Bad Forecasts Cause Sticky Oil Situation

NEW YORK — Oil and gasoline are not much cheaper today than they were during the height of the war in Iraq. Sabotage of pipelines, power failures and uneven security have delayed the restarting of Iraq's oil industry, depressing the country's oil exports below prewar levels. In particular, the loss of the northern pipeline to Turkey last month has kept nearly 1 million barrels of oil per day off world markets. If the problems are not corrected, oil supplies will remain tight, gasoline prices will stay high or climb, and the U.S. economic recovery could stall.

Why has the situation deteriorated to this point? Wasn't securing and protecting Iraq's oil fields a prime military objective? Wasn't modernizing the country's production facilities part of postwar reconstruction planning?

U.S. and British soldiers were successful in keeping Iraq's oil industry from becoming an infrastructure casualty of war. The Defense Department expected oil to flow within weeks of victory. Then, the sabotage and violence began, and postwar planners have been playing catch-up ever since. It's increasingly evident that they didn't expect strategic and sequential attacks on pipelines and pylons.

In some ways, U.S. and coalition authorities were justified in downplaying the possible effect of Iraqi resistance on oil exports. When Saddam Hussein previously cut Iraq's oil exports, prices didn't skyrocket. In part, this was because other oil-producing countries were willing and able to pick up the production slack.

That situation has changed. World oil supplies are now extremely tight. They have never fully recovered from a December 2002 general strike in Venezuela, which resulted in the loss of more than 3 million barrels a day of production. Civil unrest in Nigeria compounded shortages on the eve of the U.S.-led invasion of Iraq.

Since then, the coalition's management of Iraq's oil industry has worsened the problem. Initial postwar statements from the Defense Department fed false expectations that Iraq's oil production and exports would be quickly restored. The Organization of Petroleum Exporting Countries, which produces about one-third of the world's oil, took the optimistic statements at face value and cut production immediately after the war to avoid an oil glut and falling prices.

As a result, commercial oil inventories in the United States and Europe reached their lowest seasonal level in years. The supply crunch has left energy prices more vulnerable to continued disruptions in Iraq and elsewhere.