Oil will not reach US $70 a barrel says the EIU

The Chinese XINHUA news agency was wrong when it said today [Sept. 12, 2002] that the Economist Intelligence Unit (EIU), which operates under the Economist magazine, had said the price of oil would reach US $70 per barrel as a result of US military action in Iraq.

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By  Massoud Derhally Published  September 12, 2002

The Chinese XINHUA news agency was wrong when it said today [Sept. 12, 2002] that the Economist Intelligence Unit (EIU), which operates under the Economist magazine, had said the price of oil would reach US $70 per barrel as a result of US military action in Iraq.

“This would only happen if there were to be a concerted Arab oil blockade in defence of Iraq which doesn't seem very likely. The quote has been taken out of context,” Simon Williams, deputy head of country risk and senior economist at the EIU told Arabian Business.

Xinhua had quoted Robin Bew, the chief economist of the EIU, as saying “Our forecasts assume that the United States does attack Iraq, and that the Middle East oil producers oppose the US action and team up to cut oil production, and thereby, pushing the oil price to, say, 70 US dollars a barrel or more, that would deliver a massive supply-side shock to the global economy and probably trigger a massive recession, similar to the oil shocks in the 1970s."

Robin Bew provided written commentary to Arabian Business saying, “Our forecasts assume that the United States does attack Iraq, but only once it has other middle eastern states on side, so that it can be sure that lost Iraqi oil production will be made up by other producers, and also that supply routes through the gulf are secure. In that case, we assume that oil prices would spike, but only to $35-40/b for a short period, and that the macroeconomic impact would be minimal. Of course, you could imagine other scenarios - if the US attacked Iraq and the rest of the middle East reacted badly and team up to cut oil production, pushing the oil price to, say, 70 US dollars a barrel or more, that would deliver a massive supply-side shock to the global economy.”

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