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Arabs keep “oil weapon” under collective
belts
The
major Arab oil-producing countries gave little support to Iraqi calls
for the deployment of “the oil weapon” against the United States
and other countries perceived as pro-Israel. Despite growing
frustration with the escalating conflict in Palestine, Iraq itself was
ultimately the only major oil-producing country to follow up on the
oil-sanctions threat.
On
April 8, the Iraqi leadership announced the suspension of all crude
exports, currently running at about 2.2 million barrels per day, from
its Mina Al Bakr terminal on the Persian Gulf. The decision by
President Saddam Hussein caused ripples throughout the Arab world,
with popular sympathy swinging behind Iraq as other Arab governments
appeared unable – or worse, unwilling – to act in the face of
Israeli aggression.
Immediately
following the Iraqi cut, benchmark crude West Texas Intermediary
climbed to almost $28 per barrel, before slipping back down again when
it became clear that other states would not get on board. Oil prices
on the London market also moved higher, and had also declined by the
end of the week, as hopes lingered that the Middle East visit of US
Secretary of State Colin Powell might produce a ceasefire or an
Israeli withdrawal.
Non-Arab
Iran, the world’s second largest oil producer after Saudi Arabia,
however, indicated the day after the Iraqi announcement that it would
also halt supplies to those countries with ties to Israel “at the
appropriate time.” The statement came after supreme leader Ayatollah
Ali Khamenei called on Arab and Muslim oil producers to implement a
“symbolic” one-month embargo in support of the Palestinians.
Even
reform-minded President Mohammad Khatami, in a letter to Qatari emir
Sheikh Hamad bin Khalifa Al Thani, whose country holds the rotating
chairmanship of the Organization of the Islamic Conference, urged oil
producers to disrupt production, state-run Tehran radio reported on
April 8.
“It
is expected that Muslim oil-producing countries will simultaneously
cut oil exports to the main supporters of Israel, at least for a
month, to show their serious protest to this tragedy, and to pressure
other governments to exert pressure on Israel,” a radio broadcast
quoted Khatami’s letter as saying. However, Iran soon changed its
mind, promising to maintain oil production after other OPEC members
spoke out against an embargo.
OPEC
president and Algerian energy & mining minister Chakib Khelil said
on April 9 that OPEC was against the strategy of using oil to achieve
political ends. “OPEC has already stated that it would not use the
oil weapon and reduce its production, while its objective is to supply
the market when there is a need,” Khelil told the Algerian Press
Service. He also stated that “each country is sovereign and can take
the decisions that match its economic and political interests. But for
the time being OPEC has taken no position with regard to this subject
and will not take any decision for any type of embargo.”
Traditional
swing producer Saudi Arabia tried to calm the market by talking down
the idea of an embargo. Saudi prince Mohammed bin Turki said cutting
oil supplies would be self-defeating, and would damage oil producers
more than the intended target, the Saudi daily Al-Watan reported.
Saudi
oil minister Ali al-Naimi added, according to the April 9 edition of
London-based Asharq Al-Awsat, that there was no threat to world oil
supplies because of the Middle East conflict. Asked if Saudi Arabia
would increase oil output to maintain prices in the case of an
embargo, he replied: “The kingdom’s position regarding the
reliability of supplies has been announced on more than one occasion,
and I don’t believe that anything could threaten the reliability of
supplies on the global level.”
The
negative reaction to the oil-weapon concept, even among Arab
countries, reflects lessons learned from the 1973 oil embargo, which
ultimately had the effect of encouraging oil-importing countries to
diversify their energy sources away from OPEC and the Arab world,
dragging the cartel’s international market share below 50 percent.
According to industry analysts, another embargo would play out
similarly, allowing non-OPEC oil producers – like Russia, waiting in
the wings to increase output – to gobble up even more market share.
“The
market share of Gulf states and other Arab countries now stands at
half of what it was in 1973,” Saudi petrol expert Ihsan Bu-Hulaiga
said, according to Agence France Presse. Even an across-the-board Arab
boycott would thus be less effective than three decades ago.
Bu-Hulaiga, a member of the kingdom’s Shura Consultative
Council, suggested that even if Iran and Libya were to join Iraq
in cutting production, this would have “no catastrophic impact on
the international oil market.” Global surplus supplies of seven
million barrels a day, equal to the OPEC output quotas of those
three countries, would ensure that “the impact would be minimal,”
he said, adding that a collective Arab oil embargo would be “close
to suicide, particularly on the part of the Gulf Arab states,” which
are currently faced with budget deficits and recessionary difficulties.
Still,
the idea did attract a few cautious supporters. Munir Hamarneh,
professor of economics at the University of Jordan, advocated the use
of what he called “oil diplomacy,” but insisted that the weapon
“should be carefully wielded so as to avoid derailing the fledging
global economic recovery.” He added that such a step would require
strong political will and precise calculations, and could backfire if
it led to a retreat in international support for the Palestinian
cause.
With
the OPEC member states unwilling to unsheathe their collective weapon,
the idea of settling oil contracts in euros, rather than US dollars,
has re-emerged as a means of pressuring the United States. This
option, previously given little credence, has gained ground recently in
the Saudi Arabian media, as Arab popular opinion loses patience with
the lacklustre responses by Arab governments to the continuing Israeli
offensive. “Linking oil sales to the euro is grounded in sound
economics, as well as political action,” said Saudi economist Beshr
Bakheet, of Bakheet Financial Advisors.
Still,
for the Gulf, whose economies have for so long been tied to the US
dollar, old habits will prove hard to break.
GLEN
C. CAREY
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