Saudi-Iran rivalries high ahead of OPEC meeting

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By GEORGE JAHN, Associated Press

VIENNA (AP) — OPEC ministers are coming into a meeting deeply divided over how much crude to pump, with Saudi Arabia keen to keep a lid on prices, rival Iran pushing to cut production and Iraq expected to back Iran, its longtime foe under Saddam Hussein.

The divisions will test the unity of the Organization of the Petroleum Exporting Countries, which sees itself as the oil market's prime regulator. The 12-nation group is likely to paper over differences Thursday by deciding to leave output unchanged despite the current overproduction. But the disagreements might be too deep to resolve and the meeting could break up in disarray.

The gathering comes as many of the world's major consuming nations are struggling against a stubborn economic downturn that could be exacerbated by any decision to inflate oil prices by cutting supply.

But Thursday's meeting has a significant geostrategic dimension as well. Sanctions levied by the U.S. over Tehran's refusal to curb its nuclear program have already cut significantly into exports of Iranian crude — from about 2.5 million barrels a day last year to between 1.2 and 1.8 million barrels now, according to estimates by U.S. officials. A European Union embargo on Iranian crude that starts July 1 will tighten the squeeze.

The embargo is exacerbating tensions between traditional rivals Saudi Arabia — a Sunni Muslim nation — and Shiite Muslim Iran, who are jockeying for influence in the Middle East as well as in OPEC.

Iran has warned the Saudis not to use the oil weapon against it by increasing supplies to countries that no longer get Iranian crude due to the sanctions, and Iranian oil minister Rostam Ghazemi on Wednesday warned the United States and Europe that their tactics will backfire.

"The use of instruments such as sanctions or direct military interventions in energy-producing countries will increase the price of oil and market volatility," he told an OPEC seminar.

For his part, Saudi oil minister Ali Naimi has denied tightening the screws on Iran, telling reporters his country sells to whoever buys.

"We don't sit and say 'we want to sell to this country or that country (or) whatever," he said.

But Saudi overproduction is clearly rankling the Iranians. In comments to Iran's Mehr news agency, former Iranian oil minister Gholam Hossein Nozari noted that "political issues have overshadowed OPEC," while analysts say the political implications of Saudi Arabia's production policy cannot be ignored.

"You do wonder what's tied up perhaps with the Iranian political issue," said Neil Atkinson, director of Energy & Utilities Research and Analysis. "Of course the lower the price at the moment the more damage that does to Iran."

Jason Schenker of Prestige Economics said the Saudis already are making up for the reduced Iranian supply, "and they will replace even more barrels after July 1st,"

"As such, there is going to be some serious tension between the members at this OPEC meeting."

In another manifestation of their rivalries, both Iran and the Saudis are fielding candidates for the post of OPEC secretary general, to be filled in December when Abdullah Al-Badry of Libya retires. But Ecuador is also in the race, along with Iraq, and expectations are high that the ministers will opt for Wilson Pastor of Ecuador at this meeting or the next as a compromise.

Iran and fellow price hawk Venezuela see $100 as a fair price for a barrel of U.S. benchmark crude — a level substantially above the present price. Venezuelan oil minister Rafael Ramirez described that price Wednesday as "the minimum necessary" for a just return to producers.

An OPEC report released Wednesday showed that its members are already producing nearly 33 million barrels a day — close to 3 million barrels more than its overall quota and the most it has pushed out in four years.

Plentiful supply and weakening demand from the United States, China and the European Union have caused prices to sink more than 20 percent over recent months, with U.S. benchmark crude now about $83 a barrel and Brent, used to price international varieties of crude, below $100 a barrel.

"Relative to a year ago, global demand for oil is weaker ... while supply is robust," analyst Stephen Schork said in a research note Wednesday.

Iran and its backers have been usually defeated by Saudi Arabia — OPEC's powerhouse that accounts for nearly a third of the organization's production — and its Gulf supporters, and Naimi signaled ahead of Thursday's meeting that his country was not prepared to cut back output .

"When customers come, what do you do?" he asked reporters. "They say we want oil — what do you do?

"You give it to them. That's the business we are in."

But Naimi does not always get his way.

OPEC's ministerial meeting a year ago broke up in disarray with no agreement on production after an acrimonious session he described as one of the worst ever. This time around, Iraq could increase the pressure on the Saudis by joining those calling for output restraint. Baghdad has played little role in recent years in OPEC decision-making but has progressively shaken off decades of sanctions and war and is now exporting around 2.5 million barrels a day, giving it a significant voice.

Reflecting Baghdad's stance ahead of the meeting, Iraq's OPEC president, Abdul Kareem Luaibi, has noted the "tremendous surplus that has led to this severe decline in prices."

Atkinson, the analyst, said Saudi Arabia' push to lower prices further could backfire, resulting in free-fall that could leave the country short on its main revenue source and "very uncomfortable."

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Noura Maan, Margaret Childs and AP video reporter Philipp Jenne contributed.

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