Middle East Oil Disruption: Potential Severity and Policy Options (CRS Report for Congress)
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| Release Date |
April 29, 2003 |
| Report Number |
RL31676 |
| Report Type |
Report |
| Authors |
Lawrence Kumins and Robert Bamberger, Resources, Science, and Industry Division |
| Source Agency |
Congressional Research Service |
Summary:
Military action in Iraq disrupted the world's crude oil supplies, but sufficient world supply was
available during the disruption to keep the resulting price spikes within tolerable levels. With the
elimination of the regime of Saddam Hussein, the resumption of Iraqi oil exports seems near, world
oil prices have fallen, and adequate supplies from other exporters are available to satisfy near-term
demand, which is entering the seasonally slack spring period.
Until they halted in mid-March 2003, Iraq's petroleum exports recently averaged about 1.5
million barrels per day (mbd), significantly less than the 3.7 mbd lost to world markets during the
Gulf crisis in 1991. Consequently, price and supply impacts of the recent interruption were less
severe. And other exporting nations were able and willing to increase crude oil supply during the
disruption. The Organization of Petroleum Exporting Countries (OPEC) -- holder of nearly all of the
world's spare production capacity (equal to about three times Iraq's exports in 2002) -- filled the
supply gap.
OPEC administers a set of production quotas for its members, attempting to maintain prices in
a range of $22 to $28 per barrel. Production by the OPEC-10 (excluding Iraq) increased as quotas
were raised in the face of prices exceeding $30 (they briefly peaked at $40). The high prices resulted
from added factors outside the Persian Gulf, including an oil workers strike in Venezuela. With
Venezuela producing at about half its pre-strike level and Iraq's exports halted, other OPEC
producers were able to keep world production constant. However, little reserve margin remains and
prices have been slow to fall into OPEC's target price range.
This relatively benign oil disruption scenario took place because the conflict in Iraq did not
impact other Persian Gulf producers. Had the conflict involved other producing nations or transport
routes serving them, much larger oil market impacts would have resulted. With only Iraqi
production affected, crude oil prices spiked briefly above $30 per barrel, and average U.S. gasoline
prices rose by 31 cents per gallon. A wider disruption could have caused price spikes as great as $53
per barrel and of indefinite duration.
In case of a major loss of crude oil to world markets, the United States has a range of policy
options that are available for a timely response. Chief among these is the Strategic Petroleum
Reserve (SPR), which has an initial drawdown rate of 4.3 mbd. A Northeast Heating Oil Reserve
(NHOR) could provide temporary relief should there be shortages of home heating oil in New
England. The President can also release funds from LIHEAP, the Low Income Home Energy
Assistance Program. The United States is also a member of the International Energy Agency (IEA),
which can orchestrate a coordinated world drawdown of oil stocks. Oil disruptions often spur
discussion as well about energy conservation measures, increased domestic production, and other
long-term policy options.
This report will be updated as events warrant.
