In October 1990 as Iraqi forces invaded Kuwait, crude oil prices shot up to more than US$32 a barrel (Dubai) and US$40 in the New York Mercantile Exchange (NYMEX) or more than 100% from their previous levels in the first half of 1990. And yet, a day after the United States set out to liberate Kuwait in January 1991, crude oil prices plummeted just as dramatically, with Dubai crude settling to less than US$15 a barrel, less than its August 1990 level when war jitters started.

Fast forward to 2003: the US-led invasion of Iraq has started. American and British forces are encountering resistance from Iraqi forces. And just like the Vietnamese, Iraqis are using guerilla tactics to match the overwhelming conventional war forces of the US. Fears are rising even if US forces manage to topple Saddam Hussein from power, forces loyal to him will still be able to mount resistance — enough to threaten oil supplies and destabilize the world oil market.

For the past year, Philippine pump prices have mirrored movements of the Dubai crude oil benchmark. By February 2003, crude oil prices averaged US$28.02 per barrel, rising more than 47% from just US$19.02 from the same period in 2002.

Socially sensitive products kerosene and LPG are up 43% by the latest price adjustment as of 6 March from year-ago levels. Premium gasoline, unleaded gasoline and regular gasoline prices are up by 28%, 29% and 17% respectively. Diesel used by the public transport groups went up by 27.5% (although a 40-centavo rollback was done on 24 March ). Fuel oil went up by 43%.

From January to March this year, oil companies hiked domestic pump prices five times — raising — except for AVTurbo — all prices of petroleum products by more than 10%.

War’s crucial period: the next few weeks
However, crude oil prices have swung wildly as the US invasion of Iraq drew closer. Right after the 48-hour ultimatum issued by President George Bush to Iraq, Dubai crude dropped almost 9% from US$28.22 to US$25.76, as the market became certain of a US invasion on Iraq. This could have lopped off a big part of what analysts call the “war premium” — estimated to be in the range of US$2 to US$3.

The following few days saw crude prices dropping, until the fifth day of the invasion when reports of resistance encountered by US soldiers caused prices to rise again.

If the US is able to neutralize Iraq and effectively remove Saddam Hussein from power within the next few weeks, the price of oil will likely stay within its level of US$24-25 per barrel for the rest of March. Thus, average crude oil prices (Dubai) for the month of March may likely be in the range of US$27.50 to US$28.50 per barrel.

Domestic oil companies are promising to roll back prices of other petroleum products if crude prices stay within this range.

The next few months
Even if Saddam Hussein and his followers mount a long-term campaign to resist US forces and aim for guerilla warfare tactics, the crucial factors to ensure that oil supplies are secured have been established. Estimates of crude prices north of US$40 to US$50 a barrel may not come to pass so long as US forces in Iraq ensure a legitimate and stable transfer of power and guard crucial Middle East oil supplies.

First, with allied forces ringed around Iraq, oil fields in Kuwait and Saudi Arabia — two of the top oil producers in the world — are at least safe from what many fear as the worst case scenario: the Iraqis launching preemptive strikes against Saudi oil pipelines. Analysts say this scenario would drive crude oil prices to as much as US$100 a barrel.

Second, the supply squeeze brought about by Venezuela strikes (Venezuela is the fifth top oil producer) which cut its normal volume of production by more than 60%, have eased as the strikes ended in February. Production has since then stepped up. By June, production will return to their pre-December levels. Analysts estimate the strikes to have added about US$1.75 to the price of crude.

Third, in case Iraq exports are cut off due to war activities (some oil fields have been set ablaze), other members of the Organization of Petroleum Exporting Countries (OPEC) are prepared to meet demand in case of supply shortage.

Also, with the winter season winding up in heavy petroleum-consuming countries, there is less pressure on supplies.

Preparations at home
The Department of Energy has so far made preparations to stave off the shock of high petroleum prices. First, it has made sure that the country has at least two months stock of oil. Second, it has made arrangements with alternative sources of crude oil in the event that Middle East supplies are endangered. Among these are Indonesia and Russia.

If the first quarter passes with Middle East oil supplies secured, the Department of Energy and analysts in the country are predicting less than US$28 per barrel average cost of crude of oil for the year 2003.

There are only two other factors that might drastically spike up crude oil prices beyond US$40 — first, if the war in Iraq escalates to include other Arab countries and Israel, and second, if the public panics, especially those gas-guzzling countries in the West, to drive up demand.

So far, discounting these scenarios, it seems there’s enough oil to go around for the moment.