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OPEC wary on suspending limits
VIENNA, Austria (Reuters) -- OPEC has backed away from plans for a formal suspension of output limits in a war in Iraq, raising fears that it may fail to contain a war-fuelled oil price spike. Iran said Monday it would oppose any bid by Western-friendly OPEC states to impose a policy that Tehran says implies support for a U.S. attack against Baghdad, by controlling fuel costs. Gulf OPEC powers Saudi Arabia and Kuwait had hoped to find backing at a Tuesday meeting of the Organization of Petroleum Exporting Countries to set aside production quotas if war prevents Iraqi deliveries. Riyadh is trying to convince the U.S. and other importers that OPEC can compensate for war stoppages without the need for a coordinated release from huge emergency consumer country stockpiles. "Iran will not back politically motivated decisions," Iranian Oil Minister Bijan Zanganeh told the official IRNA news agency in Tehran. OPEC should not adopt any policy that implies support for a "U.S. military assault against one of OPEC's member states," he said. High prices, acting as a brake on world economic growth, closed Monday off 48 cents for U.S. crude at $37.30 a barrel as dealers took profits from recent sharp gains. Prices remain not far from a record $41-a-barrel set in the 1990-1991 Gulf crisis. "The last thing we need now is to worry about oil supplies. People are not looking for a hardline OPEC," said Peter Gignoux, head of the energy desk at Salomon Schroder Smith Barney in London. "This is a perfect opportunity for OPEC to prove that it is a friend to the world community." Spare capacityWhile most in OPEC appear content to permit those with spare capacity to open the taps during a war, there is widespread reluctance to explicitly endorse a formal suspension of quotas. Delegates said that means the group is likely to decide to keep output limits of 24.5 million barrels daily in place and signal the intention to ensure supply in the event of a disruption. "We will do whatever we can up to our capacity," said OPEC President Abdullah al-Attiyah. "We will try our best not to see the world in shock." Behind the scenes Saudi has made clear that it is prepared to pump at maximum, with or without OPEC backing. The only producer with any significant spare capacity, Riyadh has lifted output sharply in recent weeks and is now pumping more than nine million barrels daily of its 10.5 million bpd capacity. Saudi Oil Minister Ali al-Naimi will press his case in Vienna on Tuesday with U.S. Energy Secretary Spencer Abraham for OPEC to be allowed to go it alone, without a drawdown of consumer stockpiles. Abraham has said Washington will tap reserves only as a last resort to cover a "severe" shortage. Strategic inventories held among the 26 industrialized members of the Paris-based International Energy Agency are enough to cover a complete cut-off of imports for four months, or seven months of all OPEC exports. Saudi will be stretched to fill a shortage if war occurs. Iraq's 1.7 million barrels daily is almost certain to shut down and Kuwait as a precaution may close up to 700,000 bpd near its northern border with Iraq, where U.S. troops are poised to invade. Riyadh's ally the United Arab Emirates said that OPEC might not have enough spare capacity to cover war-related shortfalls. UAE Oil Minister Obaid bin Saif al-Nasseri, representing the only country other than Saudi with production to spare, said: "I think everybody is producing almost full." It would be "very difficult" for OPEC to compensate for a dual Iraqi and partial Kuwait stoppage, he said. For others in OPEC the prospect of a post-war price crash is more worrying. Iran and others fear a seasonal fall in demand in the second quarter could coincide with the end of a short war and send prices spiralling lower. "OPEC should have cut its output ceiling had it not been for the political tensions caused by the probable U.S. war against Iraq," said Zanganeh. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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