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

---

Make Plastic Out of Corn

Here is an interesting thought; Corn to make Plastic An... Read More

The Morality of Using Stem Cells

One third of all fertilized eggs spontaneously abort and are... Read More

Delta

As you know Delta Airlines is close to bankruptcy. Their... Read More

Seattle Lawyer and Financial Freedom

We are destroying our freedoms and slowing innovation, due to... Read More

Oil Prices Effect The United States Competitiveness

Just because we have been leading the World in innovation... Read More

Franchising Democracy and Creating Cohesive World Government

There are so many problems with our perceived perfect checks... Read More

Are We Serious About Fuel Alternatives?

As you can see from some of our previous articles,... Read More

Another Whistleblower -- is Anyone Listening?

The plight of whistleblowers ? those employees who sound the... Read More

Electronic Commerce Taxaton: Emerging Legal Issues - Part II

UNAUTHORIZED HACKINGThe term "computer hacking" traditionally describes the penetration into... Read More

The Revolt of the Poor: The Demise of Intellectual Property?

Three years ago I published a book of short stories... Read More

Screening Trucks and Containers Coming Into Our Country

We presently have adequate sniffer devices in this country to... Read More

Uncle Sam Cracks Down Online!

In a move that rocked the online world and left... Read More

Homeless, Trash, Drugs and Transient Issues

In Police Magazine I read a great article about transient... Read More

Asking For Proof in the Economic Pudding

There are no stupid questions, only stupid people. Ask an... Read More

Social Security Rant

As the Baby Boomer Generation continue to get older, one... Read More

Mommas, Dont Let Your Babies Grow Up to Be Lobbyists

For many years now, I have been the proud holder... Read More

Lets Make Some Things Clear about John Thune/Dan Nelson/MetaBank MetaGate

Let's make one thing clear: This Dan Nelson Automotive fiasco... Read More

Federal Trade Commission Will Not Monitor MLM Companies

Having been to every city in the country over the... Read More

Bodyguard Training in Mexico; My Experiences While Providing BG Training in Mexico

Mexico the country of Salsa, Tortillas and Corruption; I first... Read More

How Can We Elect Good Leaders?

Absolute power corrupts absolutely. Men desire power. Give power to... Read More

Public Schools Are Un-American

Compulsory-attendance laws force parents to send their children to public... Read More

Sarbanes-Oxley Reality Check on Bureaucracy

There is no doubt in hindsight that Sarbanes Oxley was... Read More

Going All Out to Win a War

Conventional warfare is getting to its limits. Soon wars will... Read More

Should Judgeships Be a Political Event?

Thought of the day; Questions about the judicial system. If... Read More

Freedom on the Internet

Throughout all recorded history on our lovely little planet, Earth's... Read More

Bush Panders America?s Kids to Saudi Pederasts

President Bush and Secretary Powell should hang their heads in... Read More

Responding to Article: Logic Class 101 Applied to the Minuteman Project

In response to Douglas Bower's article; Logic Class 101 Applied... Read More

Global/Israeli Corruption!

What depth of blind insanity has inflicted itself upon Israel's... Read More

More Devastating Than a Nuclear Bomb

Despite their signature on the Biological Weapons Convention of 1975,... Read More

NASCAR to be Shut Down by FTC?

The Federal Trade Commission has very important Anti-trust Laws. They... Read More

Dealing With UK Water Rates Debts: What You Need To Know

UK Water RatesYOU CANNOT BE DISCONNECTED FOR WATER RATES DEBTSWater... Read More

Osama bin Laden Needs a Pay Raise

Osama bin Laden probably needs to get a pay raise,... Read More

Workmens Compensation Lawyers, Lets Raise Minimum Wage; No Lets Not, Say We Did, We Have

The debate to raise minimum wage in California is totally... Read More