Iran set the stage for a showdown in the Organization of Petroleum Exporting Countries Thursday, saying it would not allow archenemy Iraq’s request for an equal OPEC oil production quota.
“No, I don’t accept,” Iran’s oil minister Gholamreza Aghazadeh told reporters in Madrid, on his way to the three-day talks of OPEC’s price and long-term strategy committees. The summit aims to curb the cartel’s excess output, which has depressed world oil prices to 26-month lows in recent weeks.
Iraq, OPEC’s second-largest producer, now pumps an estimated 2.7 million barrels per day and refuses any output quota other than the 2.369 million barrels per day limit granted its Persian Gulf neighbor.
OPEC leaders Saudi Arabia and Kuwait have strongly urged Iran and Iraq to put aside their differences at the talks and help the cartel restore its quota system--and thus higher world oil prices. The cartel’s oil production now exceeds demands by 2 million barrels a day, according to oil industry estimates.
OPEC’s target price is $18 a barrel for internationally traded oil.
November contracts for the U.S. benchmark West Texas Intermediate closed Thursday at $14.60, down 80 cents in nervous trading after sliding below $13 last week. North Sea Brent traded at $13.25, down 15 cents.
Forcing the Issue
The Madrid meeting will give Iran and Iraq a fresh start to make their points on the quota issue, as Aghazadeh and his Iraqi counterpart Issam Abdul Rahim will confront each other Thursday evening for the first time since the Gulf War cease-fire in August.
“Iran and Iraq are going to be forced in a closed room to expose and discuss their positions,” said Mike Unsworth, oil analyst at brokers Smith New Court in London. “They can’t sit there stonewalling for three days,” he added.
The Saudis have turned up the pressure for an Iran/Iraq quota cease-fire, as Saudi oil minister Hisham Nazer warned Iran earlier that Riyadh would block any quota deal unless Iraq were bought back into the cartel’s quota system.
Saudi Arabia’s King Fahd also halted the kingdom’s war of words against Tehran, saying: “The problems with Iran are limited and cannot be continued.” Oil analysts called this a “carrot and stick” approach to the issue.
As OPEC’s largest producer, Saudi Arabia has threatened to turn up its own oil taps and flood the market unless all 13 OPEC members follow their quotas. Such an event could cause a repeat of the 1986 oil crash, when prices fell below $10 a barrel.
Nigerian Oil Minister and OPEC President Rilwanu Lukman and the Kuwaiti oil minister have also called on OPEC members to return to the fold. “We’ve had enough trouble . . . We won’t entertain anybody being excluded this time,” Lukman told reporters in Madrid.
Gulf producers formed a plan Sunday to reintegrate Iraq into the quota system and to use the resulting 17.429 million barrels per day output ceiling as the starting point for 1989 quota negotiations.
If the Madrid talks resolve the Iran-Iraq conflict, detailed quota discussions would take place at OPEC’s full ministerial meeting, scheduled for Nov. 21 in Vienna.