Iraq Is the X-Factor at OPEC
The official invitation was sent to former Iraqi Oil Minister Amir Rashid, known to U.S. troops as the six of spades.
But Rashid, one of 52 “most-wanted” Iraqis whose faces festoon Pentagon-issued playing cards, is not expected to attend this week’s emergency meeting of the Organization of the Petroleum Exporting Countries. Neither is anyone else representing the owners of the world’s second-biggest oil reserves.
For the 11 nations of OPEC, the end of the war in Iraq is the beginning of the new petroleum order. Members may soon feel compelled to start cutting back their own production to make room for Iraq’s return to the market. But when OPEC oil ministers gather Thursday in Vienna to try to keep oil prices from collapsing, the plans of the most talked-about member nation will likely remain a big unknown.
“It’s chaos now in Iraq. The government is a vacuum,” said Issam Al-Chalabi, who ran Iraq’s state oil company and served as Saddam Hussein’s oil minister in the 1980s. “No one would dare to go” to the OPEC gathering.
The lack of dialogue between postwar authorities in Iraq and the rest of the oil-producing world may fuel suspicions that the United States intends to use its influence to ratchet up production, flood the market and force prices down.
Crude oil prices already have come down from their prewar high of nearly $38 a barrel. But after falling to $27 after the war began, the price has climbed and was just under $31 in New York trading Monday. That’s higher than the price has been for most of the last two years.
With the war’s quick end, some OPEC members fear that the resumption of Iraqi exports could glut the market, driving prices below $20. But many economists argue that it’s premature for OPEC to lower production, with the global economy in a fragile state and the summer driving season approaching in North America. In California, gasoline prices have just started declining after soaring above $2 a gallon recently.
Some in the petroleum industry think the Bush administration wants Iraq to abandon OPEC or become a second major swing producer, diminishing Saudi Arabia’s market clout. Their anxiety has been heightened by the comments of some who advocate short-term U.S. control of Iraq’s petroleum production and eventual privatization of its oil industry.
But those concerns will have to wait, experts say, because right now, the United States has more pressing priorities.
“There are so many immediate concerns that the issue of Iraq and its OPEC quota is a real down-the-road problem,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “Much more important than what happens with Iraq and OPEC is what happens with Iraq and the United Nations. That is the great uncertainty that hangs over the resumption of oil exports.”
Bush administration officials have been scrambling to assemble a group of Iraqi professionals to oversee the country’s oil industry. But sources say some of their overtures have been rebuffed -- in at least one case by an Iraqi fearful of working too closely with the United States -- and they don’t have anyone in place who could attend this week’s emergency talks.
Even if they did, officials say it’s unlikely OPEC would admit a U.S.-designated representative in the absence of an internationally recognized government in Baghdad. “Even the United States has no authority to nominate anybody now,” said Al-Chalabi, now an oil industry consultant in Amman, Jordan.
The leadership void is creating embarrassing moments for all concerned.
OPEC sent its meeting notice to Rashid, who is on the run and considered a potential war criminal because of his previous role in Iraq’s missile program. OPEC officials explained that Hussein’s regime was still nominally in power when the invitations went out.
America’s inability so far to set up a structure to oversee oil production and to win international support for an interim government is focusing attention on the many unsettled details of the postwar planning effort.
State Department spokesman Richard Boucher said Monday it was up to the people of Iraq to choose their own OPEC delegate. “The United States is not going to anoint or appoint or decide,” Boucher said. “Iraqis have to decide. Whether they will be in a position to decide this by the time the meeting happens or not, I don’t know.”
In Baghdad, former Iraqi Gen. Jawdat al-Obeidi declared over the weekend he would represent his country at the OPEC sessions, accompanied by several officials from Hussein’s Oil Ministry.
But a U.S. official in Iraq, Barbara Bodine, expressed doubt Monday whether Al-Obeidi would get past the door guard. “I don’t think OPEC would take him,” Bodine told Reuters. “We wouldn’t prevent him, but I would find it odd that OPEC would accept him as a representative.”
For more than a decade, decision-making within the oil-producing cartel has been left to the “OPEC 10” nations: Saudi Arabia, Kuwait, Iran, Venezuela, Nigeria, Libya, Algeria, Indonesia, Qatar and the United Arab Emirates. Iraq was left out of the group’s production-sharing agreements because its oil field output was subject to strict international sanctions.
That won’t change right away. It will be weeks and possibly months before Iraq’s wells are producing enough to have a significant effect on export markets, experts say. It is expected to take two years or more to restore Iraq’s pre-Gulf War production capacity of 3.5 million barrels a day. And it may take a decade to develop Iraq’s oil fields to their full potential, assuming Baghdad can come up with the estimated $40 billion or so it needs to get the job done.
No matter who might attend this week’s session on Iraq’s behalf, “he couldn’t change the fundamentals,” said Cambridge Energy Research Associates Senior Director Vera de Ladoucette, who is headed to Vienna to monitor the discussion. “The situation is going to be totally different in two or three years’ time. Then it’s another story. But it’s not the story for today.”
When oil prices spiked in the spring, Saudi Arabia and other members with spare production capacity began pumping full-tilt to reassure nervous traders that supplies would remain adequate during the war.
Market psychology is working in the other direction now, pushing prices down as buyers anticipate the restoration of Iraqi production.
The OPEC 10 countries are pumping about 27 million barrels per day, well above their official quota of 24.5 million barrels, according to the U.S. Energy Information Administration, a government agency.
OPEC President Abdullah ibn Hamad al Attiyah, of Qatar, said the emergency meeting was scheduled so oil ministers could discuss what steps were needed to keep prices from falling below OPEC’s target range of $22 to $28 per barrel.
“We have to work for our survival,” Attiyah said.
Iran, considered an OPEC hawk, is urging other members to throttle back production or risk a price war as Iraq’s wells begin pumping again. “Everyone wants to make sure that prices will not fall,” Oil Minister Bijan Namdar Zanganeh said in an interview on Iranian TV.
Yet even for an organization that controls about three-quarters of the world’s oil reserves, propping up prices is a difficult proposition.
While it is in OPEC’s collective interest to trim production, it is in members’ individual interests to pump as much oil as possible.
And if it reduces output too much, soaring prices could cause a global recession, eventually causing demand to sink and prices to collapse all over again. Some market analysts fear OPEC may overreact to the current price slide, cutting back production by as much as 2 million barrels per day at a time when global oil inventories remain abnormally low.
“We don’t think they ought to touch the quota at all,” said Larry Goldstein, president of the Petroleum Industry Research Foundation in New York. “They should do a little better job policing the production, but leave the quota alone.”
Behind the scenes, Bush administration officials are working overtime to identify and recruit Iraqi professionals and technocrats to assume high-profile positions in the country’s postwar oil industry.
The administration already has picked a retired Shell Oil and Fluor Corp. executive, Phillip Carroll, to chair a high-level advisory board that will oversee the industry during the transition. But sources say the administration wants to place qualified Iraqis at Carroll’s side to increase the panel’s legitimacy internationally and inside Iraq.
One of the administration’s top candidates, Fadhil Othman, has declined an invitation to join the team. Sources said Othman, who held various positions in Iraq’s State Oil Marketing Organization, feared he would be viewed as a U.S. puppet. He could not be reached for comment.
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Times wire services contributed to this report.
