SAUDI ARABIA: More oil flowing?
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Pressure from the U.S. and fears that soaring energy prices are hurting the global economy are forcing Saudi Arabia to consider significantly boosting oil production.
The Saudis are contemplating a “sizable additional increase” in oil production, according to The Middle East Economic Survey. An announcement on possible measures to bring down prices that have reached nearly $140 a barrel is expected later this month when King Abdullah meets with oil producers and consumers in the Red Sea city of Jidda.
In May, the king rejected a request by President Bush to make more oil available, saying that markets should dictate production levels. But costs have since dramatically climbed. Saudi concerns of a global economic slowdown and fears that escalating prices would compel countries to develop alternative sources, which ultimately would hurt the kingdom, have led to a shift in Saudi thinking.
Finance ministers for the Group of Eight nations -– the U.S., Germany, Britain, France, Canada, Japan, Italy and Russia –- urged oil-producing nations on Saturday to increase production.
Rising prices have shaken the world: Gas in the U.S. has reached as high as $4.43 a gallon and India, Indonesia and other Asian nations have cut fuel subsidies, creating anger and panic among drivers.
The kingdom produces about 9.45 million barrels of oil a day. The New York Times reported that the nation was considering raising that by about 500,000 barrels. Some economists believe that such a jump would cater to the West at the expense of Saudi Arabia, which has the world’s largest oil reserves.
“The possibility of pushing up production is coming from pressure by the U.S. and other Western countries,” said Mohammad Fahad Al Qahtani, an economic professor at the Institute of Diplomatic Studies in Riyadh. “But this will speed up the diminishment of our oil supplies and does not reflect the best for our national interests. We’ll have to build new infrastructure to create this new capacity, and this new capacity could end up creating a glut which would hurt us in the future.”
But the weekly newsletter of the Middle East Economic Survey quoted Ibrahim Al Muhanna, a senior advisor in the Saudi oil ministry, as saying: ‘When you see the increase in price and these gyrations -- $11 a barrel in one day -- this is unacceptable to us. . . . This could hurt the global economy and even the long-term interest in oil.’
Magdi Sobhi, an economist in Al Ahram Center for Political and Strategic Studies, said any move by Saudi Arabia would have to be coordinated with market strategies by big consumers, such as the U.S., and production levels from other members of the Organization of Petroleum Exporting Countries (OPEC).
‘If Saudi Arabia is really going to increase the production, it will have to coordinate that with other OPEC countries and get assurances from consuming countries that they will control their market conditions; otherwise, oil prices will fall down significantly.’
He added: “If oil prices keep going up and new alternatives are found in the next 10 to 15 years, the value of oil will decrease and ultimately oil-producing countries will be seriously hit, especially Saudi Arabia.”
—Jeffrey Fleishman in Cairo.