than anyone, Saddam has had to shore up his support from Iraqi political groups.

When UN envoy Rolf Ekeus visited Baghdad on Aug. 17, Iraqi officials handed him, in the words of Middle East Economic Survey, "a mountain of new documents concerning Iraq's weapons of mass destruction."

Julian Lee, oil analyst at London's Centre for Global Energy Studies, says Saddam has begun publicly to link the defections with the hand-over of weapons documents.

"Saddam is now blaming the defectors for withholding information from the UN," said Lee, "and thus expects to prevent much loss of face within Iraq."

Predictions

"I see no reason for a sustained impact on oil prices," Lee said. "There is continual pressure from the U.S. to maintain sanctions against Iraq. There is also pressure on UN weapons monitoring teams to validate new information thoroughly. There is lots of work involved and no urgency to get through it."

OPEC is skeptical about Iraq's claims it can return to production at 3 million b/d. Instead, it pegs potential Iraqi production at 1.5 million b/d, perhaps rising to 2 million b/d within 6 months.

The OPEC official said the organization is also discussing the manner in which Iraq will return to full production. This is said to depend on whether Iraq will then be under Saddam or a new government.

"A new Iraqi government would be expected to want to come back into full production, but not simply to turn on the tap and disturb oil markets," the OPEC official said.

"A comeback would be more methodical under a new Iraqi government than if UN sanctions were lifted, but a new government is extremely unlikely."