Date: 05 Mar 2000
Time: 18:45:22
Remote Name: 24.30.137.96
By Steve Liesman and Ralph T. King Jr.
Page 20 (Copyright (c) 2000, Dow Jones & Company, Inc.)
Iran and Iraq, the two major oil producers over which the U.S. has the least sway, are playing a crucial role in where oil prices are headed -- moves that could affect the world economy.
Together, the two countries account for only 8% of the world's 75 million barrels of oil production. But tight world oil inventories, high prices and declining production capacity within the Organization of Petroleum Exporting Countries have given Baghdad and Tehran new power to push their separate agendas, analysts say.
OPEC members will meet in three weeks to decide whether to reverse last year's production cuts, which reduced world output by about five million barrels a day. Leading producers, many of them friendly with Washington, support an increase as soon as April to cool off prices, which recently topped $31 a barrel for West Texas Intermediate crude.
After initial reluctance, Kuwait over the weekend signaled its support for an agreement by Saudi Arabia, Venezuela and Mexico to boost production. Meanwhile, an oil workers' strike in Venezuela withered quickly.
Iran still leads the group of price hawks within OPEC and "is one of the key stumbling blocks to coming out with a new decision," said Raad Alkadiri, country analyst with the Petroleum Finance Co., a Washington-based energy consultant.
Officially, Tehran says the second quarter is the wrong time to increase output because demand typically declines and higher production could lead to quick collapse in prices. But domestic economics are at least as much at work. Unlike other major producers, which have extra capacity, Iran 's 3.5 million barrels of daily production is about its maximum, analysts believe.
Declining investments in its oil fields, as well as continued U.S. sanctions on spare parts, suggest production capacity may actually be declining. "They don't have more capacity to make up for the price drop," says Mr. Alkadiri. Higher output world-wide -- and the expected lower prices -- would do little for the Iranian treasury at a time when payments on $11 billion of foreign debt begin to peak.
Iran , which has the backing of Algeria and Libya, also has little reason in the short-term to care about the world economy. Its oil minister recently said that consuming nations should lower energy taxes if they are concerned about inflation from higher oil prices.
Saudi Arabia, the world's largest exporter and OPEC's clear leader, has a special interest in keeping Iran happy. Relations between the two countries are at their warmest since the Iranian Revolution. Their rapprochement last year was the lynchpin of OPEC's ability to cut back production. "The Saudis might have been more responsive more quickly (to world oil markets) had it not been for this relationship with Iran ," said Amy Jaffe, senior energy analyst, James A. Baker III Institute for Public Policy in Houston.
OPEC producers want to continue the cartel's new-found unity, fearing a production free-for-all if OPEC cooperation dissolves. Of course, oil producing countries could ultimately go ahead without Iran , as they have in the past. Venezuela's oil minister is to visit Tehran in the coming weeks to lobby the government.
But whatever OPEC puts back on the market, Iraq could quickly remove by withholding its two million barrels a day of exports. In November, Saddam Hussein pushed oil prices up almost $1 a barrel in a single day when he turned off his spigots to protest United Nations sanctions policy. This time, "with oil inventories very low, any interruption in crude supply could cause prices to skyrocket," said Gary Ross, president of PIRA Energy Group, a New York energy consulting company.