An easing of the world embargo against Iraqi oil could save U.S. motorists up to a nickel per gallon and add tens of thousands of new jobs to an economy that has shown signs of waning in recent weeks.
Energy prices have been rising lately, but analysts said the cold-snap driven increase would have been steeper without the talk of an Iraqi sale.
If Iraq agrees to accept a United Nations resolution allowing it to sell some oil in exchange for food, the result would be a daily increase of 700,000 to 800,000 barrels on the world market and a price drop of up to $2 a barrel, analysts say.
That could translate into a savings of 2.5 to 5 cents per gallon of gasoline in the United States.
The savings would stimulate the gross domestic product by one or two tenths of a percentage point and add up to 20,000 jobs, said Peter Jaquette, a senior economist in charge of long-term forecasting at the WEFA Group in Eddystone, Pa.
Inflation would likely drop from an annual rate of 2.5 percent to 1.5 percent as long as the Iraqi oil is available, he said.
“The effect on the economy is going to be positive; it’s just going to be small,” Jaquette said.
So far, Iraq has only agreed to talk about accepting U.N. Resolution 986, which allows Iraq to sell $1 billion worth of oil over 90 days. Revenues from the exemption, which can be renewed, are supposed to be used to buy food and medicine for the Iraqi population hurt by economic sanctions. Some of the money is also to go toward a Kuwait reparations fund.
Iraqi leader Saddam Hussein has previously rejected the offer, calling its conditions a violation of sovereignty. Uncertainty about whether he is willing to accept the terms after enduring sanctions for 5-1/2 years has kept oil prices wavering.
Iraqi oil was barred from world markets after its invasion of Kuwait in 1990. Other members of the Organization of Petroleum Exporting Countries, chiefly Saudi Arabia, immediately stepped up production to make up for Iraq’s embargoed oil.
Analysts doubt OPEC will cut back production to keep world oil supplies steady if Iraq is allowed to resume exports.
Countries like Algeria and Venezuela are producing well over their allowances anyway, said John Lichtblau, chairman of the Petroleum Industry Research Foundation in New York.
“The market does not assume that OPEC will actually cut its production to make room for additional exports from Iraq,” he said. “Who will cut back? It’s a question of each country having its own priorities.”
With world oil prices running about $18 per barrel, the oversupply brought in by Iraq would push prices down to about $16, analysts say.
Oil industry executives warn that cheap oil stands to make the United States even more dependent on foreign sources.
Higher U.S. drilling costs, combined with lower prices, could entice more oil companies to look abroad, said Tony Lentini, spokesman for the Houston-based independent oil producer, Apache Corp.