Oil prices rise after Iraq pipeline sabotage

World oil prices came under pressure today after saboteurs blew up a vital oil pipeline in northern Iraq for a second time.

The pipeline, from Iraq's Kirkuk oil fields to the Turkish port of Ceyhan, reopened last Wednesday for the first time since US and British troops toppled Saddam Hussein. However, just two days later, it was shut down again after a bomb attack.

As the initial fire was being brought under control, a second blaze yesterday broke out a few miles away. Officials said that they suspected another attack by saboteurs.

Following the latest attack, the price of crude oil on the New York mercantile exchange for delivery in September rose by 31 cents per barrel to $31.36 (£19.68), while October Brent crude was up 39 cents to $29.20.

Concerns over world supplies have kept oil prices at the upper end of Opec's target range for more than a week.

The price is used by the cartel to determine when to raise or lower its production, with an informal agreement to raise output if the price holds above the target range for 20 days.

"Clearly a long pipeline is going to be extremely difficult to defend from saboteurs," Alex Scott, at 7 Investment Management, said.

Mr Scott added that anyone who thought large amounts of Iraqi oil coming into the market would take the price back to around $20 would be disappointed. Iraqi exports had trickled to a stop following the US-led invasion until the pipeline reopened last week.

The new flow of oil had been expected to help subsidise the reconstruction of the country.

The pipeline accounted for around one-third of Iraq's pre-war oil exports of 2.4 million barrels a day. Meanwhile, power problems have disrupted the country's alternative export route - loading tankers in its southern ports - and a shipping shortage is also taking its toll.

Iraq has the world's second-largest oil reserves, but its pipelines, pumping stations and oil reservoirs are in poor shape following more than a decade of sanctions. Now the nation's new authorities have to contend with an increasingly sophisticated sabotage campaign.

Paul Bremer, the US governor of Iraq, has warned that continuing attacks on its infrastructure will impede economic recovery. He said that the attack on the oil pipeline would cost Iraq $7m a day and hurt reconstruction.

"The irony is that Iraq is a rich country that is temporarily poor," Mr Bremer told the meeting of a committee coordinating foreign aid for Iraq.

In another attack on Iraq's infrastructure at the weekend, saboteurs blew up a water main, leaving 300,000 people in Baghdad without supplies. A mortar attack on a prison killed six Iraqis and injured 59 others.

In another cause for concern for oil traders, violence has broken out between rival ethnic militias in Warri, an oil city in southern Nigeria, which is a member of the Opec oil cartel.

The violence is the most serious since March, when an ethnic rebellion forced oil companies to evacuate key installations and shut down 40% of Nigeria's oil output.