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| Saudi Arabia Vows To Boost Oil Output In Event of War |
| 2003-03-12 |
| Saudi Arabia pledged today to raise its oil production to cover any shortfall in supplies resulting from a military conflict in Iraq and predicted that prices will drop once "the drums of war" are silenced. And Iraqi oil is flowing. "We will make sure the market has enough oil. We will not allow a shortage to emerge," Saudi Oil Minister Ali Nuaimi said at a meeting of the Organization of Petroleum Exporting Countries in Vienna. Mighty nice of him. Wonder what prompted this: pressure, generosity, or the realization that Soddi investments in the West don't do well when the Western economies tank? Nuaimi issued the guarantee even as OPEC backed away from a Saudi-backed proposal to declare that, in case of war, the group would abolish output quotas and leave members free to boost production. Iran objected to the plan on grounds that it would seem to endorse a U.S.-led war against OPEC member Iraq. Instead, OPEC ministers issued a statement that merely noted "increasing geopolitical tensions" and reiterated "OPEC's determination to ensure that the market remains stable and well supplied." The political jockeying within OPEC was not nearly as important as the Saudi position. Saudi Arabia is the only OPEC member with significant spare production capacity and thus the ability to have an impact on world supplies. "I don't care what Iran does or Iraq does. It matters what Saudi Arabia does," said Fadel Gheit, senior energy analyst at Fahnestock & Co. in New York. The Saudis officially favor oil prices of $22 to $28 a barrel, instead of above $35 as at present, because they want to avoid hurting the world economy and thus reducing demand for their oil. Gheit said they also have a political incentive to keep oil flowing, to assuage American anger arising from the fact that most of the Sept. 11, 2001, hijackers were Saudi citizens. They've noticed that we haven't forgotten. The Saudi promise came at a particularly tense time in world oil markets. Prices have approached all-time highs in recent weeks, and a war could quickly shut down Iraqi output. Saudi Arabia and other OPEC members say that there is no shortage of oil in the market and that prices have risen only because of fear of war. "If you eliminate the drums of war, we will see oil prices fall to more acceptable levels," Nuaimi said. It isn't clear how long it would take Saudi Arabia to fully offset a sudden loss of Iraq's output of about 2 million barrels a day. John C. Felmy, chief economist at the American Petroleum Institute in Washington, said he believes it would take the Saudis about 30 days to raise production by 1 million barrels a day from about 9 million at present. "They have the ability over the longer term to produce more than that," Felmy said. Even if the Saudis needed time to make up all the shortfall, however, many market analysts predict that major shortages won't develop in the event of war. They note that world oil demand drops at this time of year, after the winter heating season, typically by about 2 million barrels a day. In addition, the United States and other industrialized countries have large, government-controlled oil stockpiles that could be tapped, as they were in 1991 at the start of the Persian Gulf War. At that time, oil prices immediately fell by $10 a barrel on news that the stockpiles were being made available and that the American-led war on Iraq was succeeding at the start. U.S. Energy Secretary Spencer Abraham, in Vienna for a meeting of the International Atomic Energy Agency, said that the United States was "prepared to act very quickly" to release oil from the Strategic Petroleum Reserve, "but only if we believe a severe disruption of supply exists. Sounds like Energy is on the ball. |
| Posted by:Steve White |
| #1 saudi knows their the next target, but not in the sense that some ultra-hawks think. We will putting political and economic pressure on them to reform - to resist that pressure they need to be as strong as possible economically - it makes more sense for them to do things in their own economic interests - like shipping a lot of oil while prices are high - and win brownie points to boot - rather than try to undermine us now. |
| Posted by: liberalhawk 2003-03-12 08:45:01 |