Iran and Nigeria Team Up to Oppose OPEC
Summary
Iran has invited Nigeria's president to visit soon, suggesting that
the two countries could be coordinating their positions so that
they can oppose the extension of oil production cuts agreed to by
the Organization of Petroleum Exporting Countries (OPEC) last year.
Both Iran and Nigeria have good reason to cash in on current high
oil prices and both have histories of cheating on OPEC quotas. If
this occurs again, not only will oil prices drop, but the warming
relations between Iran and Saudi Arabia could cool as well.
Analysis
Iran's Foreign Ministry announced Jan. 11 that Nigerian President
Olusegun Obasanjo accepted an invitation to visit Iran soon. The
invitation was extended to Obasanjo by Iran's ambassador to
Nigeria, on behalf of Iranian President Mohammad Khatami. The
Iranian Foreign Ministry's press statement added that a date for
the visit had not yet been fixed. The proposed visit will most
likely involve some discussion of the upcoming OPEC meeting in
March, at which the 11 members will discuss extending the current
production cuts.
Saudi Arabia and Venezuela first discussed the possibility of
extending oil cuts during a Nov. 20-21 conference on foreign
involvement in developing Kuwait's oil fields. Since then, Riyadh
and Caracas have been strong advocates of extending OPEC quotas.
Saudi Arabia's economy is vastly dependent on the price of oil, so
naturally Riyadh wants prices to remain high throughout 2000.
Venezuelan President Hugo Chavez wants oil prices to remain high
because he needs to have reliable revenues to fund his populist
social agenda.
Enacted in March 1999, the production cuts are officially set to
expire at the end of March. Several other member nations have
voiced support for extending the cuts past the March deadline.
According to a report by Platt's Oilgram news, on Dec. 2 Algerian
Oil Minister Youcef Yousfi said he saw no reason for OPEC to raise
crude oil output in March. He added that he hoped OPEC would be
able to formulate a mechanism to "control" the quota system in 2000
and achieve a "real" balance in the market. Also on Dec. 2, Kuwaiti
oil minister Sheikh Saud Nasser al-Sabah said an extension of the
cuts beyond March was a strong possibility.
On the other hand, Iran and Nigeria have pledged to maintain
production cuts until the March 2000 deadline - but they have
remained curiously silent on extending the cuts. Qatar's oil
minister has indicated that OPEC is privately divided. He told
OPEC's official news agency that, "most OPEC countries prefer to
extend the current production cut agreement beyond March."
Except for Indonesia, Iran and Nigeria have the most to gain by
breaking free of OPEC's limits and boosting production. Both Iran
and Nigeria were brought grudgingly into production cuts, in a deal
driven by Saudi Arabia and Venezuela. Both Iran and Nigeria have a
history of cheating on OPEC quotas. The Paris-based International
Energy Agency (IEA) reported that OPEC supply cuts fell from 91
percent to 87 percent in September, and that notable gains took
place in Nigeria. In April 1999, Iran only made 79 percent of its
promised cut, according to the energy newsletter Petroleum Argus.
Most importantly, both countries have discovered new oil reserves
and need the revenues with which to develop infrastructure in these
fields. Iran, which is breaking out of its international isolation
[http://www.stratfor.com/MEAF/commentary/m9909222137.htm], is
trying to attract foreign investment to develop new fields in the
south. The current high oil prices - hovering around $24 per barrel
- make this an ideal time to boost production and grab a quick
windfall of cash. In Nigeria, ethnic unrest has hindered production
and helped keep the country's production in line with OPEC's
quotas. The strife can be resolved by the use of force, and
Obasanjo has recently indicated he will do so if necessary
[http://www.stratfor.com/MEAF/commentary/m9911222215.htm].
Considering Iran and Nigeria's current state of affairs, it is
logical that Khatami's invitation to Obasanjo was actually extended
so that the two can forge a joint front in the upcoming
negotiations on OPEC quotas. This would pit Iran and Nigeria
against Saudi Arabia and Venezuela. In March, if Iran and Nigeria
decide to capitalize on high prices and flood the market despite an
extension of OPEC quotas, the price of oil will fall significantly
[http://www.stratfor.com/MEAF/commentary/99011162305.htm].
As significantly, such an event will have an impact on political
relationships in the Persian Gulf. Relations have warmed recently
between the Gulf's two most important regional powers, Iran and
Saudi Arabia. But over-production by Iran and falling oil prices
would strike a significant blow against Saudi Arabia's oil
dependent economy. Riyadh might perceive this as an Iranian attempt
to gain leverage in the relationship and ties would promptly cool.
(c) 2000, Stratfor, Inc. stratfor.com
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