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Oil price surges as tensions grow

April 2, 2002 Posted: 5:44 AM EST

Oil prices have risen since mid-January when the U.S. economy improved  
Oil prices have risen since mid-January when the U.S. economy improved

LONDON, England (CNN) - The price of oil jumped to its highest level in six months on Tuesday after Iraq called on Arabs to use oil as a weapon against the West and violence intensified in the Middle East.

Brent crude surged above $26 a barrel in London for the first time since September, following a similar rally in New York on Monday.

Oil prices have jumped more than 50 percent since mid-January as the U.S. economic rebound has stoked demand. At the same time, the Organisation of the Petroleum Exporting Countries (OPEC) has held back supplies while markets have worried about possible military action against Iraq.

On Tuesday, Iraq's acting Foreign Minister Human Abdul-Khaleq Abdul-Ghafur said Baghdad was ready to cut off oil supplies to the U.S. if Iran did the same.

"Use oil as a weapon in the battle with the enemy (Israel)," Iraq's ruling Baath party said in a statement published by Baghdad media on Monday.

In the 1970s Arab nations imposed an oil embargo on Western countries that helped trigger a worldwide recession.

Saudi Arabia and other major OPEC producers have said they have no intention of repeating the oil embargo. Some analysts say an embargo would not have the same impact now as it did in the 1970s.

"All this rhetoric forgets one big issue... We have stockpiles to deal with these types of situations," Peter Gignouz, an analyst at Schroder SSB, told CNN.

He said the current global stockpile totals 4 billion barrels, enough to cover any shortfall caused by an embargo.

But other analysts are concerned that the recent rise in oil prices could stall a rebound in the global economy.

"It does have the potential to cause some problems for the economies that are gradually emerging into recovery," Paul Donovan from UBS Walburg told CNN.



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