Iran opposes unlimited pumping - Iraq's former foe against any suggestion of support for U.S.-led invasion

www.chron.com March 11, 2003, 12:37PM By DAVID IVANOVICH

VIENNA, Austria -- Just days before missiles could be flying again in Baghdad, the OPEC producers are wrangling over how to respond to a possible U.S.-led invasion.

RESOURCES • Graphic: OPEC members' outputWhile the cartel members are united in their desire to avoid an oil supply crisis, they are split politically.

Despite sharply higher oil prices, some OPEC members argued today that the world has enough crude to meet demand and blamed the threat of a U.S.-led war against Iraq for fears of a supply disruption.

Before arriving for today's meeting of OPEC oil ministers, Iran's oil minister was telegraphing his opposition to a plan that would suspend the group's production quotas if war breaks out. The plan is backed by Saudi Arabia, OPEC's de facto leader.

Iran is warning the United States' allies within the group that it will oppose any measure that suggests support for "a U.S. military assault against one of OPEC's member states."

"Iran will not back politically motivated decisions," Iranian Oil Minister Bijan Zangeneh told the Iranian news agency Monday, Reuters reported from Tehran.

While Zangeneh's comments may cause some consternation within OPEC, Iran's objections will have little real impact on oil supplies.

The OPEC countries already are pumping far more crude than their official quotas allow. They are earning top dollar for their crude and fear a supply disruption will prompt the United States and other industrialized nations to release oil from their strategic petroleum reserves, which could lower prices.

Despite their supply efforts, the price of crude oil and other fuels are at near record levels.

In New York, crude oil for April delivery fell 51 cents, or 1.4 percent, to $37.27 a barrel in trading on the New York Mercantile Exchange. April heating oil fell 2.28 cents to close at $1.0857 a gallon.

At the International Petroleum Exchange in London, April Brent fell 35 cents to close at $33.75 a barrel.

Natural gas for April delivery plunged 47.8 cents to settle at $6.515 per thousand cubic feet.

The average pump price of gasoline nationally is just short of the record, while it has hit $1.58 per gallon in the Houston area, up 45 percent from this time last year according to AAA's daily fuel gauge report.

Those oil prices currently include a "war premium" of perhaps $6 to $7 a barrel, Qatari Oil Minister and OPEC President Abdullah al-Attiyah said. That premium could evaporate quickly if a war is won quickly and send prices falling.

With war looming, al-Attiyah vowed the OPEC members "will try to do whatever we can." But he warned that even the OPEC producers have limits.

Agreeing to suspend the production ceilings would send a signal to the markets that the OPEC producers are serious about avoiding a shortage.

Tehran's support of Baghdad is striking, considering Saddam Hussein's 1980 invasion of Iran and the bloody, eight-year war that ensued.

But relations between the United States and Iran have been bitter since the fall of the Shah, the taking of American hostages and the United States' tacit support of Saddam during the Iran-Iraq war. President Bush didn't settle any old grievances when he listed Iran among the "Axis of Evil."

But the OPEC producers are not likely to throttle back now because of Tehran's political sensibilities.

Al-Attiyah tried to downplay the discord Monday in his comments suggesting the OPEC countries are committed to ensuring supplies are adequate.

Saudi Oil Minister Ali al-Naimi said little upon his arrival Monday evening, but his countries commitment to making up for any lost production is well known.

"The Saudis already are producing well over quota," noted Raad Alkadiri, an analyst with Washington-based PFC Energy. "They'll reaffirm that commitment at this meeting."

U.S. Energy Secretary Spencer Abraham, who is in Vienna for another, unrelated conference, planned to meet with OPEC oil ministers, but no details of these meetings were available Monday. Abraham will not -- per longstanding U.S. policy -- attend the OPEC conference.

To avoid release from the U.S. Strategic Petroleum Reserve and other emergency stockpiles, OPEC producers know that if war breaks out they must make up for the lost production in Iraq, as well as in parts of Kuwait and anywhere else where the fighting may spread.

Iraq has been exporting about 2 million barrels of oil a day, 1.7 million under the official United Nations' controlled oil-for-food program and another 300,000 or so smuggled out through Jordan and Syria.

Kuwait, meanwhile, has already acknowledged it may be forced to shut down wells producing 700,000 barrels a day in areas bordering Iraq. It is trying to make up for that loss by boosting production elsewhere in the country.

OPEC also is trying to make up for losses in Venezuela, where political opposition to President Hugo Chavez brought oil production to a virtual halt in January. Despite recovery, its output is still less than it was before the strike.

The 10 OPEC producers supposedly controlled by quotas are pumping as much as 25.3 million barrels a day, according to the U.S. Energy Information Administration. That's about 3 percent more than their official limits allow and about 700,000 barrels more than they were cranking out prior to the Venezuelan strike.

Saudi Arabia, OPEC's largest producer, has increased output to 9.2 million barrels a day, up from 8.5 million in January, sending a strong signal of support to Washington. And the kingdom could continue to increase its production to near 10.5 million barrels a day if the war causes major disruptions.

All the concern about a supply disruption caused by a war is in sharp contrast to last December, when OPEC officials were obsessed about the advent of spring and its resulting seasonal drop in demand. "Today, those calculations are different," Qatar's al-Attiyah said.

Overall, OPEC officials are pleased with their own progress. "We're in good shape," Algerian Oil Minister Chakib Khelil declared Monday. "Supply is pretty good."

If supply disruptions do result from the invasion, "OPEC should not be blamed."

While not party to the quota agreement, Iraq still usually sends a delegation to OPEC meetings. But Iraq will not be represented here today. Saddam has ordered all of his European-based diplomats to return to Baghdad, a diplomatic source said.

Besides the OPEC countries, a number of nonaligned producing nations -- Mexico, Russia, Angola, Oman and Syria -- are here to show their support for the cartel's efforts.