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OPECs_Swan_Song
| OPECs Swan Song?
Indonesia's Energy Minister, Purnomo Yusgiantoro, is unhappy
with the modest production cut, from June 1, of 2 million
barrels per day, adopted by the Organization of Petroleum
Exporting Countries last week. He intends to demand further
reductions at the June 11 get-together in Qatar.
The deal struck is so convoluted and loopholed that actual
output declines may amount to no more than 600,000 bpd,
assuming, miraculously, full compliance. Quotas were first
raised before the war to 27.4 million bpd - a theoretical level,
not met by actual supply. Crude prices, entering a period of
seasonal weakening, dropped further on the news.
With Nigerian and Venezuelan crude recovering from months of
strife, this downtrend may be temporary. Global excess capacity
is a mere 1 million bpd - one fifth its prewar level. As North
American and North Sea production declines, the importance of
Gulf producers soars.
OPEC's eleven countries - Algeria, Indonesia, Iran, Iraq
(suspended in 1990, following its invasion of Kuwait), Kuwait,
Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates
and Venezuela - control one third to two fifths of global oil
output and three quarters of the far more important residual
demand - traded between net consumers and net exporters.
Residual demand is set to double by 2010.
Still, OPEC - led by Saudi Arabia, now off the US buddy list -
faces fundamental problems that no tweaking can resolve. Iraq,
in the throes of reconstruction and under America's thumb, may
opt to exit the club it has founded in 1960 and, thus
unfettered, flood the market with its 2.3 to 2.8 million bpd of
oil. Iraqi production can reach 7-8 million bpd in six years,
completely upsetting the carefully balanced market sharing
agreements among OPEC members.
This nightmare may be years away, what with Iraq's dilapidated
and much-looted infrastructure and vehement international
wrangling over past and future contracts. All the same, it looms
menacing over the organization's future.
Far more ominous perils lurk in Russia, the second largest oil
producer and growing. Though the cheapest and most abundant
reserves are still to be found in the Persian Gulf, Central Asia
and Russia are catching up fast. Ali al-Naimi, the Saudi oil
minister may be forced out of office by this apparent crumbling
of the organization's stature.
This would be unwise. Naimi is widely credited with engineering
the tripling of oil prices to more than $30 a barrel between
1998 and 1999. As the informal boss of the state-owned Saudi oil
behemoth, Aramco, he has already introduced postwar output cuts.
The oil market is so volatile that even marginal production
shifts affect prices disproportionately. Naimi is a master of
such manipulation.
Saudi Arabia regards itself as the market regulator. It keeps
expensive, fully-developed, wells idle as a 1.9 million bpd
buffer against supply disruptions. It is this "self-sacrificial"
policy that endows it with tremendous clout in the energy
markets. Only the United States can afford to emulate it - and
even then, the Saudi Kingdom still possesses the largest known
reserves and sports the lowest extraction costs worldwide.
OPEC is, therefore, not without muscle. Saudi Arabia had
punished uppity producers, such as Nigeria, by flooding the
markets and pulverizing prices. Yet, the organization is riven
by internecine squabbles about market shares and production
ceilings. Giants and dwarves cohabit uneasily and collude to
choreograph prices in what has long been a buyers' market. These
inherent contradictions are detrimental. If OPEC fails to
recruit another massive producer (namely: Russia) soon - it is
doomed.
Paradoxically, the Iraq war is exactly what the doctor ordered.
OPEC's only long-term hope lies in a geopolitical shift, the
harbingers of which are already visible. Russia may join the
cartel, disenchanted by an imperious and haughty USA - or the
Europeans may "adopt" OPEC as a counterweight to the sole
"hyperpower" newfound energy preeminence.
America announced its intention to pull out its troops stationed
in Saudi Arabia. As this major producer is thrust into the role
of the "bad guy" - it acquires incentives to team up with other
"pariahs" such as France and, potentially, Russia. Controlling
the oil taps is a sure way to render the USA less unilateral and
more accommodating.
US interest are diametrically opposed to those of oil producers,
whether in OPEC's ranks or without. The United States seeks to
secure an uninterrupted supply of cheap oil. Yet, a consistently
low price level would go a long way towards reducing Russia back
to erstwhile penury. It would also destabilize authoritarian and
venal regimes throughout the Middle East.
This unsettling realization is dawning now on minds from Paris
to Riyadh and from St. Petersburg to Tehran. As the United
States looms large over both producers and consumers, the ironic
outcome of the Iraqi war may well be an oil crunch rather than
an oil glut.
About the author:
Sam Vaknin is the author of Malignant Self Love - Narcissism
Revisited and After the Rain - How the West Lost the East. He is
a columnist for Central Europe Review, PopMatters, and eBookWeb
, a United Press International (UPI) Senior Business
Correspondent, and the editor of mental health and Central East
Europe categories in The Open Directory Bellaonline, and
Suite101 .
Visit Sam's Web site at http://samvak.tripod.com
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