OPEC seeks to keep even keel after Iraq closes taps

Published June 3rd, 2001 - 02:00 GMT

OPEC ministers gather in Vienna this week for a meeting which had been expected to be routine, but could now be seriously clouded by Iraq's weekend decision to stop selling crude in a row with the UN. 

 

The Organization of Petroleum Exporting Countries (OPEC) has been widely tipped to maintain production at current levels at a formal meeting Tuesday, arguing that prices are basically under control. The 11-member cartel, which produces 40 percent of the world's crude, rejects concerns that oil prices could soar like last year when prices in excess of $35 a barrel for crude sparked fuel protests by motorists in Europe. 

 

Before the Iraqi move, OPEC insisted there was no need to further open its taps, blaming a recent surge in prices on a bottleneck in refining capacity in the United States, the world's biggest oil consumer, 

OPEC's Algerian president Chakib Khelil last week rebuffed pressure from consumer nations to increase output. "The problem is not linked to oil supplies... but to refining capacity in the United States," he said. 

 

But Baghdad threw a spanner in the works Saturday by announcing a halt in its oil exports from Monday morning at 0400 GMT, in a row with the United Nations over the terms of its oil-for-food programme implemented after the 1991 Gulf War. 

 

The timing coincides with the end of the current phase of the UN oil-for-food deal and will wipe around 2.2 million barrels per day (bpd) off the world oil market. 

 

The move sparked an immediate assurance from OPEC kingpin Saudi Arabia that the cartel's other members can make up for any shortfall on the world market. 

 

"Saudi Arabia is prepared, along with OPEC members and other large crude producer countries, to make up for the shortfall," Oil Minister Ali al-Nuaimi told reporters in Riyadh. Saudi Arabia alone "has the capacity to make up for the expected deficit," Nuaimi said, without specifying how long it would take to tap Saudi spare capacity, which is estimated at more than two million bpd. 

 

Analysts have agreed recently that OPEC, whose ministers were due to begin arriving in Vienna on Sunday, has things under control. Crude prices have been on a rollercoaster for the last two years. After dipping to $10 in 1999, prices soared above $35 last year, forcing OPEC to hike production four times to cool markets. 

 

After opening the taps by 3.7 million barrels per day (bpd) last year, OPEC has tightened output twice this year: by 1.5 million bpd on February 1 and one million bpd on April 1, to counter a decline in prices. 

Some analysts have called for a new increase in production now, after prices nudged the psychological $30 a barrel in recent weeks. 

 

Iraq's dispute with the UN now appears likely to be the focus of attention in Vienna. 

Baghdad's decision to suspend exports came a day after the UN Security Council extended the oil-for-food program by one month to give it more time to reform the sanctions regime against Baghdad. 

 

Britain and the United States want to modify the embargo with a new set of so-called "smart" sanctions to ease the impact on Iraqi civilians while tightening the military embargo and cracking down on oil smuggling. 

 

Iraq had warned in advance it would reject an extension rather than a regular six-month term of the programme, which allows Baghdad to export crude under UN supervision to finance imports of humanitarian goods. 

 

The immediate impact of the Iraqi decision was unclear. 

Turkey's state gas and oil company BOTAS said Iraq stopped pumping oil to Turkey at 0100 GMT on Saturday, but did not specify the status of the storage tanks in Ceyhan. 

 

Iraq's ambassador in New York, Mohammad al-Douri, said Baghdad would "honour all exising contracts." The country has outstanding commitments to ship almost 300 million barrels of oil, or around 135 days of exports at the current rate, he said. — (AFP) 

 

© Agence France Presse 

© 2001 Mena Report (www.menareport.com)

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