At OPEC meeting, Iran accepts Iraqi parity. But Saudi plan, OPEC's past record cast shadow over emergence of effective pact
Iran's acceptance yesterday of a draft OPEC plan to help dry up the world oil glut is expected to give a psychological boost to oil prices in the short term. But Iran took initial exception to a last-minute proposal from the Saudi delegation for a mechanism to defend a suggested $15 per barrel minimum price for OPEC oil. The Iranian delegation was to consult with Tehran over the Saudi proposal, which came after the Iranian delegation obtained Tehran's approval of the earlier draft.
Even if it is ratified, Gulf-based analysts remain skeptical that the 1989 production accord of the Organization of Petroleum Exporting Countries will put an end to an era of cheating by cartel members strapped for petrodollars.
``How long will the new quota last before they start cheating again? It may be days, weeks, or months, but it isn't going to last forever,'' says an oil company official in the Gulf.
``I don't think it will hold,'' adds a Gulf-based economic analyst. ``It could influence markets in the next few months but in the long run, both Iran and Iraq have tremendous incentive to pump as much oil as possible to boost revenues.''
Under the new accord, worked out during a week of tough behind-the-scenes negotiations in Vienna, Iran and Iraq agreed to have equal production quotas within an overall OPEC production ceiling of 18.5 million barrels per day.
Current total OPEC production is estimated at 22 to 23 million b.p.d. And world oil inventories are reported to be at their highest levels since 1982.
It is hoped within OPEC that the accord represents a new sense of discipline among member states to adhere to their quotas and help push oil prices back up toward OPEC's $18 per barrel reference price.
Oil prices fluctuated in the $12 to $15 range over the weekend prior to the announcement of Iran's acceptance of the accord.
Some analysts have predicted that prices could jump as much as $2 today in reaction to a final OPEC agreement. Many see a price rise as only temporary, with OPEC still facing the difficult challenge of policing and enforcing its new quota.
``When was the last time OPEC had an agreement that meant something six months after the agreement?'' asks an oil trader.
What has led some OPEC watchers to take this weekend's draft accord more seriously is that Iraq would come back into the OPEC quota system for the first time in two years. Iran and Iraq would be assigned equal production quotas set at 2.64 million b.p.d.
It was this aspect of the draft accord - proposed ``production parity'' between the former Gulf war foes - that sent Iranian oil minister Gholam Reza Aqazadeh back to Tehran on Friday for last-minute, high-level consultations. Mr. Aqazadeh had pledged that he would never agree to parity with Iraq, insisting that Iran, the historically larger oil producer, deserved a higher quota.
It is unclear what led to Iran's turnaround on the parity issue, but analysts say from Iran's point of view the OPEC accord would help head off an almost certain sharp oil-price slide. Such a slide would have been a disaster for Iran, coming at a time when the Islamic Republic is unable to boost its oil exports much beyond current levels because of extensive war damage and eight years of neglect to its production facilities.
In contrast, Iraq has steadily increased its production and export potential during the war years, with estimates that it will be capable of exporting 4 million to 4.5 million b.p.d. late next year. While the Iraqis, like the Iranians, are in need of oil revenues for reconstruction, they are not as vulnerable to sharp price fluctuations.
The Iraqis, if necessary, have the ability to boost their production to new, higher levels to compensate for lost revenue from a price fall. Iran doesn't have this option at present, despite the threat made by the Iranian oil minister last week that within a year, Iran would be able to boost its production to 4.5 million b.p.d. Gulf-based analysts say Iranian production capacity may rise, at most, to 3 million b.p.d. within the next year.
Analysts say they are also concerned about whether the United Arab Emirates will abide by its new quota of 987,000 b.p.d. The UAE has consistently violated cartel production restrictions, recently producing more than 1 million b.p.d. above its old OPEC quota of 948,000 b.p.d.