By Ian Bruce

04-04-02 The last time the Arabs used oil as a weapon in 1973, the lights went out all over Europe, America was plunged into recession, and the economic shockwaves circled the globe. Three decades on, fiscal reality makes the threat of a repeat performance -- as demanded by Iraq to teach the United States a lesson for its support of Israel -- something of a damp squib.
Despite stock market jitters at the prospect of an embargo, the world has moved on and the coffers of the oil-rich kingdoms of the Middle East are no longer overflowing with petro-dollars. Turning off the tap is no longer a viable option. It may not even be possible. The Arab oil cartel sold directly to customers in the 1970s, giving it the capability of applying damaging, selective sanctions.

Now the industry is dependent on a vast web of middlemen and futures exchanges. As Professor William Hogan, of Harvard University, says: "The Arabs can still cut off the bulk of the world's oil supply. "But they no longer have thecapacity to turn off an individual country's supply. Oil has gone from being a rapier to being a very blunt instrument indeed.
"It worked in 1973 as a response to the Arab world's battlefield humiliation in the Yom Kippur war with Israel. "But it was a Saturday night special, a one-shot weapon likely to misfire. Now it's out of ammunition."
The other key factor which precludes a pan-Arab boycott is Saudi Arabia, the world's biggest oil producer and owner of an estimated 25 % of the untapped global reserves. Riyadh's feudal rulers cannot afford to cork the bottle. With an increasingly restive population, rising unemployment and jealously hostile neighbours in Iran and Iraq, its royal family's very survival depends on a steady income from the "black gold" under the desert sands.

The Saudis have also not forgotten the most expensive lesson they learned in 1973. Almost all of their oil revenues had been invested in the West. When the embargo they embraced so willingly began to bite, the crash inflicteda decade's worth of damage on their Wall Street portfolios.
Saudi oilfields currently pump 7.2 mm bpd. Even if Iraq pulled the plug on its own 3 mm-barrel daily output and put its 75 bn barrel-reserve temporarily out of reach, the Saudis have the built-in capacity to rapidly step up production to 10.5 mm bpd to bridge the gap.
The European Union's member countries have a 90-day strategic reserve on hand. The US, which consumes one third of the 76 mm bpd worldwide, has a 40-day stockpile as a cushion against wildcat action. The United States is using its war on international terror to help secure a future alternative to Gulf fossil fuel from the almost untapped reserves of the Caspian Basin, estimated at a staggering 70 bn barrels.

The bases in Kazakhstan occupied by US troops to seal Afghanistan's northern border will not be abandoned readily. They lie at the strategic heart of the new oil bonanza. The White House is also scheming to drive a pipeline from the basin out through Turkey to the sea to bypass and outflank Russian designs on the region. By 2012, with Western investment, Caspian crude production will rival that of Saudi Arabia and could remove for the foreseeable future even an outside chance of a pan-Arab ban's impact on Western economies.
Until then, the Saudis should remain pre-eminent as a supplier. Their prime advantage to date is that it costs less than £ 2 to extract a barrel from their well established fields. The same product from US sites costs twice that amount. In Russia's remote drilling zones, the overheads are £ 6 a barrel.