WHEN coalition forces found that Iraq’s technicians had refused to torch their oilfields, buyers looked forward to falling crude prices. But analysts who had predicted that the liberation of Iraq would quickly increase the volume of crude oil coming onto world markets received a bit of a shock.

First, the Opec cartel agreed to cut output by 2m barrels a day, or at least seemed to do so. Then, technicians found that Iraqi oilfields had been more starved of investment than anyone had thought, and that the looting of everything from tools and equipment to the buses needed to get workers to the fields, will slow efforts to restore production to the 2m-barrel-a-day level before liberation.

Equally annoying, the UN Security Council refuses to end its oil-for-food programme by dropping its sanctions — no surprise since the 2.5% it gets on all sales is used to feed the 3,000-person bureaucracy that administers the programme, and Russia and France want to control the awarding of reconstruction contracts.

That places a legal cloud over the title to Iraq’s oil, with the right to sell it claimed by the coalition; the UN; Mohammed Mohsen al- Zubaidi, an exile returned to Iraq to proclaim himself governor of Baghdad; and the several Shi’ite clerics who are using the freedom won for them by the American military to cry “Yankee go home” at rallies attended by the millions of their co-religionists who constitute 60% of the Iraqi population.

Some of these problems can be solved. America can simply ignore the UN, and start selling Iraq’s oil. Buyers who are nervous about receiving clean title to the oil can be reassured by American guarantees or some form of insurance. Or America can simply buy the oil on its account, and pay money into a trust fund for the Iraqi people.

But adding Iraqi oil to world markets might still prove to be no easy thing. When the Americans promised to create a democracy in Iraq they didn’t consider the possibility that Iraq’s 100 billion barrels of oil reserves (9% or more of the world’s total) might end up in the hands of an Islamic regime similar to that in Iran. If the behaviour of Iran (almost 9% of world reserves) is any guide, Iraq’s new clerics-turned-oil-moguls will be price hawks — a voice for the low- output, high-price scenario that analysts were hoping a democratic Iraq would end.

There is worse. In Russia (which has almost 5% of world reserves), Yukos’s acquisition of Sibneft creates a $35 billion company, the seventh-largest oil group in the world, measured by market value. That behemoth is unlikely to be a price-cutting scrambler for short-term revenue. Besides, the pipelines and ports needed to bring more Russian oil to market will cost some $5 billion and be completed no earlier than 2007. So don’t look to Russia for near-term price relief.

Or to Nigeria, America’s fourth-largest source of imports. With opposition parties threatening disruption to protest the apparently fraudulent re-election of President Olusegun Obasanjo, the African nation is unlikely to be a totally reliable supplier. Venezuela, another important American supplier, sits on 7% of world reserves and is controlled by a pro-Castro president who has precipitated a supply- disrupting strike by politicising the industry’s management, and is running the fields so badly that productive capacity has fallen. Mexico shows no sign of expanding capacity by dropping its ban on foreign investment in its oil business. And petroleum inventories in America are at the lowest level in 30 years.

True, oil markets have recently eased a bit. Petrol prices are down 14 cents from their mid-March peak of $1.73 a gallon, as additional crude produced by Saudi Arabia before the war reaches our shores, along with record imports of petroleum products. And demand is being further dampened by the slowing of Asian growth caused by the Sars outbreak, continued recession in Germany and France, and reduced air travel everywhere.

So we have two conflicting signals. On the supply side, there are constraints both political and economic: unstable regimes, a cartel that is threatening to cut back output, and shortages of infrastructure investment. That should mean higher prices. But on the demand side, we have Sars, the collapse of air travel, and slow growth. That should mean lower prices.

Steve Strongin, director of commodity research at Goldman Sachs, has balanced these conflicting pulls on price and decided that crude will likely jump into the low $30s when America’s holiday driving season starts in June. But when Iraq’s oil hits the market in significant quantities, a downward move to Opec’s preferred range of $22-$28 a barrel is likely.

In the end, oil prices may depend on the willingness of Opec to cut output from 26m barrels a day to the quota level of 24.5m, and eventually to trim back even further to make room for Iraq to re-enter the market. The biggest reductions will have to be taken by the Saudis.

And there’s the rub. If George Bush is serious about waging war on terrorism, he will have to put pressure on the Saudis to stop funding the spread of the creed that underlies it. But the president needs the Saudis. Since he cannot persuade Congress to give him the tax cuts he has asked for, he needs a different stimulus — oil prices low enough to keep consumers in the malls, car showrooms and estate agents’ offices.

And here is the ultimate irony: the elder Bush was disliked by many of the younger Bush’s ardent supporters for kow-towing to the Saudi royal family. These folks now find themselves serving a president whose re-election might depend on the favour of those very same royals. That is the price America pays for its inability to develop a policy for reducing its dependence on Saudi oil.

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