Oil market looks to deflect Iraq

Iraqi workers demonstrate in response to Saddam Hussein's suspension of all oil exports in support of the Palestinians

LONDON, England (CNN) -- Iraq's 30-day suspension of oil supplies should be absorbed by the markets, analysts predict.

Monday's pronouncement from Saddam Hussein that Iraq will halt exports for a month -- taking about $2.3 billion a day off the market -- triggered a spike in oil prices.

But oil markets had been expecting some kind of action from Iraq, said industry watchers.

"They've done that twice before in the last couple of years," says Christopher Dickey of Newsweek.

"What Saudi can do -- it's got more than three million barrels surplus capacity. It can just turn on the tap and eliminate that problem."

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Saudi Arabia said again on Tuesday that it sees no shortage of oil coming. But don't expect to hear much from Saudi Arabia or OPEC if they fill the gap.

Oil watchers say non-Arab OPEC members could quietly increase production if needed.

"I wouldn't expect any big announcement of this," says Julian Lee of the Centre for Global Energy Studies (CGES).

"I would expect this to be done fairly quietly, as a matter of quietly increasing their exports. Many of the OPEC countries are themselves Arab countries, and it would be very difficult I think for them to be seen stepping in at a time like this."

The biggest impact of an Iraqi embargo will be felt in the United States.

Under the U.N. food-for-oil program, Iraq is the sixth biggest importer of oil to the U.S. market.

The top three are Canada at 15.1 percent, Saudi Arabia at 14.5 percent and Venezuela at 13.4 percent, according to the CGES. Iraq accounts for 6.2 percent.

Although Iraq is the world's seventh biggest oil exporter at 2.72 million barrels a day, according to OPEC it produces far less than the big three.

Saudi Arabia is No. 1 at 7.57 million, the former Soviet states come in second at 7.43 million and the United States is third at 5.93 million.

The time has come anyway for OPEC to open the taps in time for the summer driving season in the United States.

"We would have liked to have seen possibly a small increase already as U.S. refiners are starting to look ahead," says Lee.

"They are going to start increasing their runs maybe mid-April into early May, building up stocks of gasoline."

Markets remain jittery on fears that other countries such as Iran could join Iraq's move.

But while supply is not a problem for now, Western governments are more concerned about the impact price increases will have on economies.