Crude oil prices spiked sharply following Iraq's decision halting oil exports for 30 days to protest Israel's on-going military operations in the West Bank. But analysts believe over the long term, Baghdad's decision is not expected to cause any major market disruptions.
Crude oil prices, which were already at a six-month high, immediately shot up by at least $1 a barrel, following the Iraqi announcement. Here in the United States, the cost of gasoline had already climbed to some of its highest levels in a year, even before President Saddam Hussein declared he would suspend oil exports and analyst David Knapp predicts. "This will add to the upward pressure on gasoline prices," he said.
But Mr. Knapp, at the Energy Intelligence Group, is among analysts who expect other OPEC members will see an opportunity to profit from the high oil prices and make up for the Iraqi suspension. "I think there will be some extra oil out of these countries but it will be done quietly rather than loudly, " said David Knapp.
The United States and Europe are the chief importers of Iraqi oil. Iraq exports about two million barrels a day, accounting for four percent of oil on the world market. But experts say there is currently seven million barrels a day of excess capacity among the world's other oil producers.
Phil Flynn, an industry analyst at Alaron Trading Corporation, attributes the current spike in gasoline prices to consumer demand, for the most part, and not to the crisis in the Middle East. "The demand has increased quite dramatically," he said. "In fact, it has increased faster than the refiners' ability to produce gasoline."
Another factor causing upward pressure on oil prices is a threat by Venezuela's largest labor group to stage a one day general strike Tuesday, as part of a dispute between employees at the state-owned oil firm and the government. Venezuela is Latin America's largest oil producer and unlike Iraq - a major supplier of crude destined for the United States.
Bush Administration officials are worried the pace of the U.S. economic recovery could be affected if all of these factors lead to further increases in the price of gas at American pumps. The Department of Energy immediately announced steps Monday to prevent gasoline distribution problems during the upcoming heavy summer driving season from worsening the price hikes.