[casi] U.S. Biggest Buyer of Iraqi Oil March 14

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U.S. Biggest Buyer of Iraqi Oil as Market Forces Trump Politics
By Soozhana Choi

New York, March 14 (Bloomberg) -- As the Bush administration masses troops in the Persian Gulf in 
preparation for a war to topple Saddam Hussein, U.S. refineries are the biggest customers for the 
crude oil Iraq produces.

Shipments to the U.S. more than tripled from September to January, according to the Commerce 
Department. Iraq supplied 17.1 million barrels in January, 6.4 percent of total U.S. oil imports 
and up from 5.15 million four months earlier.

The jump in imports came as an illegal surcharge that benefited the Iraqi government was dropped 
and as refiners sought alternatives for crude from Venezuela, where a strike crippled oil 
production.

``The U.S. is by far the biggest customer of Iraqi oil,'' said Eric Kreil, an analyst at the Energy 
Department's Energy Information Administration. ``Iraqi oil is a pretty good substitute for the 
Venezuelan grades that were cut off.''

Iraq pumps about 3 percent of the world's oil and is the third-largest producer in the Middle East. 
The prospect of a war in Iraq has helped boost the U.S. benchmark oil price by 39 percent since 
November.

Iraq is allowed to export oil under an exception to United Nations sanctions imposed after the 
country's 1990 invasion of Kuwait. The UN must approve Iraq's oil sales, and proceeds are 
designated to pay for food, medicine and oil-industry equipment.

The surcharge, which helped the government skirt UN control of oil revenue, stopped toward the end 
of last year, said George Beranek, an analyst with Petroleum Finance Co. in Washington. That made 
Iraqi crude competitive with oil from other sources.

Global Market

U.S. imports of Iraqi oil rose by 64 percent in November from October, after falling to a four-year 
low in September. They continued to climb in December and January, according to Commerce- 
Department figures released yesterday.

The global oil market doesn't discriminate against a country's oil as long as it's priced 
competitively, said Youseff Ibrahim, editor-in-chief at Energy Intelligence Group Inc. in New York. 
``It's not a deliberate decision by the U.S. or anyone'' that made the U.S. the largest user of 
Iraqi oil, he said.

The U.S. doesn't import oil from Iran and Libya, two other states that the government has 
identified as supporters of terrorism.

In 1986, the Reagan administration banned U.S. companies from doing business in Libya; UN sanctions 
against the country were imposed in 1992.

The U.S. has imported little Iranian oil since 1979, according to Lowell Feld, an international 
oil-markets analyst at the Energy Department.

``U.S. sanctions have waxed and waned since then,'' he said. ``The last time the U.S. imported 
Iranian oil was in 1991,'' when the government allowed limited shipments.

Venezuela

Bush said in April that he would only support lifting U.S. sanctions against Libya and Iran if they 
acknowledged past acts of state-sponsored terrorism.

About two-thirds of the oil Iraq exported in February went to the Americas, and half of that went 
to the U.S., according to an analysis by Energy Intelligence Group. That suggests the pace of 
imports the Commerce Department reported for January continued last month.

U.S. refiners have been buying Iraqi oil as an alternative to supplies from Venezuela, which were 
cut off when workers went on strike in early December. Venezuela met 10 percent of U.S. oil needs 
before the strike began. Iraq's Basrah and Kirkuk grades are reasonable substitutes for the crude 
produced in Venezuela, which is a high-sulfur or ``sour'' grade.

``Iraq got an additional boost from Venezuela,'' said Beranek. ``U.S. refiners took any bit of 
crude they could get, particularly sour crudes.''

`Stigma'

``There was a certain stigma associated with taking Iraqi crude because it was assumed that you 
paid a surcharge'' that benefited Hussein, Beranek said. The UN forced Iraq to end the practice 
through a pricing policy that made any oil that carried the extra cost more expensive than the 
market would bear, Beranek said.

Some refiners may have started shunning supplies from Iraq as war in the country looms.

``Buyers are cautious about planning for Iraqi shipments with the war coming,'' said James 
Ritterbusch, a senior analyst for Prudential Securities Inc. in Galena, Illinois. ``Imports from 
Iraq have probably already fallen.''

ChevronTexaco Corp. hasn't loaded any cargoes of Iraqi crude oil since early this year, said Chris 
Gidez, a spokesman for San Ramon, California-based company.

``Last year we imported a total of 44 million barrels of Iraqi oil,'' Gidez said. ``We could resume 
purchases under the UN program or under some other circumstances if the situation is right. There's 
no policy of not using Iraqi oil.''

Valero Energy Corp., the third-largest U.S. refiner, has cut back on loading Iraqi oil since the 
beginning of the year, the Wall Street Journal reported this week, without citing anyone. The 
company didn't return phone calls from Bloomberg News.

ChevronTexaco and Valero were the top two U.S. importers of Iraqi crude oil in November, according 
to the latest figures available from the American Petroleum Institute.




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