What would war in Iraq mean to the oil market? | KERA News

What would war in Iraq mean to the oil market?

Dallas, TX – What would war in Iraq mean to the oil market? It is no trivial question, given the shaky state of the world economy and the turmoil in Venezuela. Phil Verleger, an energy expert, believes that an attack on Iraq could send prices soaring to $40 a barrel, and they could stay there for six months to a year. Another economist puts the figure at $75.

Both predictions are based on the fear that Saddam Hussein, Samson-like, might destroy his own oil fields just as he set those in Kuwait afire while retreating in 1991. And if Saddam Hussein doesn't wreak destruction himself, guerrillas might.

But even if the fields in Iraq are not attacked, warned Verleger, they are in such deplorable condition that production is sure to decline until they receive substantial repairs. Whatever government might emerge in Baghdad would have to lure investors to the country by offering them an equity interest in the energy business. But all that would take time to negotiate. Meanwhile, production would be lost.

This, he said, would greatly strengthen the position of Saudi Arabia, the nation most able to make up the shortfall. The question is: at what price? "If Iraq's fields are not damaged," he said, "the Saudis will go for lower prices to delay production and investment in Iraq." If those fields are undermined, the Saudis may well cut their own output to drive up prices, gouging from the market all that they can.

Especially hard hit in America would be the west coast, plus Arizona and Nevada. Once independent in energy, California now must acquire millions of barrels of oil from sellers elsewhere, including Lake Charles and Corpus Christi in Texas. Unbelievably, there are no pipelines extending to the Pacific, so petroleum must be shipped to California through the Panama Canal or around Cape Horn. If strategic reserves were made available from Louisiana, they too would have to take that long, arduous route, while prices mounted daily, drawing other parts of the country into the maelstrom.

The difficulties are daunting and absurd. One who's trying to deal with them is Carter Montgomery, a Dallas businessman, who has put together the Longhorn Pipeline to run from Houston to Midland-Odessa to El Paso to Phoenix and Tucson. For the past five years, he's fought a barrage of lawsuits, some filed by a competitor, and action has not been limited to the courtroom. Political powerhouse Ben Barnes got involved on the side of Longhorn, and Republican stalwart Jim Francis with the opposing corporation. They fought the battle of public relations until the most important suits finally were settled. Now the project is set to go forward. It will be a great help to the southwest, which faces potential gas lines next summer no matter what happens with Saddam Hussein.

It's risky to attack Iraq. It's risky not to. Obviously, if we proceed, the first thing our forces must do is secure the oil fields in the north and the south, defending them not only from Iraqi troops but also from missiles. Then, when the war is over, we must turn our minds to the transport of energy across this country, and to the making of cars that consume less of it.


Lee Cullum is a contributor to the Dallas Morning News and to KERA. If you have opinions about this commentary, call 214-740-9338.