OPEC Parley Abruptly Breaks Off : Informal Talks Aimed at Mending Quota System Planned

OPEC ministers abruptly recessed their midyear meeting Sunday, so badly split that they were apparently resigned to leaving their flawed oil-quota system in place rather than trying to fix it.

But some ministers clung to the hope that the day-old conference could be salvaged by returning Iraq to the cartel’s quota agreement, a step that needs the blessing of Iraq’s war foe, Iran.

The arm-twisting required to accomplish that was to take place in informal meetings today among a few key ministers of the Organization of Petroleum Exporting Countries. The full 13-nation group is scheduled to reconvene Tuesday.

Emirates Minister Leaves

However, Mana Said Oteiba, oil minister of the United Arab Emirates, left the meeting Sunday--to where isn’t clear--and top aides from other nations were laying plans to leave Vienna as early as Tuesday night. Algerian Minister Belkacem Nabi, meanwhile, served notice that he has to be in Moscow on Wednesday.

The cartel isn’t quite a sinking ship, but such defections leave little hope that OPEC can do anything more than roll over the existing quota of 15.1 million barrels a day for 12 of the 13 members. Ignored or winked at by several nations, the quota has failed to prevent the weakening of oil prices from the $18-per-barrel level of last year to the current $14-to-$17 range.

An extension of the current accord had been predicted, in large part because an expected rise in seasonal demand for oil between now and year’s end should strengthen if OPEC merely keeps producing at its current levels. That fact creates little incentive for bold action.

Timing May Be Off

“We are meeting at a time when demand is increasing,” said Rilwanu Lukman, the Nigerian minister and president of OPEC. “Maybe this is not the right time of year to meet.”

Failure to plug holes in the accord--which in turn is a failure to match an unprecedented mutual production-cutting offer by Mexico and five other non-OPEC nations--would be a disappointment to Lukman and other leaders of the cartel. But it would suit Saudi Arabia and three other Persian Gulf nations, all price moderates, just fine.

Sunday’s meeting, however, illustrated once again that OPEC’s divisions go beyond how much oil to produce and what to charge for it.

The sudden departure of Oteiba, for example, came after the ministers reelected Lukman as president of OPEC, a post for which Oteiba had been mentioned. Another minister, asked whether Oteiba left in anger, smiled and said, “It was complicated.”

Meanwhile, the ministers quickly threw in the towel on their effort to agree on a definition of crude oil. Staff experts had met for a week prior to the cartel’s conference but themselves ended up divided over the correct distinction between crude and related hydrocarbons, a bitterly argued question in OPEC these days.

“It is much too complicated,” Venezuelan Minister Arturo Hernandez Grisanti said after Sunday’s session. “Maybe we will set the (production) ceiling only.”

Though he favors lowering the ceiling, Oteiba said the most likely outcome is an extension of the current quota until September or December. Ecuadorean Minister Fernando Santos Alvite agreed.

The remaining question is the continued alienation of Iraq, whose return to the quota system is the priority of Nigeria’s Lukman at this meeting.

Iraq Won’t Go Along

Iraq has refused to follow its theoretical production quota because it is less than Iran’s. The Iraqis have been producing 2.6 million barrels a day, upwards of 1 million barrels more than they are supposed to, and are laying pipelines to dramatically expand next year. Both nations need oil money to fund their war against each other.

Iran is flatly opposed on principle to giving Iraq the same quota that it has. Although the quota would effectively cut Iraq’s production, it would be hard for the Iranian delegation to explain back home, analysts say. But a complex plan is on the table intended to subject Iraq to the same 2.4-million-barrel ceiling as Iran.

The plan would bring under the quotas about 400,000 barrels per day of crude now “loaned” to Iraq by allies Saudi Arabia and Kuwait. One of several loopholes in the existing accord, that output comes from the so-called Neutral Zone between the two countries.