Newspaper article THE JOURNAL RECORD

Persian Gulf Must Heat Up Considerably before Oil Prices Impacted

Newspaper article THE JOURNAL RECORD

Persian Gulf Must Heat Up Considerably before Oil Prices Impacted

Article excerpt

NEW YORK - The U.S. crusade to protect tankers in the Persian Gulf may be the stuff of headlines, but pragmatic traders say tensions would have to heat up considerably to turn the recent runup in oil prices into a full-scale crisis.

What President Reagan set out to protect when he sent U.S. Navy ships to escort Kuwaiti tankers through the war-ridden waters amounts to a small percentage of the oil that passes through the gulf each day.

While oil prices have climbed recently as traders kept a wary eye on the gulf, there should be no dire consequences for consumers at the pump or elsewhere - at least for now.

West Texas intermediate crude closed at $21.37, up 1 cent, for September delivery Friday on the New York Mercantle Exchange.

Analysts agree that there would have to be a significant outbreak of violence to disrupt the 6.5 million barrels of oil that flow through the gulf each day, and that is unlikely.

However, the mere presence of U.S. naval ships in the area has heightened the potential for conflict, and that has kept the market jittery.

``Going into that area in a high profile way is potentially distructive,'' said Christopher Flavin, a researcher with the Washington-based World Watch Institute, referring to the U.S. naval escorts.

``It's invited anybody who wants to make a political statement in the gulf to go out there and sink one of those Kuwaiti ships,'' he said.

The Independent Association of Tanker Owners voiced its own concern earlier in the week, saying the U.S. action has put all other vessels plying the gulf ``in greater peril.'' The Oslo, Norway-based group represents 75 percent of world's non-oil company tanker tonnage.

Still, the odds are relatively slim that an individual ship will be damaged.

``It's no picnic, but you have to put the risk into perspective,'' said Stephen Smith, a vice president and oil analyst with Bear Stearns & Co. He said the chance of a gulf ship being attacked appeared slight.

Oil tankers have been targets for the last three years of the seven-year Iran-Iraq war. To date more than 330 unarmed merchant ships have been hit, more than 200 seamen have been killed and as many wounded in attacks along the gulf - without severe market reaction.

``The oil market has shown it can become used to the idea of ships being hit in the gulf,'' Flavin said.

The day the Kuwaiti tanker Bridgeton hit a mine in the Persian Gulf while under U.S. escort, oil prices fell 66 cents to $20.57 a barrel. ``That meant traders discounted it as an important event,'' Flavin said. ``It was not taken all that seriously.''

Other analysts characterized the price drop as a sigh of relief that the ship's damage had not been greater. …

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