Nervous OPEC Ponders Future With Iraq Oil In U.S. Hands

by Mehru Jaffer

Adding to the uncertainty is the future of Iraq within the organization that comprises member nations from Africa, Asia, the Middle East and Latin America.

"For the first time in its 43 year history, a decision is taken by OPEC in the absence of Iraq," Abdullah bin Hamad Al-Attiyah, Qatar's minister of energy and industry told a roomful of reporters at Vienna's OPEC Secretariat.

He met with journalists after a day-long consultative meeting where it was decided to cut back OPEC's contribution by two million barrels a day by June first. Al-Attiyah called this a unique situation especially since little is known as to what is going on in Iraq.

There is uncertainty over who will be responsible for marketing the oil in Iraq. The Security Council has to first suspend the UN resolution that allowed Iraq to exchange oil for food before the United States, in control of Iraqi oil fields now, can dream of pocketing the profits.

Iraq is a founding member of OPEC but has not been contributing its quota to the cartel since 1990 after its invasion of Kuwait, a fellow member country, was followed by sanctions imposed upon it in 1991.

Still, Dr. Amer Mohammad Rasheed, Baghdad's minister of oil till January this year, was a familiar face at all OPEC meetings and an official from the Iraqi embassy in Vienna represented the country at an earlier OPEC meeting held here in March.

It was Baghdad that hosted the first meeting in 1960 which led to the birth of OPEC as a permanent intergovernmental organization of oil producing countries. In 1965 OPEC moved its headquarters from Geneva to Vienna where oil ministers meet regularly but under tight security. The membership of Iraq within OPEC is now a question mark in capital letters.

"We wait to welcome any future minister of oil of a free and democratic Iraq to the OPEC premises as soon as possible. There is no question of discussion about the state of oil in Iraq with the Americans as it is not America that is a member of OPEC," Al-Attiyah said.

Anxious to continue control over the world's oil production, OPEC is concerned about news trickling in from the oil fields of Iraq that crude from the country could return to the market within weeks.

Today's decision to return to OPEC's lower but original official output target of 25.4 million barrels a day from 27.4 million barrels a day follows on the heels of information that Iraq's Rumeila oil fields have started to release limited amounts of crude into storage tanks in Basra, Iraq's southern city.

OPEC's collective contribution is about 40 percent of the world's output and it sits on more than three quarters of the total crude oil reserves. The cartel now hopes that by curbing over-supply it will help to stabilise the price of crude at 24 dollars a barrel, equal to about 160 litres of oil.

Iraq has the potential of being the world's second largest supplier of crude after Saudi Arabia. It already has 112 billion barrels of crude in reserve and OPEC is nervous over the world market's expectation of more oil from Iraq.

The demand for oil is on the rise in a world that already guzzles 78 million barrels a day. In anticipation of Iraqi crude OPEC has decided to return to its original official output target.

Once United Nations sanctions against Iraq are lifted, the country is expected to start selling up to two million barrels a day within weeks. According to reports from Iraq, the immediate flow will go to feed refineries and power plants within the country before it is sold abroad.

Uncertain over how much crude the Iraqi fields will ultimately yield, OPEC fears that a glut in the supply of oil could drown markets, forcing prices to slump. OPEC would like to see prices balanced between $22-28 per barrel.

In January OPEC increased its average from 24.5 million barrels a day by 1.5 million barrels a day to make up for production failures caused by unrest in Venezuela and the war in Iraq, two member countries with most of the additional crude contributed by Saudi Arabia the world's largest owner of crude oil.

From 9.1 million barrels a day, Saudi Arabia's quota is now reduced to 8.2 million barrels a day. Ali al Naimi, Saudi Oil Minister told reporters that producers were defending crude at 25 dollars a barrel and hoped that the target would remain stable for the next decade.

"The big players in the oil market need to rally around the current price levels to have enough investment in the next ten years, to meet demand that is why we need to keep the 25 dollar target not lower, not higher," Al Nuami said.

The minister feels that it is in the interest of all oil producing countries, non-OPEC states, the International Energy Agency and oil companies as well as consumers if prices remain around 25 dollars a barrel.

But a sluggish world economy, the spread of the SARS disease and uncertainty over Iraq is not the only frown on OPEC's brow. "It is also elections, strikes and the quota from Nigeria," oil specialist Valerie Marcel told IPS referring to domestic troubles faced by yet another member country.