Saudis Put OPEC Talks in Disarray : Proposal for $15 Minimum Price Imperils Output Accord

A meeting here of the Organization of Petroleum Exporting Countries to try to bolster oil prices by fixing new production quotas was thrown into confusion Sunday when Saudi Arabia proposed a new $15-a-barrel minimum price for OPEC oil.

That is $3 per barrel under the $18 benchmark price contained in the oft-violated current OPEC accord as well as in the proposed new production agreement that the 13 cartel members have spent 11 days working on here.

The new pricing proposal threw the talks into turmoil less than an hour after Iran, the last holdout, had announced it would accept an accord on production ceilings that grants Iraq a quota identical with Iran’s.

“Iran is not going to accept this type of idea,” Ferydoon Barkeshli, a senior Iranian delegate to the meeting, said upon learning of the Saudi proposal.

Proposal Defended

Saudi Arabian Oil Minister Hisham Nazer defended the proposal, saying it was designed “to strengthen the resolution (on production quotas) rather than weaken it.”

Nazer said his country wants the $15-per-barrel figure incorporated into the text of the resolution to ensure a firm “floor” under oil prices.

“We called it a minimum price; we did not say it is the reference (benchmark) price,” Nazer said. “In fact, we wanted even to eliminate a reference to $18 just in case under the best of circumstances, when countries do actually adhere to their quotas, the price might actually go above $18.”

Iran’s was not the only negative reaction to the Saudi proposal. Several other delegates said privately that they oppose it because it would be viewed as tacit acknowledgment that OPEC is abandoning the $18 target price in effect since 1986.

This new apparent deadlock at OPEC’s winter conference resulted in cancellation of Sunday’s scheduled plenary session at which the oil ministers had hoped to ratify the new production quotas. They agreed to meet privately again today in a final effort to reach a compromise.

Some delegates even expressed optimism that they will succeed. Venezuela’s oil minister, Julio Cesar Gil, said late Sunday: “I think we will reach an agreement.”

Gil had earlier criticized the Saudi proposal on price, saying, “If you have a $15-per-barrel floor, the floor becomes the ceiling.”

Nazer, however, insisted that a floor was needed to keep crude prices from dropping into the single-digit range.

With the current world glut, crude oil has recently traded below $10 a barrel for benchmark Dubai crude--with North Sea Brent and West Texas Intermediate selling for $2 to $3 higher. Last week’s announcement that the ministers had tentatively achieved agreement on new production quotas sent North Sea Brent up by $1.65 a barrel to close Friday at $14.42.

Before Sunday, the main sticking point at the Vienna meeting had been Iran’s reluctance to grant production parity to Iraq, its enemy in the long Persian Gulf War.

Compromise Reached

This was resolved in a compromise that gave both nations a quota boost, with the Iraqi increase coming out of other countries’ quotas. This compromise was accepted by the Iranian Cabinet on Sunday morning, according to announcements here, and a “final communique” for the conference had already been drafted when the Saudi proposal became known and caused the new delay.

One oil industry analyst said late Sunday that the new deadlock “looks like an attempt by Saudi Arabia to maintain lower prices and humiliate Iran,” which in recent years has consistently demanded that OPEC fix prices at levels that many other cartel members have felt were unrealistically high.

OPEC nations--Saudi Arabia, Iran, Iraq, Venezuela, Nigeria, Indonesia, Libya, Kuwait, United Arab Emirates, Algeria, Qatar, Ecuador and Gabon--provide about a third of the world’s oil exports.

The Vienna talks pitted nations with faltering economies like Iran, Venezuela, Nigeria, Indonesia and Algeria--which want to maximize prices for current revenues--against the big Persian Gulf producers like Saudi Arabia and Kuwait, which prefer stable markets and lower prices.

OPEC sources said they had hoped the cartel’s discipline could be restored after two years of having been unable to agree on effective production ceilings. But now, with the latest deadlock in the talks, OPEC officials were worried about how oil markets would react on today’s opening.