OPEC agrees to increase production; Iran, Iraq dissent

March 29, 2000
Web posted at: 12:21 p.m. EST (1721 GMT)

In this story: No quick relief expected Timing, politics split cartel Strong U.S. pressure on Gulf states RELATED STORIES, SITES

VIENNA, Austria (CNN) -- After two days of talks, petroleum exporting countries split over whether to raise production and ease a yearlong spike in the price of crude oil.

Nine of the 11 members of the Organization of the Petroleum Exporting Countries -- including Saudi Arabia, the largest producer -- agreed to add about 1.7 million barrels of oil per day to the cartel's quotas. Oil ministers will review the decision in June.

	MESSAGE BOARD
Rising oil prices

But Iran -- OPEC's second-largest producer -- and Iraq refused to agree to the increase, complaining about timing and intense lobbying by U.S. officials. It was a rare event for OPEC, which seeks to operate by consensus.

"In my view, OPEC is not an organization to rubber-stamp the decision already made," Iranian Oil Minister Bijan Namdar Zangeneh told reporters. "Our difference is on principles, and not merely on a few barrels of oil."

The move reverses the cutbacks the cartel implemented a year ago, when oil prices were significantly lower and supply was plentiful. Those production cuts sent the price of oil climbing from $10 a barrel to a recent high of $34.

No quick relief expected

Analysts said the refusal of Iran and Iraq to participate in the agreement would have little effect. Iraq remains under U.N. sanctions from the Persian Gulf war and can export only small amounts of oil, while Iran has very little spare production capacity.

"From a supply and demand point of view, they can't materially affect the balances," said Gary Ross, of the PIRA Energy Group.

But the decision to boost supplies is unlikely to produce immediate price relief, according to U.S. Energy Secretary Bill Richardson.

"The projections that the futures market is making are that you're going to see gradual decreases in gasoline prices," Richardson said on CNN's "NewsStand" program.

"The Energy Information Agency says we could see about 11- cent decrease between now and September. So they're going to be modest, they're going to be gradual, but they're going to happen.

The independent International Energy Agency in Paris said a rise of between 500,000 and 1 million barrels a day is needed just to balance current supply and demand. The agency said an increase of more than 2 million barrels a day -- an amount the U.S. Energy Department had been calling for -- would have helped replenish reserves.

"We are not going to see a significant effect overnight as a result of an OPEC agreement," said Calvin Schnure, chief economist with Chase Securities. "I don't see prices going any higher for the time being, but it will take some time to see the increase of supply push down the price of fuel."

Timing, politics split cartel

All OPEC members agreed that some sort of increase was needed, but Iran supported a smaller increase of about 1.2 million barrels per day.

With Tuesday's move, "We believe that the market will be in equilibrium," Saudi Oil Minister Ali Naimi said. "We believe the supply and demand will be in balance."

Iran and Iraq objected not only to U.S. lobbying but to the timing of the increase, arguing that it was unwise to boost production in the second quarter of the year -- a time of slack demand, compared to the past winter and the coming summer.

Libya and Indonesia objected to the timing as well, but eventually went along with the other OPEC members, officials in the talks said. Observers said the split's political significance was greater than any meaning it might hold for crude prices.

OPEC Secretary-General Rilwanu Lukman downplayed the decision by Iran and Iraq to break ranks with the remaining exporters.

"There have been several instances in the past where instead of a resolution, we've had an agreement that is subscribed to by a certain number of members," Lukman said. "Or we've had resolutions in which a certain number of members have opted out. ... So, this is not unusual."

Strong U.S. pressure on Gulf states

Saudi Arabia led the push for the increase under lobbying from the United States, a close ally. Richardson lobbied eight of the 11 OPEC states and made calls to oil ministers during the Vienna talks.

The United States is the leading importer of OPEC oil, and U.S. troops led the Gulf War coalition against Iraq that defended Saudi Arabia and ended Iraq's six-month occupation of Iraq. U.S. calls for increased production came as gasoline prices rose sharply this year, becoming a political flash point in a presidential election season.

"In our meetings with oil producing countries, we simply and forcefully made our case that increased production is in the interest in both producing and consuming nations," Richardson said. "We made the point that the world is consuming 75 million barrels per day, and it is producing 73."

"I think they felt a little more pressure, and I think the pressure being more public made it more difficult," Ross said.

Lukman said the U.S. effort was not discussed during the ministers' talks in Vienna. But Mamoun Fandy, a Georgetown University political analyst, said the Gulf states could suffer political consequences for going along with the Americans.

"The appearance of caving in to tremendous U.S. pressure will certainly give the upper hand to Iran and Iraq," he said.

Beirut Bureau Chief Brent Sadler and Anchor Wolf Blitzer contributed to this report.

OPEC fails to reach pact
March 28, 2000
OPEC adjourns; no deal
March 27, 2000
IEA: oil output must rise
March 20, 2000
BP leads oil stock surge
March 8, 2000
Oil spurts to 9-year peak
March 7, 2000

OPEC
International Energy Agency
Royal Danish Embassy, Tehran
Islamic Republic of Iran
The President of Iraq
United Nations
U.S. Department of Energy

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.