Analysts: Gulf War Could Lower Price of Oil

Fresh outbreaks of fighting in the war between Iran and Iraq are likely to aggravate tensions among OPEC producers already hard pressed to defend an $18-a-barrel reference price, U.S. analysts said.

“Unless there is a true political reconciliation in the war, the price of oil will dip again after OPEC’s scheduled June meeting,” said Vahan Zanoyan, senior director of the Petroleum Finance Co.

During the past two years, the war between Iran and Iraq has emerged as a major factor in OPEC’s decision-making process, analysts said.

On one side are OPEC’s so-called hawks of Iran, Libya and Algeria, who sought sharply higher official prices by slashing quotas, analysts said.

The other side includes, for the most part, Iraq’s allies in the conflict--Saudi Arabia and Kuwait--who support more moderate price and production levels, analysts said.

The end result has generally not pleased world oil markets.

“The last OPEC agreement was greeted with a good deal of cynicism by the world because one member--with a production capacity of 2 to 3 million barrels per day--was not even part of the pact,” said Zanoyan, referring to Iraq.

The past week’s renewal of the so-called “War of the Cities”--consisting of increased missile attacks on Tehran and Baghdad--had no apparent effect on world oil prices, which continued to weaken.

‘Appropriate Market Impact’

Since Feb. 29, Iraq has fired 25 missiles on Tehran in retaliation for Iranian missile attacks that Iraq said killed or injured dozens in Baghdad.

“Oil prices don’t seem to go up in the face of an escalation,” said Richard Bulliet of Columbia University’s Mideast Institute of the School of International Affairs. “Supply and demand fundamentals are having an appropriate market impact and are not being overruled by the region’s geopolitics.”

Since OPEC’s latest agreement in December, the price of West Texas Intermediate, the U.S. benchmark crude, has skidded more than $2 and Friday stood at about $15.70 a barrel.