OPECs Swan Song?

Indonesia's Energy Minister, Purnomo Yusgiantoro, is unhappy with the modest production cut, from June 1, of 2 million barrels per day, adopted by the Organization of Petroleum Exporting Countries last week. He intends to demand further reductions at the June 11 get-together in Qatar.

The deal struck is so convoluted and loopholed that actual output declines may amount to no more than 600,000 bpd, assuming, miraculously, full compliance. Quotas were first raised before the war to 27.4 million bpd - a theoretical level, not met by actual supply. Crude prices, entering a period of seasonal weakening, dropped further on the news.

With Nigerian and Venezuelan crude recovering from months of strife, this downtrend may be temporary. Global excess capacity is a mere 1 million bpd - one fifth its prewar level. As North American and North Sea production declines, the importance of Gulf producers soars.

OPEC's eleven countries - Algeria, Indonesia, Iran, Iraq (suspended in 1990, following its invasion of Kuwait), Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela - control one third to two fifths of global oil output and three quarters of the far more important residual demand - traded between net consumers and net exporters. Residual demand is set to double by 2010.

Still, OPEC - led by Saudi Arabia, now off the US buddy list - faces fundamental problems that no tweaking can resolve. Iraq, in the throes of reconstruction and under America's thumb, may opt to exit the club it has founded in 1960 and, thus unfettered, flood the market with its 2.3 to 2.8 million bpd of oil. Iraqi production can reach 7-8 million bpd in six years, completely upsetting the carefully balanced market sharing agreements among OPEC members.

This nightmare may be years away, what with Iraq's dilapidated and much-looted infrastructure and vehement international wrangling over past and future contracts. All the same, it looms menacing over the organization's future.

Far more ominous perils lurk in Russia, the second largest oil producer and growing. Though the cheapest and most abundant reserves are still to be found in the Persian Gulf, Central Asia and Russia are catching up fast. Ali al-Naimi, the Saudi oil minister may be forced out of office by this apparent crumbling of the organization's stature.

This would be unwise. Naimi is widely credited with engineering the tripling of oil prices to more than $30 a barrel between 1998 and 1999. As the informal boss of the state-owned Saudi oil behemoth, Aramco, he has already introduced postwar output cuts. The oil market is so volatile that even marginal production shifts affect prices disproportionately. Naimi is a master of such manipulation.

Saudi Arabia regards itself as the market regulator. It keeps expensive, fully-developed, wells idle as a 1.9 million bpd buffer against supply disruptions. It is this "self-sacrificial" policy that endows it with tremendous clout in the energy markets. Only the United States can afford to emulate it - and even then, the Saudi Kingdom still possesses the largest known reserves and sports the lowest extraction costs worldwide.

OPEC is, therefore, not without muscle. Saudi Arabia had punished uppity producers, such as Nigeria, by flooding the markets and pulverizing prices. Yet, the organization is riven by internecine squabbles about market shares and production ceilings. Giants and dwarves cohabit uneasily and collude to choreograph prices in what has long been a buyers' market. These inherent contradictions are detrimental. If OPEC fails to recruit another massive producer (namely: Russia) soon - it is doomed.

Paradoxically, the Iraq war is exactly what the doctor ordered. OPEC's only long-term hope lies in a geopolitical shift, the harbingers of which are already visible. Russia may join the cartel, disenchanted by an imperious and haughty USA - or the Europeans may "adopt" OPEC as a counterweight to the sole "hyperpower" newfound energy preeminence.

America announced its intention to pull out its troops stationed in Saudi Arabia. As this major producer is thrust into the role of the "bad guy" - it acquires incentives to team up with other "pariahs" such as France and, potentially, Russia. Controlling the oil taps is a sure way to render the USA less unilateral and more accommodating.

US interest are diametrically opposed to those of oil producers, whether in OPEC's ranks or without. The United States seeks to secure an uninterrupted supply of cheap oil. Yet, a consistently low price level would go a long way towards reducing Russia back to erstwhile penury. It would also destabilize authoritarian and venal regimes throughout the Middle East.

