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Over the past year, Iraq has effectively become a swing producer, turning its taps on and off when it has felt such action was in its strategic interest to do so. Saudi Arabia has proven willing to provide replacement supplies to the market when Iraqi exports have been reduced. This role has been extremely important in avoiding greater market volatility and in countering Iraq’s efforts to take advantage of the oil market’s structure.
This includes any possibility that Saddam Hussein may remove Iraqi
oil from the market for an extended period of time and that Saudi Arabia will not or cannot replace all of the barrels. (This is a contingency that hangs over the market given the ability of Baghdad to continue to earn revenues through smuggling and other uncontrolled oil exports, even if it officially cuts off exports that are permitted through U.N. procedures.)
The bombing of Iraq by the United States led coalition in February 2001 spurred anti-U.S. demonstrations in support of Iraq in traditional U.S. allies such as Egypt. Moreover, Saddam Hussein is trying to recast himself as the champion of the Palestinian cause to some success among young Palestinians. Any severe violence on the West Bank, Gaza, or Southern Lebanon will give Iraq more leverage in its efforts to discredit the United States and U.S. intentions. A focus on the anti-Israeli sympathies of some Arab oil-producing countries diverts attention from the repressive nature of the Iraqi regime.
Instead it rewards Iraq in its claim to Arab leadership for “standing up to the United States for ten years.”
Iraq remains a destabilizing influence to
U.S. allies in the Middle East, as well as to regional and global order, and to the flow of oil to international markets from the Middle East. Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export program to manipulate oil markets. This would display his personal power, enhance his image as a “Pan Arab” leader supporting the Palestinians against Israel, and pressure others for a lifting of economic sanctions against his regime.
The United States should conduct an immediate policy review toward Iraq, including military, energy, economic, and political/diplomatic assessments.