Although oil prices had witnessed relative stability in the recent past, inter-alia, due to low demand resulting from a global economic slowdown, the same had lately shown a rising trend which is ominous in this part of the year.

During the first week of September, 2002, crude prices had rallied to their highest level in nearly a year as concerns grew over the possibility of a US attack on Iraq. By September 6, Brent Crude for October delivery had moved up to $28.66 a barrel from $27.63, a week ago. The last time prices had reached the aforesaid level was following the Sept 11 terrorist attacks in the USA. In New York, light sweet crude for October delivery had risen to $29.72 a barrel from $28.90, a week earlier. The crude price analysts had expressed the views that the rise in oil prices on Sept 6 had been triggered by the news of an air raid by US and British war-planes against an Iraqi air defence base in which some 100 aircraft had taken part.

The above-mentioned increase in crude prices coincided with a report of the US energy department, which stated that crude oil stocks had fallen by 4.6 million barrels or 1.5 per cent to 298.5 million in the week ending on August 30. A strong stock position is needed to withhold purchases at higher prices.At the same time, the stocks are usually replenished when prices come down from their higher level.

Following a UN’s session held in New York in the second week of September, the danger of a US attack on Iraq has deepened rather than receded. Although Iraq has lately declared its readiness to allow weapons inspectors without any preconditions, the US and Britain have called it a deception and a trick on the part of Iraq to gain time. It is indicated from their statements that the US-led attack on Iraq may not be abandoned (although it may be slightly delayed), as a result of Iraq’s offer. Crude prices registered decline following Iraq’s offer to allow weapons inspector. However, due to the inflexible attitude adopted by the US and Britain, the downward trend in crude prices is likely to prove short-lived.

It may be recalled that the Opec, joined by leading non-Opec oil producers namely Russia, Mexico and Norway, had substantially reduced its crude production during the last two years and the same is presently at its lowest level. In its quarterly meeting held in September. Opec has decided not to increase crude production on the plea that crude stocks maintained by various countries of the world were at a satisfactory level. But, even if Opec decides in its next quarterly meeting to increase the production marginally, that is not likely to make much of a difference, so far as crude prices are concerned.

A US-led attack on Iraq is fraught with grave consequences, as far as the oil situation is concerned. Iraq is one of the world’s leading oil producers and an attack on Iraq would undoubtedly affect the oil supplies adversely. Moreover, it is apprehended that a US attack on Iraq could destabilise the whole of the Middle Eastern region. If the aforesaid fears materialise, the world may witness an oil crisis of a severe order, resulting in acute shortage of oil and sky-rocketing of oil prices.

Would countries like Russia, Mexico, Venezuela, Norway, etc, be of any help in such a situation? Perhaps, Mexico, Venezuela, Norway and a few of the gulf states may be of some assistance, but one can not be sure about Russia, because of its strong opposition to a US-led attack on Iraq. No one knows what its reaction would be, in the event of a US-led attack on Iraq.

For that reason, serious efforts are reportedly being made by certain quarters in the United States to buy Russian support for a US attack on Iraq. According to a news story published in Dawn, dated September 16, under the caption ‘Saddam’s ouster could be bonanza for US oil firms, although Russian oil companies such as Lukoil have a major financial interest in developing Iraqi oil fields, the low oil prices that could result from a flood of Iraqi oil into world markets could set back Russian government’s efforts to attract foreign investments in its untapped domestic oil fields. That is because low world oil prices would make costly ventures to exploit Siberia’s oil wealth far less attractive.

As stated in the aforesaid article, a US State Department delegation had concluded on September 13 a 3-day visit to Moscow in connection with Iraq. Besides, in early October, US and Russian officials were scheduled to hold an energy summit in Houston, expected to be attended by more than 100 Russian and American companies.

The US President was reportedly aware of Russia’s economic interests in Iraq emanating from a $7 billion to $8 billion debt that Iraq had transacted with Moscow before the Gulf war.

Pakistan should be fully prepared to face all eventualities, stemming from shortage and high prices of crude oil. High crude oil prices could send the inflation rate soaring, besides causing depletion of our foreign exchange reserves.The government should take immediate measures to increase crude storage capacity, while areas where economy in the use of crude oil could be possible may be identified. Last but not the least, the sources for the import of crude oil may be diversified, to avoid dependence on just one or two sources.