April 25, 2002 Inquiry & Analysis Series No. 91

In the Aftermath of Iraq's Suspension of Oil Exports: Is the Oil Embargo Feasible?

April 25, 2002 | By Dr. Nimrod Raphaeli*
Iraq | Inquiry & Analysis Series No. 91

Saddam's Failure
Amidst much fanfare and political pathos, on April 8, 2002, Saddam Hussein announced a one month oil export suspension, in solidarity with the Palestinian people.

After the immediate nervous market reaction which boosted oil prices on that day, realities and common sense began to set it, and the price of oil has fallen approximately 19 percent by the end of the first week after Iraq's announcement. There may be two reasons for the market to quickly regain its composure: first, the assurances from oil exporters, particularly from Saudi Arabia, that oil flow will not be affected by political considerations; and second, the Iraqi decision ironically coincided with the news that OPEC members had exceeded their quota in March by 1.3 million barrel per day[1] which is approximately equivalent to the size of the Iraqi oil export under the "Oil for Food" program. Iraq's decision has remained completely localized, as no other oil exporter has followed Iraq's lead. Faced with this reality, the Iraqi Oil Minister, 'Amer Muhammad Rashid, could only beg other oil producing countries: "at a minimum do not increase your oil production."[2] Feeling isolated on the subject, Saddam Hussein addressed another speech on April 22 to "Arab brothers, kings, presidents, emirs and officials" imploring them to reduce oil production by 50% "and directly deprive the U.S. and [the] Zionist entity from the other exported half…"[3]

Is the Oil Embargo Feasible?
Based on the reading of the political and economic map of the Middle East, as reflected in news and analysis in major Arabic newspapers, such an embargo is not under consideration by those who count most—the oil producing and exporting countries.

In a news analysis in the Egyptian daily Al-Ahram, analyst 'Adel Ibrahim writes[4] that while an oil embargo resulting inevitably in spikes in oil prices could harm the U.S. economy – such an embargo would lead to economic harm to the oil producing countries themselves which they can ill afford, given the present international economic conditions.

According to Ibrahim, a number of Arab producers have stated categorically that an oil embargo is not on the agenda. Kuwait, for example, said that the oil weapon is "a double-edged sword which could hurt the Arabs more than it would hurt the U.S." Besides, Sheikh Jaber Al-Mubarak Al-Sabah, Kuwait's deputy prime minister and minister of defense, said that it would not be possible to help the Palestinians if there were no oil revenues. "Oil," he said, "is a real wealth for the people, and we can not use it as a means for pressure."

Indonesia, the largest Islamic country in the world, went further by categorically excluding the possibility of oil embargo.

Analyst 'Adel Ibrahim asks whether the Arab countries can repeat the "surprise" or the "shock" of 1973 when the oil embargo was introduced to coincide with the October war of that year. His answer is that repeating that exercise would not be feasible because, with rising competition from Russia, Norway, Angola, Mexico and the countries on the Caspian Sea Basin, OPEC has lost its considerable leverage over oil supply. He cites the creation in 1974 of the International Energy Agency (a consumer organization headquartered in Paris) which has sought to reduce the world dependency on Arab oil through strategic stockpiling, technological advances and cost reduction.

The United States, which was the primary target of the 1973 embargo, has since diversified its sources of supply. For example, last February, U.S. consumption totaled 17 million b/d, 50% of which was imported from Venezuela, Mexico and Canada. Saudi Arabia was fourth on the list of oil suppliers to the U.S.

In short, no one in the U.S. seems to be overly concerned about shortage of oil as a result of rising tensions in the Middle East. More importantly, OPEC is on record that it will not use oil as a political weapon.[5]

Similarly, a survey of Egyptian officials and oil experts published by the Kuwaiti newspaper Al-Qabas has also concluded the futility of an oil embargo. One economic expert, Dr. 'Hamdi Abd Al-'Azim, was quoted saying that the use of the oil weapon by the Arab countries would make them "the primary losers because they would enter into an economic war with the United States which could develop into a political war." He went on to remind the newspaper readers that many Arab countries receive aid from the U.S., "such as wheat and financial support," and an embargo could put an end to this aid.[6]

Prince Sa'ud Al-Faisal, the foreign minister of Saudi Arabia which is the largest exporter of oil in the world, stressed that the Arab countries depend on their oil exports for economic growth. He said oil "is not a weapon like a gun or a tank but a resource that benefits the national economy." He said "we are in a war with an enemy and the first thing this enemy will do will be to destroy our oilfields."[7]

Editor-in-chief of the Saudi London-based daily, Al-Sharq Al-Awsat, Abd Al-Rahman Al-Rashed, refers to the question whether using the oil as a weapon is still feasible. Mind, not oil, writes Al-Rashed, is a condition for a country to be rich. Singapore is an example. Poor in natural resources, it developed an economy larger than any Arab country's. While oil is found in many Arab countries, "the minds of some of their governments have kept their residents wretched and poverty-stricken, astride camels and donkeys, even in this day and age. By Allah, the resource of the mind is greater than the resource of oil…" Al-Rashed concludes as follows: "In the modern age, the nations of the Arab world are divided in accordance with how crazy their leaders are: there are great [Arab] nations that were dragged along by the shouts and cries, and there are small nations that retained some measure of reason and tried to limit the damage."[8]

Calls for an Oil Embargo Against U.S. are for Political Gains
In the same vein, other analysts believe that the Iraqi call for the use of oil as a political weapon is "more an attempt to score political points in confronting the conservative neighbors than a serious proposal." They maintain that the Arabs have learned from their experience in 1973 when the oil embargo brought the opposite results. The embargo, they argue, "drove the Western countries to increase their expenditures on explorations in high-cost places like the Northern Sea, on searching for alternative sources of energy and on building large stockpiling facilities."[9]

Earlier in the month, the Islamic Conference held in Kuala Lumpur turned down Iraq's unsuccessful attempt to place the subject of oil embargo on the conference's agenda.[10] (Some observers maintain that Iraq's decision to suspend oil exports for a month was intended to give the Iraqis the opportunity to carry out some maintenance and rehabilitation work on their oil installations.)[11]

Barring unexpected violence on the streets of some oil producing countries which could impel their rulers to change their stance on oil embargo - there is currently no viable indication of a pending oil embargo.

This conclusion is buttressed by market fundamentals, by the stated policy of OPEC as the major oil cartel organization, by the emergence of major oil producers outside the Middle East and by the oft-stated policies of major Arab oil producers that oil should be used as an instrument for development of their own countries rather than as a weapon against the consumers.

*Dr. Nimrod Raphaeli is Senior Analyst of MEMRI's Middle East Economic Studies Program.

[1] Al-Quds Al-Arabi, and Al-Watan (Kuwait), April 10, 2002.

[2] Babil, April 15, 2002.

[3] Babil, April 23, 2002.

[4] Al-Ahram, April 6, 2002.

[5] Al-Ahram, April 6, 2002.

[6] Al-Qabas, April 12, 2002.

[7] Al-Sharq Al-Awsat, April 20, 2002.

[8] Al-Sharq Al-Awsat, April 13, 2002.

[9] Al-Quds Al-Arabi, April 5, 2002.

[10] Al-Hayat, April 3, 2002.

[11] Al-Hayat, April 12, 2002.

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