Slow Terrorism With an Oil Glut

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Iranian officials have been complaining about lower-than-expected income since March because renewed Iraqi production has weakened international oil prices.

Iran has a foreign debt of some $20 billion. It needs $4 billion yearly for hard-currency debt service. In 1996 it had about $18 billion in oil revenues, 80 percent of total export earnings. With lower oil prices, 1997 revenues are substantially less. Iranians have seen nothing but declining living standards and 35 percent inflation.

This suggests a way the US could deprive Iran of the oil billions it uses to export terror and build nuclear-armed ballistic missiles that would target Middle East allies like Israel, Egypt, Saudi Arabia, and Turkey.

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By using the US's half-billion-barrel Strategic Petroleum Reserve (SPR) to help glut the oil market, oil prices could be driven way down. The reserve could be used to leverage Iraqi glut production.

Washington could continue pushing the glut until Tehran verifiably terminates its missile and nuclear weapons programs and ends the export of terror.

Egypt believes that these goals can be achieved by cheap oil bringing the Islamic regime down.

Cairo is ready to sacrifice substantial oil income to end the terror-exporting Iranian regime.

Oil experts say that each dollar drop in the price of a barrel of crude oil represents a loss to Iran of $1 billion a year. With a $9 drop, Iran would lose some $9 billion per year, about half of its oil earnings.

Under current United Nations resolutions, Iraq is allowed to sell $1 billion worth of oil every 90 days in an "oil for food" deal that lets it buy medicine and provisions for the suffering caused by post-Gulf war sanctions.

There are 563.5 million barrels of crude oil in the Strategic Petroleum Reserve. The president can order withdrawing oil, or Congress can mandate it. The SPR proved its value in 1991 when a partial drawdown - 17.3 million barrels, or 3 percent of the reserve - coupled with a coordinated international supply response dampened oil price hikes during the Persian Gulf war.

The reserve is capable of producing up to 3.2 million barrels per day for a 90-day period. A cheap oil strategy would parallel Iraq's quarterly sales, and the total amount of crude offered would be enough to ensure a clear-cut world oversupply, driving prices down.

Thus the president could order the sale of 100 million barrels, an average of 1.1 million barrels per day for an initial 90-day period, to be repeated if necessary for up to three subsequent 90-day periods. The public relations impact on the international oil market would probably help generate a glut with far fewer barrels actually sold.

Since Iraq's quarterly quota is in dollars, Iraq would have to increase production to reach its quota, which would drive prices further down.

The more Iraq increased shipments, the further the price would sink, until it hit a glut floor, probably $7 per barrel because of out-of-pocket costs, according to Department of Energy figures.

In late 1985, Saudi Arabia pumped all the oil it could sell, and some Persian Gulf cargoes sold for around $6 per barrel. Costs are lower now, but so is the dollar.

So Iran's economic lifeblood would be about $7 billion yearly. Thus cheap oil would vitally threaten Iran's economy. If Egypt is right, the long-suffering Iranians would send the clerical regime back to their mosques. Or supreme religious leader Ayatollah Ali Khamenei could change his ways.

* S.C. Yuter is New York patent-trademark lawyer with a doctorate in international law. He writes frequently on oil and the Middle East.

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