Last week, Rolf Ekeus, head of the United Nations special commission on disarming Iraq, said he detected a sudden softening in Baghdad's position on providing the information on weapons that the UN was demanding. After the Gulf War, the UN banned Iraq from exporting oil and laid down a number of conditions to be met before the ban could be lifted: the principal impediment to resuming sales has been Iraq's refusal to cooperate with Mr Ekeus's team.
Although oil analysts believe that the US will not agree to lift the ban while Saddam Hussein remains in power, the statement from Mr Ekeus was greeted with dismay in the market. "We believe Iraq will severely depress markets for some time," said Terry Dallas, finance director of the US oil company Arco. "We are very concerned about that scenario."
One analyst said that even if Iraq did not come back, "the oil market doesn't look too friendly for Opec". He added: "It's hard to see next year's price matching this year's."
Peter Bogin, at Cambridge Energy Research Associates in Paris, said that if Iraq did come back into the market, "the price would fall by $2 a barrel".
Brent oil, the North Sea marker, is now standing at about $16 a barrel, having fallen from $20 in May. The main reason, according to one analyst, is that "every time anyone looks, non-Opec production is higher than they thought". This has risen from 40.5 million barrels per day in 1993 to 42.3 million this year, and is likely to rise by another 1.5 million next year. Much of the increase will come from the UK, where production is scheduled to start in the new region to the west of the Shetlands.
In addition, Opec production is already running above its quota level of 24.5 million bpd and seems certain to rise. Venezuela's has been increasing output by more than 200,000 bpd a year, and it has invited oil companies in to develop further fields. Though total Opec production is supposed to stay level, the analyst said that Venezuela "won't be able to say to the companies: `I'm sorry, you can't produce anything.' "
The market is also concerned that Saudi Arabia, Opec's biggest producer, will refuse to cut its output to support the price. It increased its production at the time of the Gulf Crisis to make up for the shortfall from Iraq, and has been pumping about 8 million bpd since. Past attempts to organise cuts across the board in Opec have always collapsed.