Iraqi Threat May Sway Saudis : Petroleum: If his troops sweep into the desert kingdom, Hussein would become the dominant figure on the world oil scene.

If the Iraqi troops now massed on the Saudi Arabian border sweep into that desert kingdom, Iraqi President Saddam Hussein would become the dominant figure on the global oil scene, pressing his crusade for sharply higher petroleum prices.

Saudi Arabia sits atop a vast storehouse of petroleum, an enormous 25% of the total world reserves. And, with its substantial spare production capacity, Saudi Arabia is the only player that potentially can exert a significant influence on world oil prices.

The United States and its major economic allies have been hoping to be able to rely on Saudi Arabia to make up for any shortages caused by an Iraqi attempt to trim oil production in an effort to drive up prices.

Although Baghdad had not actually dispatched its forces to seize Saudi oil wells and pipelines as of Saturday night, the massing of Iraqi troops at the border in itself may deter the Saudis from seeking to keep oil prices comparatively stable.

Oil prices have been wafting within a comfortably low range for most of the past decade, after soaring to as high as $34 a barrel following the outbreak of the Iranian revolution in 1979.

Eventually, the oil cartel was crippled, a victim of cheating by its own members, who had sought to collect more dollars, the currency in which oil is priced. Cartel members undercut the official $18-a-barrel price by discounting. Later, oil prices leveled out.

All this could change virtually overnight, depending on Iraq. “The old ceiling of $18 a barrel could become a new floor of $25,” said G. Henry M. Schuler of the Center for Strategic and International Studies, a Washington think tank.

Some analysts, such as Philip K. Verleger, an energy expert with the Institute for International Economics, predict a much larger temporary rise--to $30 a barrel or more.

“The one bright spot is that it is happening at a time when inventories are high,” Verleger said Saturday. “That will soften the blow for a few months. Then we can draw on strategic stocks, held by various countries. Depending on the rate at which they are drawn, that will moderate the price increase--perhaps limit it to $30 a barrel.”

Whether Iraq invades Saudi Arabia or not, Hussein already has managed to engineer an immediate rise in oil prices, driven more by fear than by reality.

“The run-up in prices right now happens because of panic and not shortage, and not a direct rise in price by Iraq or any other country,” noted Ed Vilade, an energy consultant in Richmond.

Oil industry experts point out that it takes a month for a tanker to carry its oil cargo from the Middle East to the United States and another month for the crude oil to be refined into gasoline, jet fuel or chemicals.

“Refiners will hoard some more and increase their inventories,” Vilade said. “The Japanese will be keeping larger supplies; the (South) Koreans, who also get a lot out of the Middle East, will be keeping more.”

The fate of Saudi Arabia could determine whether the price hikes are aberrations or are long-run problems. Saudi Arabia now produces about 5.3 million barrels of oil a day and could increase this quickly to 7.7 million barrels, according to Schuler.

No other single nation has this much swing capacity, he said.

The spare production capacity of oil-producing countries outside the Middle East is a scant 600,000 to 800,000 barrels a day, and the two largest exporters--Venezuela and Nigeria--are only able to increase their output modestly.

By comparison, Kuwait was pumping an average of 1.7 million barrels a day during the second quarter of this year and had about 300,000 barrels a day worth of spare capacity.

During the 1980s, the Saudis and Kuwait pursued a policy of accommodation toward the United States, helping to keep oil supplies relatively abundant and global petroleum prices relatively flat.

At the time, the Saudis were fearful that the Iranian revolution might spread into their country and were worried about Soviet expansionism into Yemen, Ethiopia and Afghanistan, according to Schuler. “They felt they desperately needed American support and goodwill.”

But the Iraqi invasion of Kuwait shifted that geopolitical equation. Today, Iraq controls almost 5 million barrels of oil each day--its own daily output of 3.1 million barrels and another 1.7 million barrels a day produced by Kuwait.

If Iraq cuts its output dramatically in an effort to send prices up, Saudi Arabia would be the only producer able to make up the shortfall anytime soon. But with Iraq’s tanks and troops poised at the border, the Saudis may well prove reluctant to defy Hussein.

Even so, experts are divided over how far--and how rapidly--prices would surge in either event.

Ibrahim M. Oweiss, a Georgetown University oil specialist, said he does not think Iraq can force sharply higher prices. “There is an oversupply of oil, and none of the countries--in OPEC or otherwise--can dictate a price,” he asserts.

Oweiss argues that virtually all of the members of the oil producers’ cartel--including Iraq--have been cheating on their allotted production quotas.

“I do not think Iraq will intimidate Saudi Arabia to reduce production,” he declares. “If the Saudis give him (Hussein) everything he wants, then he will ask for more, and Saudi Arabia knows it is protected by the statements of President Bush.”

One thing on which experts do agree, however, is that it simply is not possible for the West to mount an effective boycott of Iraqi oil, despite Washington’s effort to win support for one.

The reason is that oil is a commodity, like money, that is easily swapped and traded, and its origins can easily be shrouded.

Indeed, there was “leakage” of this sort during the oil embargo of 1973, when Arab countries withheld shipments to the United States.

And when Washington banned Iranian oil after Americans were taken hostage there, Iranian oil continued to fuel U.S. refineries--sometimes transshipped from third countries. The U.S. even bought Iranian oil for its strategic petroleum reserve for use in emergencies.

Oil shipments kept moving through the Middle East waters Saturday despite the tense military situation.

American military officials issued a formal warning Saturday advising American oil tankers and other commercial vessels traveling through the Persian Gulf to stay at least 12 miles off Kuwait.

Lt. Col. John Olsen, the spokesman for U.S. Central Command, said one tanker flying the U.S. flag is currently in the gulf. The vessel is in a Saudi port for repairs.

“We’re not restricting traffic,” Olsen said. “We did give out a warning. We think all tankers ought to keep 12 miles away from Iraqi or Kuwaiti ports. But it’s still up to them and their owners as to how they will proceed.”

There also are seven U.S. warships in the gulf--including a cruiser, a destroyer, four guided-missile frigates and a conventional warship. The U.S. aircraft carrier Independence, accompanied by eight other ships, is steaming from the Indian Ocean toward the gulf.

Outlets for Oil Iraq pumps 1.6 million barrels of oil a day for export through three pipelines, which have the capacity to carry much more. The southwest pipeline, through Saudi Arabia, can carry 800,000 to 1 million barrels a day. The capacity of the northwest pipeline, through Turkey, is 1.6 million barrels a day, and the pipeline to its Persian Gulf port of Al Faw can carry 900,000 barrels a day.