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To: Ditchdigger who wrote (61518)	3/6/2000 8:35:00 AM
From: Wowzer	Read Replies (1) \| Respond to of 95453

This morning's WSJ: March 6, 2000 Iran and Iraq Could Foil OPEC's Move To Reverse Oil-Production Cutbacks By STEVE LIESMAN and NEIL KING JR. Staff Reporters of THE WALL STREET JOURNAL Iran and Iraq, the two major oil producers over which the U.S. has the least sway, are playing a crucial role in determining where oil prices are headed and are positioned to affect the world economy. Together, the two countries account for 8% of the world's 75 million barrels of daily oil production. But tight world oil inventories, high prices and declining production capacity in the Organization of Petroleum Exporting Countries have given Baghdad and Tehran new power to push their separate agendas, analysts say. OPEC members will gather in three weeks to decide whether to reverse the past year's production cutbacks, which reduced world output by about five million barrels a day. Leading producers support an increase as soon as April to cool prices that recently topped $31 a barrel for the benchmark West Texas Intermediate crude. After initial reluctance, Kuwait during the weekend signaled its support for an agreement by Saudi Arabia, Venezuela and Mexico to boost production. Meanwhile, a strike by oil workers in Venezuela withered quickly. Iran still leads the group of price hawks within OPEC and "is one of the key stumbling blocks to coming out with a new decision," said Raad Alkadiri, an analyst with the Petroleum Finance Co., a Washington energy consultant. Officially, Tehran says the second quarter is the wrong time to increase output because demand typically declines and higher production could lead to a quick collapse in prices. But domestic economics are at least as much of a factor. Unlike other major producers, which have extra capacity, Iran's 3.5 million barrels of daily production is about its maximum, analysts believe. Declining investments in its oil fields, as well as continued U.S. sanctions on spare parts, suggest production capacity may actually be declining. "They don't have more capacity to make up for the price drop," Mr. Alkadiri said. Higher output world-wide -- which could result in lower prices -- would do little for the Iranian treasury at a time when payments on $11 billion of foreign debt begin to peak. Iran, which has the backing of Algeria and Libya, also has little reason in the short term to care about the world economy. Its oil minister recently said that oil-consuming nations should lower energy taxes if they are concerned about inflation from higher oil prices. Saudi Arabia, the world's largest exporter and OPEC's clear leader, has a special interest in keeping Iran happy. Relations between the two countries are at their best since the Iranian revolution of 1979. Their rapprochement last year was the linchpin of OPEC's ability to cut back production. "The Saudis might have been more responsive more quickly [to world oil markets] had it not been for this relationship with Iran," said Amy Jaffe, senior energy analyst at the James A. Baker III Institute for Public Policy in Houston. OPEC producers want to continue the cartel's newfound unity, fearing a production free-for-all if OPEC cooperation dissolves. Of course, oil-producing countries ultimately could go ahead without Iran, as they have in the past. Venezuela's oil minister is to visit Tehran in coming weeks to lobby the government to accept higher production levels. But the one million to two million barrels that OPEC is considering putting back on the market could be quickly removed if Iraq withheld its two million barrels a day of exports. In November, Iraqi President Saddam Hussein pushed oil prices up almost $1 a barrel in a single day when he turned off his spigots to protest United Nations sanctions. This time, "with oil inventories very low, any interruption in crude supply could cause prices to skyrocket," said Gary Ross, president of PIRA Energy Group, a New York energy-consulting company. Whether Mr. Hussein would use the opportunity is a matter of debate, but few dispute he has ample reason. Baghdad is feuding with the U.S. about Iraq's need to import spare parts for its oil industry. It could decide to use the tight oil market, analysts say, to get Washington to ease up-or to undermine U.N. sanctions altogether. "We have seen him do this before and we would not be surprised if he resorted to the same tactics again," one U.S. official said. Other OPEC producers' ability to make up for any Iraqi cutbacks would be strained in the short term. Mr. Ross said OPEC production capacity has fallen by about 500,000 barrels a day during the past year. Venezuela in particular has let its capacity dwindle as it diverted oil revenue to pay for the extensive social agenda of President Hugo Chavez. In time, however, OPEC countries should be able to make up any shortfall with their four million to five million barrels a day of excess capacity. Write to Steve Liesman at steve.liesman@wsj.com and Neil King at neil.king@wsj.com