World oil markets face the largest shortfall in history if war breaks out in Iraq while supplies are still curtailed from fellow Opec producer Venezuela, a top analyst at Goldman Sachs investment bank said yesterday(Justin Sullivan/Getty Images)...

War on Iraq 'would spark largest-ever oil shortfall' 

NEW YORK:  World oil markets face the largest shortfall in history if war breaks out in Iraq while supplies are still curtailed from fellow Opec producer Venezuela, a top analyst at Goldman Sachs investment bank said yesterday.

US crude inventories have already fallen near their lowest level in more than two decades because of a 47-day strike in Venezuela, which has cut the country's oil exports to a fifth of normal levels.

"In terms of barrels per day this (Venezuela) is one of the larger shocks we've ever had," Steve Strongin, managing director in charge of Commodity Research said on a conference call.

"Only the Gulf War, the Iran/Iraq war and the Arab-Israeli war in 1973 represented similar ones," Strongin said.

"Then if you threw in a two month interruption to Iraqi crude for political, military whatever reason that would be enough to turn it into the largest shortfall in history." Strongin said oil prices could go above $40 a barrel. "All the tables go to $40 plus," he said.

Oil dealers are worried that any loss of Iraqi exports could stretch to the limit the spare capacity of Opec oil producers, who pump around a third of the world's oil.

US crude stocks are currently just two million barrels, less than one per cent above the level where the government warns there could be localised disruptions at refineries, forcing them to cut gasoline and heating oil supply.

President George W Bush is watching world oil markets for the possibility that the US may need to tap its emergency reserves in the event of supply disruptions, spokesman Ari Fleischer said yesterday.

Meanwhile, world oil prices hit fresh two-year highs yesterday as US Secretary of State Colin Powell forecast that within two weeks it will have been proved that Iraq is not co-operating with UN weapons inspectors.

Crude oil futures in New York rose 34 cents to $34, just above two-year highs struck on Thursday. Brent crude in London was steady at $30.58.

Prices have jumped nearly $3, or 9pc, this week as a 47-day oil workers strike in big exporter Venezuela runs down US crude inventories.

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