Experts: Iran's OPEC presidency not to affect oil market

Experts: Iran's OPEC presidency not to affect oil market

Azerbaijan, Baku, Dec.15 / Trend T. Konyayeva /

Iran's election as the country presiding over OPEC will not affect the situation on world oil markets, or mitigate the sanctions imposed on the country due to its nuclear program, experts believe.

"Iran's presidency will have minimal impact on the price of oil from what it would otherwise be. OPEC is above all a business organization with many members with many goals and the presidency answers to them, not the other way around," Professor at the U.S. National Defense University and Georgetown University Paul Sullivan wrote Trend in an e-mail today.

In September, Iran was elected as the country-president of OPEC. Iran wass elected by 12 member countries of the oil cartel at the organization's regular meeting at its headquarters in Vienna. The last time the country, which is one of five founders of OPEC, presided over the organization 36 years ago, in 1974.

Presidency in the OPEC was transferred to Iran on Dec. 11 from Ecuador during an extraordinary meeting of the oil industry ministers of the organization's member countries in Quito, Ecuador.

Iranian Oil Industry Minister Seyyed Masud Mir-Kazemi, currently the deputy director general of OPEC, will chair the organization for a year as director general from next year.

U.S. Northeastern University Professor Kamran Dadkhah believes that the Iranian presidency will have no effects on oil prices.

"Iran may make a lot of noise during the Organization's meetings. But there will be little real effect on the price, "Dadkhah wrote Trend in an e-mail.
He said, in general, OPEC does not have the clout over oil market that it is attributed to it. It is true that OPEC controls about 80 percent of proven oil reserves.

"But it produces only about 35 percent of world oil output. Furthermore, OPEC members need the oil revenue and, therefore, cannot easily agree to a reduction of their outputs," Dadkhah said.

According to him, only Saudi Arabia is in the position of affecting the market. But the Kingdom's policy has always been for moderation and stability in the market.

OPEC is a cartel of 12 countries: Iran, Algeria, Angola, Ecuador, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
Inside OPEC, Iran has the third largest proven reserves (after Saudi Arabia and Venezuela) and ranks second (after Saudi Arabia) in production.
According to BP, as of Jan. 1, 2009 proved oil reserves of Iran amounted to 137.6 billion barrels. Oil production in the country in 2008 exceeded 215 million tons with domestic consumption of more than 86 million tons.

Nevertheless, due to lack of investments as a result of the imposed sanctions the production capacity is decreasing, so Iran can not effectively increase production. Whereas the country produces 12 percent of OPEC and 5 percent of world oil output, it exports only slightly more than 60 percent of its output.

Regarding oil production quotas, Sullivan said they can be changed in OPEC, but not unilaterlally.

"The presidency has a lot less power than some might think. As time goes on and reserves change quotas may change anyway," he said on his own.

On Dec. 19, at an extraordinary session of OPEC, held in Quito, the organization's member countries' ministers decided to keep the oil production quotas unchanged, despite the wave of price hikes on "black gold."

OPEC has not changed the oil production quotas since late 2008.

Dadkhah believes that most likely the quotas will not change, as OPEC members need the revenues generated by oil exports. Most have made large scale commitments.

"Only members who have stashed away large sums could afford to reduce their export and revenues. Among the member countries only Saudi Arabia is in a position to swing the output. But as mentioned before, Saudi Arabia's policy aims at a stable energy market," he said.

Regarding the sanctions imposed on Iran, Sullivan doubts that Iran's presidency will affect their mitigation.

"The most important way to change the sanctions on Iran is for Iran to be more open and less hostile," he said on his own.

The U.N. Security Council adopted another resolution, which provides for new sanctions against Tehran in connection with its refusal to cease uranium enrichment on June 9. After adopting Resolution 1929, the U.S. Congress passed a bill on unilateral anti-Iran sanctions on June 24.Later, in July, EU leaders, and later foreign ministers, proposed at a meeting in Brussels additional sanctions against Iran. On Oct. 25, EU foreign ministers approved imposing additional sanctions against Iran at a meeting in Luxembourg.

Restrictions imposed by the EU include the ban on the sale of equipment, technologies and services to Iran's energy sector. This is also applied to oil refining industries. Also new investment in Iran's energy sector is also banned as a whole.

"Unless there are changes in overall policies and postures of Iran, I do not think that the presidency of OPEC in itself will make any difference on the issue of sanctions," Dadkhah said.

"Given Iran's position in OPEC and considering the fact that it was a founding member of the Organization, Iran should have occupied the presidency of OPEC at least a couple of times during the past 36 years," he said. "Yet Iran's belligerent policies toward the West had isolated it," he added.

According to Dadkhah, OPEC members did not want the organization to be associated with such polices.

"Iran's presidency in OPEC will be less effective than if Iran had a better relationship with its neighbors and the world," he said.

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