Iran has no tools to make OPEC members keep output quotas unchanged

Oil&Gas Materials 25 June 2011 12:40 (UTC +04:00)
Iran has no any tools to make the OPEC member countries to keep oil output quotas unchanged, said member of the Trend International Expert Council Reza Taghizadeh.
Iran has no tools to make OPEC members keep output quotas unchanged

Azerbaijan, Baku, June 25 /Trend T.Konyayeva/

Iran has no any tools to make the OPEC member countries to keep oil output quotas unchanged, said member of the Trend International Expert Council Reza Taghizadeh.

"Iran does not have any pressure measure to force OPEC member countries to keep oil output level unchanged," Professor Taghizadeh told Trend by phone. "So far, Iran exceeded oil output quota several times. The fixed quota for the OPEC members is just an agreement, not an indispensable commitment."

Tehran would strongly confront any possible move by the oil producing countries to affect market prices, Iran's caretaker oil minister Mohammad Aliabadi said on June, 22 alluding to Saudi Arabia surplus production which faced the strong protest of the OPEC members in the last ministerial meeting of the cartel in Vienna.

Aliabadi whose country holds presidency of the Organization of Petroleum Exporting Countries (OPEC) further described maintenance of the current production level by the OPEC members as the bloc's only weapon to control the prices, and reiterated, "We do not allow anyone to play with our national interests."

Earlier, on June 22, Saudi Prince Turki al-Faisal warned that Riyadh could seek to supplant Iran's oil exports if the country doesn't constrain its nuclear program, a move that could hobble Tehran's finances, The Wall Street Journal reported.

Prince Turki, a former Saudi ambassador to the U.S. and U.K., also said Saudi Arabia is preparing to employ all of its economic, diplomatic and security assets to confront regional ambitions of Iran which "is very vulnerable in the oil sector, and it is there that more could be done to squeeze the current government."

According to Taghizadeh, Saudi Arabia has about 3.5 million barrels spare daily oil production capacity that has not been used so far, but Al-Riyadh keens to increase oil output to reduce international oil prices because Saudis think that high oil prices would cause long-term damage to the international economy, especially to the consuming capacity.

"Unlike Iran's isolated economy, Saudi Arabia maintains tight relations with international financial and economic system," the expert told. "It fears that increase in oil prices would have a negative effect on the international markets and lead to another long-term financial crisis which could cause a sudden and sharp drop in oil prices in the future and damage its own economy while the Iranian isolated economy would not be affected by fluctuations in oil prices."

During the latest OPEC's ministerial meeting in Vienna on June 8, Saudi Arabia tried hard to convince the member states to demand changing oil production limits that have been in place since 2009, but it failed. Many countries stood up to Saudi's measure except for the United Arab Emirates and Kuwait that later refrained from entering talks. Iran, Ecuador, Venezuela and Angola and some other countries opposed the Saudi move.

After ministers were unable to reach consensus to raise crude production, the oil exporting bloc has decided to maintain output levels, with the option of meeting within the next three months to discuss a production hike.

Saudi Arabia, OPEC's biggest producer, possesses 20 per cent of the world's proven petroleum reserves and ranks as the largest exporter of petroleum. The petroleum sector accounts for roughly 75 per cent of budget revenues, 45 per cent of gross domestic product, and 90 per cent of export earnings.

Iran, the group's second-biggest producer after Saudi Arabia, has historically taken a hard line on oil prices, and its OPEC Governor Mohammad Ali Khatibi said on June 6 that his country would argue against raising output because "there is no need to increase production" at this time.

Saudi Arabia increased output by 300 000 barrels, or 3.4 percent, to 9 million barrels a day in March, the highest level since October 2008. Saudi Arabia exceeded its oil export quota by 949 000 barrels.

Prince Turki said in his speech that Saudi Arabia could easily offset any reduction of Iranian oil exports. "To put this into perspective, Saudi Arabia has so much [spare] production capacity that we could almost instantly replace all of Iran's oil production," the prince said.

Recently, Iran was China's major oil supplier four years ago, Saudi Arabia managed to displace it and now the Islamic Republic ranks 4th as a China's oil supplier.

Taghizadeh believes Iran opposes an increase in oil production because Iran uses its full production capacity and has not more oil for export.

"Iran's most oil wells are in the second half of life and its new oil fields are developed slowly because of lack of investments and technologies," he told. "Iran will never get any profits if OPEC increases the production quotas, but will lose, because an increase in production means a drop in oil prices."

Iran is under resolutions adopted by the UN Security Council, as well as additional unilateral sanctions approved by the U.S. Congress and the foreign ministers of all EU countries, which are primarily directed against the banking, financial and energy sectors of Iran.

Restrictions imposed by the EU include the ban on the sale of equipment, technologies and services to Iran's energy sector; the same measure refers to the refining industry. New investments in Iran's energy sector have also been also prohibited as a whole. Because of lack of investments due to the sanctions, the production capacity is decreasing, and therefore, Iran cannot effectively increase production.