Saudi clout on oil questioned after OPEC

June 23, 2011 at 1:07 PM   |   0 comments

| License Photo
BEIRUT, Lebanon, June 23 (UPI) -- Saudi Arabia's defeat by Iran over oil production levels at OPEC's June 8 meeting caused considerable dismay among consumer nations and hinted that Riyadh's dominance of the cartel was in doubt.

The Vienna setback followed a February disclosure in U.S. documents released by WikiLeaks that Washington was concerned that the kingdom wasn't able to pump enough oil to keep a lid on prices.

These have risen sharply since January when the Arab world was swept by unprecedented political upheaval and the loss of Libya's output of 1.2 million barrels per day because of civil war there.

At OPEC's ministerial meeting, Saudi Arabia, the world's largest oil producer, pressed for the cartel to boost production by 1.5 million bpd to 30.3 million bpd to curb oil prices that threatened to undermine efforts to recover from the global financial meltdown.

Iran, the kingdom's old rival, has long been hawkish about keeping prices high -- especially now that its economy is being squeezed hard by U.N. sanctions imposed a year ago over Tehran's contentious nuclear program.

"The acrimony that derailed … the meeting has wider implications than the short-term failure to agree a production rise wanted by Saudi Arabia but opposed by price hawks Iran and Venezuela," Financial Times commodities specialist Javier Blas wrote.

"It signals that Riyadh's moderate views on what should be the prevailing oil price carry less weight than in a group now more influences by Tehran and Caracas …

"The collapse of the meeting signals that a majority of the cartel sees oil prices above the $100 a barrel mark as a new floor, rather than ceiling," Blas cautioned.

He argued that in view of the Vienna decision, which in effect scrapped OPEC's production quota system, Saudi Arabia, along with Kuwait and the United Arab Emirates, would be free to produce as much as they want to moderate prices.

Blas observed that the Saudis could beef up their current output of some 9 million bpd, recently increased to cover the loss of Libyan production, to 10 million bpd.

That would pretty much account for Riyadh's capacity for swing production, removing the cushion the global oil market has counted on to counter unexpected supply crises.

The Vienna summit caused considerable unease in the industrialized world as it pondered the prospect of oil prices soaring back to their 2009 peak of nearly $150 a barrel.

None of this was good news for the Saudis, who are digging in to repel the pan-Arab drive for democratic reform.

The last thing the House of Saud wants is constitutional reform, particularly as it wrestles with what could be a messy crisis over who will succeed King Abdallah, who's believed to be 88 and recently underwent surgery in New York.

"It's not clear who has who over a barrel -- but the Saudi response is predicted to be a unilateral increase in production," observed Simon Henderson of the Washington Institute for Near East Policy.

"This might help U.S. gas prices but it means that Saudi Arabia will 'go it alone' instead of exhibiting world energy leadership."

That leadership has been under scrutiny for some time as the Saudis have to allocate more of their oil production to domestic consumption and keeping the country running.

In February, U.S. diplomatic cables released by WikiLeaks showed that in 2007 Saudi officials were warning that the kingdom may not have enough oil reserves to prevent prices escalating.

Sadad al-Husseini, former head of exploration with the state-owned oil monopoly Aramco, told U.S. diplomats the kingdom couldn't achieve the 12.5 million bpd production target to prevent prices soaring.

The Saudis, he said, had overstated their crude reserves, to spur investment, by as much as 300 billion barrels.

"Few governments …are likely to survive the economic dislocation that a sustained price of $200 a barrel would deliver," British commentator George Monbiot said in March.

"The production quotas assigned to OPEC states are a function of the size of their stated reserves," he wrote in The Guardian British daily.

"All members of the cartel have an incentive to exaggerate them. Saudi Arabia posts the same figure now that it did in 1988. Fact or fiction, who knows? The true condition of its oil fields is a state secret."

© 2011 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
Trending News
Join the conversation
x
Feedback