OPEC could pour oil on troubled politics

By Barbara Lewis

VIENNA, June 7 (Reuters) – War in Libya, Qatari support for its rebel army and rivalries between Saudi Arabia and Iran need not scupper OPEC’s attempts to forge a new oil output deal in Vienna.

The 50 year-old group has held together through two Gulf wars involving its members and the protracted, bitter Iran-Iraq conflict that claimed the lives of hundreds of thousands. OPEC oil ministers still sat around the same table.

On Wednesday the 12 members of the Organization of the Petroleum Exporting Countries will draw on a tradition of finding common interest in staving off an oil price collapse or cooling an overheated market that can destroy demand for its multi-billion dollar exports.

While Arab world turmoil has complicated the quest for an output deal and could limit the scope of any agreement, analysts say it has also made it important for OPEC to muster a show of unity.

“Regional political issues are much further up the agenda for many countries than an OPEC meeting, but look at the solutions to those issues and they all boil back to the oil price,” said Lawrence Eagles of J P Morgan.

With prices around $115 a barrel for Brent, he said there could be an output increase to help meet an expected rise in demand and tightening of supply in the second half of this year, but the question was “how much?”.

On their arrival in Vienna, several ministers said very little, which in itself could be significant.

The representative of Iran, holder of the rotating OPEC presidency and the group’s second largest producer after Saudi Arabia, made a low-profile entrance through a hotel basement.

He resisted the opportunity for anti-Western rhetoric, telling awaiting reporters through an interpreter that OPEC would make a decision after its meeting had reached a consensus.

The risk rivalries would spill over into the Vienna OPEC meeting mounted when Iran’s President Mahmoud Ahmadinejad sacked his oil minister and seized control of his ministry.

But Ahmedinejad later appointed his close political ally Mohammad Aliabadi as caretaker oil minister after parliament and Iran’s constitutional watchdog said the president had no right to head the ministry.

Aliabadi, whose last job was head of Iran’s Olympic Committee, has scant experience of oil.

Half the other ministers and country representatives who will be sitting with him around the negotiating table in Vienna are also new to the job, including Omran Abukraa, Libya’s OPEC delegation head following the defection of top oil official Shokri Ghanem last week.

No-one was expected to represent the Libyan rebels, removing one possible source of tension, although Abukraa could find himself at odds with Qatar, which has helped the rebels to market oil.



In the context of so many new OPEC faces, Saudi Arabian Oil Minister Ali al-Naimi’s status as the elder statesman is more established than ever.

“There is only one vote that counts in OPEC and it is Saudi Arabia’s,” said Sadad al-Husseini, an oil analyst and former top official at oil giant Saudi Aramco.

Whatever OPEC agrees on Wednesday, it remains the case that Saudi Arabia, the guardian of most of the world’s spare output capacity, can continue its policy of adjusting supply to meet demand, moderating prices and ensuring future customers for its vast oil reserves.

Already, Saudi Arabia plans to raise its production sharply this month. That leaves it up to other producers to decide whether to give tacit support by agreeing to an increase from the group as a whole, which would be the first formal rise since 2007 and the first policy change since December 2008 when OPEC decided on a record supply cut.

The easiest option would be to make official leakage of well over one million barrels per day above the targets agreed in 2008 as the oil price crashed below $40 a barrel.

With prices well above $100, even Shi’ite Iran, which has long supported much higher prices than Sunni Saudi Arabia, might be willing to overlook political differences and agree a production change that is only a confirmation of the status quo.

But a formal output increase that officially adds new oil supplies would be a much grander gesture for both politics and oil markets.