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Old rivalries raise doubts about OPEC
by Staff Writers
Abu Dhabi, United Arab Emirates (UPI) Jun 9, 2011

Deadlock within OPEC over global demands it boost oil production amid turmoil in the Arab world, and an apparent weakening of Saudi Arabia's traditional dominance of the cartel have raised concerns about the organization's future.

These fears were given added weight by the steady escalation in tension between Saudi Arabia and Iran, the main producers of the 11-member cartel and longtime adversaries, brought on by the pro-democracy uprisings that have erupted in several Arab states since January.

This was reflected in the disarray displayed at the ministerial meeting of the Organization of Petroleum Exporting Countries at its Vienna headquarters Wednesday, when Iran, a price hawk, rallied five members to block a bid by Saudi Arabia, traditionally a conciliator, to increase production quotas.

Saudi Oil Minister Ali Naimi described it as "one of the worst meetings we've ever had."

The collapse of unity in an organization that has traditionally placed great emphasis on consensus prompted some analysts to ponder whether OPEC was headed for the scrap heap as a key regulator of the global oil market.

"OPEC is … on the point of breakup," declared analyst Marc Ostwald of Monument Securities of London.

"A broader perspective is that the post-World War II order is fracturing in a spectacular fashion, be it the EU/Eurozone, the World Bank/IMF or OPEC."

"Politics have returned to OPEC with a vengeance," observed Javier Blas, commodities expert of the Financial Times.

"The 'old' politics of OPEC, which split the cartel and marred its influence in the oil market of the 1990s, have made an unexpected return after a decade-long absence.

"The acrimony that derailed Wednesday's meeting has wider implications than the short-term failure to agree a production rise wanted by Saudi Arabia but opposed by price hawks Iran and Venezuela."

But the split reflected a deepening political divide, with the Saudis backed by their Persian Gulf partners Kuwait, the United Arab Emirates and Qatar, while an unprecedented grouping of the others, Algeria, Libya, Angola, Venezuela, and even Iraq, stood behind Iran.

"It signals that Riyadh's moderate views on what should be the prevailing oil price carries less weight in a group now more influenced by Tehran and Caracas," Blas commented.

But, he added, "Saudi Arabia is likely to have the last word, on both prices and supplies, rather than Venezuela and Iran."

"We've faced these difficulties many times in the past," said OPEC Secretary-General Abdullah al-Badri. "I hope we will be able to overcome it."

The Guardian newspaper of London argued that speculation about the demise of OPEC was premature.

"The organization has lasted 50 years," it observed. "It will take more than one acrimonious meeting … to bust the cartel," it said.

"Yet the failure to agree on production policy comes at a critical moment. Regimes are falling in the Middle East and North Africa; tensions between Saudi Arabia and Iran are acute, and the global economy has hit a soft patch, or something worse.

"That's a highly unpredictable cocktail."

In the past, OPEC members usually have been able to set aside political differences to work together on balancing prices and production.

Analysts had expected a modest production increase to aid consumer nations struggling to recover from the global financial meltdown.

The International Energy Agency, the Western countries' watchdog, had pleaded with Middle Eastern oil producers to boost supplies in a bid to keep crude prices down.

But OPEC left its production levels unchanged at round 26.15 million barrels per day, about 1.3 million bpd more than the overall quota of 24.85 million bpd agreed in 2009.

Prices rose sharply, moving toward $120 a barrel. That trend rekindled fears that oil was moving back toward its record high of nearly $150 a barrel.

"Prices are expected to remain volatile as weak economic data from the United States fuel concerns about demand and investors worry that debt-laden Greece and Portugal may drag down other economies," observed The Guardian.

But at the end of the day, OPEC has been one of the main beneficiaries of high oil prices, driven up by the Middle East turmoil.

The cartel is expected to rake in $1 trillion in export revenues this year for the first time if prices stay more than $100 a barrel, the IEA says.

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