Postwar Iraq may kill OPEC
Privatized oil industry may ramp up global output
Vienna (AFP-Jiji) A postwar Iraq could kill off the Organisation of Petroleum Exporting Countries (OPEC) if it were to leave the Cartel in a bid to produce as much oil as it can outside its quota system, analysts warn.
" If the Iraqi oil industry is privatized, forget about OPEC, it is dead" said LEo Drollas of London's center for Global Energy Studies (CGES).
He said postware Iraq was likely to demand to be allowed to export the same amount of oil as neighbouring iraq, like it did before it was kicked out of the cartel in 1990 for invading Kuwait.
Iran currently produces 3.59 million barrels per day.
"Iraq will want to produce as much as it can as quickly as it can to finance its reconstruction costs. Iraq will say: "We want at least parity with Iran," Drollas said.
He added that OPEC would resist, as this would mean scaling down its other 10 member's quotas, and at this point "Iraq will have to strike a decision wether to stay or to leave".
Neil Patrick, a researcher for The Economist weekly, sait it was "very unlikely in the short term" that Iraq, a founding member would break away from OPEC.
"Iraq's production will not exceed 3 million barrels per day for a couple of years" giving the dilapitated state of its infrastructure, he said.
"But on the longer term there is a potential for disputes with OPEC on output.
"When Iraq has enhanced its production capacities, it might want to compete with Saudi Arabia (the world's biggest oil exporter). The question will be what quota constraints will be imposed by OPEC and IRaq might than choose to opt out."
"Iraq might well become a Trojan horse for the United States," he said hinting that Washington could encourage the oil makret to be flooded to help achieve its foreign policy objectives.
Hawks in the U.S. administration believe that certain OPEC member countries use their oil revenues to finance terrorism.
If Iraq were to rapidly increase its oil production it could flood the world market and push the price of oil below $18 a barrel, while it hovered around $30 a barrel before the start of the war.
The hawks are counting on such a drop in oil price to stimulate growth in the United States and the rest of the West and to devastate the economis of Iran & Libiya, two OPEC members considered rogue states by Washington, and to create conditions that will help topple their regimes.
Mehdi Varzi, from the British bank Dresdner-Kleinwort-Wasserstein, said however that Iraq was unlikely to leave the OPEC fold.
He argued that OPEC should review its quotas as "some countries want a bigger market share. Algeria, which produces way over its quots and Nigeria for instance. Sauid Arabia will have to step back."
An PEC source , who did not want o be named, said the Vienna based cartel was heading for a quota rethink.
"The ministers are aware that OPEC needs a new ststem of quotas. Our experts will met in June in Vienna and make certain recommendations to the next ministerial meeting in September. The new system should reflect the reality of the market."
OPEC produces about 35% of the world emand for oil and is loosing market share to non-members, particularly Russia.
The source said OPEC "might consider lowering the price band" which currently stands at between $22 and $28 a barrel, to right down to $18 and $20 a barrel.
A mechanism adopted in March 2000 allows the cartel to bring its production below half a million barrels per day if the price of crude were to stay below the $22 barrier for 10 consecutive days.
Similarly it could push up production if the price were higher than $28 per barrel for 28 days.
As it embarks on these reforms, OPEC wil "try to convicne Iraq to continue with us. We have no illusions about the problems OPEC will have to face if Iraq leaves the organization," the source said.
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