Brown: INCREASED IRAQI OIL PRODUCTION AND SARS TO SHRINK ASIA-PACIFIC DEMAND FOR PETROLEUM PRODUCTS

Date: 05-12-2003

The East-West Wire is a news service provided by the East-West Center in Honolulu. For more information, contact Susan Kreifels at 808-944-7176 or EastWestWire@EastWestCenter.org


This report includes:

1. INCREASED IRAQI OIL PRODUCTION TO TAKE 3-5 YEARS But New UN Resolution Necessary For Growth

2. SARS TO SHRINK ASIA-PACIFIC DEMAND FOR PETROLEUM PRODUCTS

1. INCREASED IRAQI OIL PRODUCTION TO TAKE 3-5 YEARS
But New UN Resolution Necessary For Growth
HONOLULU (May 12) -- While oil production in Iraq should return to pre-war levels within a year, any significant increases will take at least three-five years, the senior energy expert at the East-West Center said.

Fereidun Fesharaki, a senior fellow at the East-West Center, said investors will be reluctant to go into Iraq without a sound fiscal system in place and established ownership of the oil fields. "Iraq owes money to everyone," said Fesharaki, an energy adviser to the Iranian prime minister before joining the East-West Center in 1979.

"Every time a ship goes out with oil, creditors can sue and hold the ship." When Iraq returns to pre-war production levels, probably within a year, Fesharaki predicted oil prices would be in the range of $20 per barrel. He said the next issue at hand in the global oil market will be how fast Iraqi oil re-enters the market and the ability of OPEC to cut back supplies in an orderly fashion.

The current oil for food program expires June 3, and the United States and its allies are asking for a new U.N. resolution to give them authority to export oil. Once that authority is given, Iraqi oil production can increase to approximately 2.5 million barrels per day by this fall and the exports will be safe from legal challenges. But until that authority is granted by the United Nations, large scale exports are unlikely.

Iraq was the 6th largest supplier of oil to the United States in 2001/2002, exporting a little more than 750,000 barrels a day. When war stopped that supply, Saudi Arabia filled the gap.

Before U.N. sanctions were slapped against Iraq in 1990, Iraq had an oil production capacity of 3.5 million barrels per day and was OPEC's third largest producer after Saudi Arabia and Iran. Without the first Gulf War, Iraq would have overtaken Iran and become the second largest after Saudi Arabia.

The many years of sanctions had reduced the Iraqi capacity to less than 3 million barrels per day before the U.S.-led invasion of Iraq. This position can now be reclaimed by Iraq over the next few years.

Fereidun Fesharaki can be reached (808) 526-1769 or (808)-781-1769 or by email at FF@Hawaii.rr.com

2. SARS TO SHRINK ASIA-PACIFIC DEMAND FOR PETROLEUM PRODUCTS

HONOLULU (May 12) -- Severe acute respiratory syndrome (SARS) will Sharply cut growth in demand for petroleum products in the Asia-Pacific region this year, an East-West Center energy specialist said.

Jeffrey Brown said the virus will reduce growth in regional demand this year by 70,000-100,000 barrels per day. Overall, regional demand is projected to grow by 367,000-397,000 barrels per day in 2003. Brown said the impact of the virus is two-pronged. "First, people are radically altering their travel habits, which is having a major impact on the demand for jet fuel. Second, the fact that people are avoiding public places, such as markets, and altering their work habits is having a negative impact on economic growth and petroleum-product consumption."

The SARS virus has had a serious impact on airline passenger demand, prompting airlines across Asia to cancel flights, Brown said. Cathay Pacific's passenger count is down by approximately 70 percent and Singapore and Thai Airlines have been similarly hit. U.S. and European airlines with strong Asia-Pacific networks, such as United, Northwest and British Airways, have also seen a substantial drop in demand. With air traffic in the region down by 10-15 percent, it is likely that more flights will be canceled.

"The impact on jet fuel demand will depend on the extent to which the virus spreads and lingers," Brown said. Tourism, which accounts for 5-10 percent of GDP in countries like Singapore, Thailand and Malaysia, has obviously been devastated, and other sectors of the economy have suffered as well. Overall, SARS is projected to reduce the region's 2003 GDP growth by approximately 0.4-1.0 percent. This translates into $31 billion to $79 billion vanishing from the regional economy. He predicted the damage could be on the higher end of this range as the panic seems to be accelerating in China, the region's giant in terms of economic growth.

Jeffrey Brown can be reached at 808-944-7458 or brownjef@Hawaii.edu.



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