Oil Deal No Help at the Pump

NEW YORK: Iraq's oil for food deal with the U.N. briefly sent futures markets tumbling, pushing oil down almost 80 cents a barrel. Markets recovered later in the day with the news that Iraqi oil will not be on the market for at least another month. Under the terms of the deal, Iraq will only be allowed to sell 650,000 barrels a day, far below capacity. But don't expect prices at the pump to fall, says TIME's Bernard Baumohl. "The fact that Iraq can sell only a fraction of its production, that it comes at a time when oil inventories are at their lowest in years, and that the demand for oil is strong before the summer season, means that energy prices will not collapse." OPEC producers have been worried for some time that their financial windfall would end with Iraq's reentry into the oil market. Since sanctions, Saudi Arabia has increased production to 8 million barrels a day, up from about 5.45 million. Other countries have also increased output to make up for the shortfall in Iraqi production. OPEC ministers are unlikely to change existing quotas to accommodate the additional output at their next meeting. "OPEC will allow production to exceed the ceiling," says Baumohl. " But they will keep their eye on oil prices. If the barrel price reaches the mid-teens, there will be a frantic battle to set quotas and decide who will take the biggest cuts." Lamia Abu-Haidar