This unsettling realization is dawning now on minds from Paris to Riyadh and from St. Petersburg to Tehran. As the United States looms large over both producers and consumers, the ironic outcome of the Iraqi war may well be an oil crunch rather than an oil glut.

About The Author

Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, PopMatters, and eBookWeb , a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory Bellaonline, and Suite101 .

Until recently, he served as the Economic Advisor to the Government of Macedonia.

Visit Sam's Web site at http://samvak.tripod.com; palma@unet.com.mk

---

Poverty in America: Over 35 Million Living Below the Poverty Line

The problem of poverty in America comes as a surprise.... Read More

Steel Tubing Tariffs Prove that NAFTA Still Needs Work

The North American Trade Agreement (NAFTA) was implemented on January... Read More

Monetary Flows, Consumer Debt, Policy, Trade Deficit and Reality

America has some monetary issues, which need to be addressed.... Read More

Are American Twins - Majority Rule and Public Opinion, Sometimes Just a Couple of Dumbbells?

The idea that the majority shows the will of the... Read More

Public Sector Economies in Transition

In the previous article, we described the various methods developed... Read More

War with Red China Eminent Now

An irresponsible Chinese General made a very telling comment recently.... Read More

Doorstops and Paperweights

Ted Stevens (R-Alaska), chairman of the Senate Commerce Committee, has... Read More

Ohio Department of Transportation; Sector Economic Reality

Ohio's transportation sector seems to be strong, even with Ohio's... Read More

Fuel Prices and Trucking; A Reality Check On What Drives America

It appears we are having a terrible situation with the... Read More

Religion, Wars and Civilization

Many are quick to point out the benefits of religion... Read More

Environmental Economics, Stream of Thought

Entrepreneurs can clean up the environment if we would let... Read More

Free Markets, Wal-Mart, Over Regulation; What an interesting concept?

Unions are angry at the high salary of the executives... Read More

US Government Sore Losers in Not So Neighborly Dispute

I'm getting a little tired of being lectured by that... Read More

Population and Transportation in the Modern Era of International Terrorism

It is important as populations expand to work on the... Read More

John Kerry as a Prosecutor?

Prosecutors with political ambitions are known to modify the truth... Read More

The Lemon Dance: Why Government Doesn?t Work

Former Senator, Daniel Moynihan, accurately summed up the situation when... Read More

FTC Franchise Disclosure Law Invites Violations; Do Not Call Lists

The Federal trade Commission has a rule, which says that... Read More

Maryland Lawyers and Politicians Want More Regulations

We know that in Maryland, which some call "Merry Land"... Read More

Elliot Spitzer for NY Governor

I believe it would be good for the economy for... Read More

Mexico; Look What We Did

The number-one question people ask us is, "What possessed you... Read More

Is Inflation Harmful

Q. Should the Government be concerned if the CPI rises... Read More

A Need to Review Abortion Laws In Belgium

INTRODUCTIONThe aim of writing this article is to encourage the... Read More

Rule of Thumb For Exporting Technology

Rule of Thumb for exporting technology. The American People need... Read More

Justice Department Losing the War on Street Gangs

The Justice Department is at it again; promoting themselves in... Read More

Are Illegal Mexicans Really Bad for America?

I've been thinking again. I know some of my readers... Read More

Technology and International Terrorism

Airlines do not allow cell phones on board, but they... Read More

Illegal Immigration - No Sign of Slowing Down

The Immigration and Naturalization Service (INS) estimated that there were... Read More

Simple Middle East Peace Plan

I. WARS ARE BASIC CONFLICTS OVER LAND. II. BOUNDARIES. THE... Read More

Protectionism in Russia

The new law "Special Protective, Antidumping and Import Compensatory Measures"... Read More

Foreign Spies Troll Gay Bars in Washington DC for National Secrets

The use of homosexual men in the area of espionage... Read More

The Liberal Solution: Assault a Conservative?

Ok, here is what happened: On March 31, 2005, Pat... Read More

Look! America Take a Look!

I heard on the news this week how America continues... Read More

Should the Government Compensate the Clients of TAT?

This, of course, is a political decision. There is no... Read More