Wed, 22 Nov 2000, 9:33am EST U.S. May Tap Strategic Petroleum Reserve if Iraq Cuts Exports By Sean Evers, Stephen Voss and Alex Lawler

Riyadh, Saudi Arabia, Nov. 19 (Bloomberg) -- The U.S. may tap more oil from its Strategic Petroleum Reserve to make up any supply shortage if Iraq follows through with its threat to disrupt exports starting Dec. 1, U.S. Energy Secretary Bill Richardson said.

Iraq, which exports almost 2.5 million barrels a day, about half of which goes to the U.S., said last week that it would cut-off any of its crude customers who refused to pay an extra 50 cents a barrel starting next month into a bank account outside of the control of the United Nations oil-for-food program.

``We are not terribly worried if there's an Iraqi supply disruption,'' Richardson said. ``First of all, the Gulf states could help replenish a disruption, along with the countries of the International Energy Agency, and the United States has its own Strategic Petroleum Reserve,'' the U.S. official told Bloomberg News in an interview while in Riyadh for the three-day International Energy Forum.

Saudi Arabian Oil Minister Ali al-Naimi said his nation could pump an extra 1.8 million barrels a day within 90 days if needed and pledged to make up for any world output shortage.

Oil prices have remained above $30 a barrel and close to a 10-year high for most of this year partly on concern about the world's shortage of extra production capacity. The Organization of Petroleum Exporting Countries, which supplies 40 percent of the world's oil, has about 1.5 million barrels a day of idle capacity, not enough to make-up a full withdrawal of Iraqi exports from the market.

Avert Shortage

Iraq, the third-largest producer within OPEC, has been under UN sanctions since its 1990 invasion of Kuwait. Under a UN oil-for- food program, it's allowed to export crude to pay for food, medical supplies and replacement parts for its oil industry. Revenue from those sales is paid into a UN-controlled escrow account in New York.

The U.S. was forced to release 30 million barrels of crude oil from its reserve starting last month in an attempt to avert a heating oil supply shortage in the U.S. this winter. The world's biggest consumer believes there's already a crude shortage even without a disruption from Iraq.

``OPEC should seriously consider increasing production again as there's not enough oil in the market,'' said Richardson, and added, that ``we need more oil to deal with the dangerously low crude oil stock levels which leaves the world vulnerable to spot shortages and price spikes.''

Though, officials from 50 nations are meeting in Riyadh this weekend after OPEC, which already boosted output four times this year, said on Monday it was reluctant to pump more oil until 2001. The extra supply has failed to keep a lid on prices that have rallied more than 30 percent in the same period and closed in New York on Friday at $35.45 a barrel.

The U.S. energy secretary's comments come as several OPEC members, including its No. 2 producer Iran, have called for output cuts next year to avoid a possible price crash when a peak in world demand fades after the Northern Hemisphere winter.

``The good news is that producers and consumers are in dialogue instead of being in confrontation, which is a good a development,'' said Richardson. Still, the U.S. could move to release more of its strategic oil reserves regardless of what Iraq does in order to increase global stocks of crude and heating oil, he said.

Earlier this month, Iraq asked the committee for the right to delay for as many as five weeks some oil export commitments that were set to expire next month. The current phase of Iraq's oil-export agreement with the UN expires on Dec. 5. Iraq wants to keep the contracts valid until Jan. 15.

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-- Martin Thompson (mthom1927@aol.com), November 21, 2000