Iraq's brief suspension of oil exports in defiance of the United Nations pushed the price of dated Brent crude above $26/bbl for the first time since the Persian Gulf crisis of 1990.
While the price has fallen since-dated Brent closed at $25.29/bbl in London on Nov. 30, while January-delivery Brent stood at $24.54/bbl-there is enough uncertainty about Baghdad's intentions to suggest it may surge again.
At OGJ presstime, the UN Security Council was preparing to vote on a draft resolution, proposed by the UK, for a limited lifting of sanctions against Iraq on condition that Baghdad allow UN weapons inspectors to resume cataloging its arsenal of weapons of mass destruction.
Iraq curbed exports in response to a UN Security Council decision on Nov. 19 to extend the oil-for-aid program for just 2 weeks instead of the usual 6 months, because of differences between the US and Russia over terms for a 6-month renewal.
Iraq rejected the 2-week extension and halted oil exports on Nov. 22, calling the extension impractical and a US maneuver to prolong sanctions.
This boosted the oil price as traders feared a near-term supply shortfall. However, Organization of Petroleum Exporting Countries members calmed buyers' fears by hinting that they would make up any lost oil volumes.
On Nov. 27, Iraq accepted a 6-month extension. Oil Minister Amer Mohammad Rasheed told reporters, "Our decision was not to deal with a meaningless, sinister UN resolution which was an extension of 2 weeks."
Rasheed added that, during November, Iraq produced an average 2.95 million bo/d and that, in December, the country could just exceed the 3 million bo/d mark as shut-in capacity continues to be brought back on stream.
Baghdad is expected to reject the limited lifting of sanctions being discussed by the UN, having said it would not accept any result other than a complete lifting of sanctions.
Although Baghdad fears US maneuvers over the sanctions issue, the Russians are also doing a little maneuvering behind the scenes.
Russian company Machinoimport is negotiating a $1 billion deal with Iraq's oil ministry for further development of the giant North Rumaila oil field. A company official told reporters that the Iraqis want the company to start work right away, which would violate the UN sanctions.
The official said development would have to wait until the company obtains UN permission. Machinoimport was the largest foreign contractor in Iraq before the sanctions, with more than 5,000 Russian engineers involved in dozens of projects.
The North Rumaila expansion is intended to add 160,000 bo/d of productive capacity in the field over 2 years. North Rumaila is Iraq's most prolific field, with output of almost 1 million bo/d.
Meanwhile, Tariq Aziz, Iraq's deputy prime minister, flew to Moscow on Nov. 30 in a bid to persuade the Russian government to reject any UN proposals for limited lifting of sanctions.
The security council was due to meet on Dec. 3 to discuss the proposal. Of the veto-holding members-the US, UK, France, China, and Russia-the latter three have companies lined up for Iraqi contracts.