Commodities and Futures: Oil cartel members will have to get their public relations act together

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The Independent Online
LAST WEEK'S Opec meeting was not the most successful in its history. Indeed it was a farce, for what should have consisted of a day and a half of handshaking and head-nodding turned into a public relations disaster.

Ecuador - not a large oil producer but a long-standing loyal member of the cartel - decided to leave. Its reason was understandable: it is desperately short of foreign currency, and needs both to jack up production (which is forbidden under last week's agreement) and to save the dollars 4m (pounds 2.3m) or so it spends on fees and on sending ministers and officials to Opec meetings.

It seems strange that Opec did not realise that it was in danger of losing a member and that it could not persuade Ecuador to stay. Saudi Arabia could probably have found a few million dollars in its back pocket to cover the odd trip from Quito, and a little flexibility on the agreement (which was not a solemn and formal binding, but merely a communique to the press) would surely have been possible.

Instead, Opec has been embarrassed by the loss of a member for the first time, and it seems quite possible that there will be more. Analysts mention Gabon, Qatar and Indonesia as possibly quitters in the future. Of course, if Opec manages to hook Russia or one of the other former Soviet republics, these losses will be more than countered - but that must be a remote possibility for the next few years.

Then there was Iran's refusal to attach its name to the communique, and its declaration that it would increase production as it saw fit. Though there is no doubt that Tehran does want to build up production to try to recapture the market share it held before its war with Iraq, there were also incidents at the meeting that created extra tension.

'The Saudis irritated the Iranians,' one analyst said, 'especially by being so friendly with the Kuwaitis.' In addition, he said, the Iranians may have understated their real production, so when Opec agreed to a freeze, they would have found themselves faced with making a cut.

Whatever the truth, Opec's officials failed to pour oil on troubled oil, and as a result the organisation will have to work hard to polish an image that has been unnecessarily tarnished.

None of this is to say that the cartel is fundamentally under great pressure. Indeed it is precisely because supply and demand are so nicely in balance - Geoff Pyne, an analyst with UBS Phillips & Drew, predicts a gentle tightening of the market, leading to an average of dollars 22 for Brent crude during the fourth quarter - that members and officials allowed mischief or misunderstandings to develop at the meeting.

Had there been a real crisis, the members would have been preoccupied with real matters. Which leads to the question of when there will be a crisis - and to the answer: when Iraq starts pumping oil seriously.

As Peter Nichol, oil analyst with Warburg, commented: 'Since the Gulf crisis started, Opec has been in a slightly funny position. A bigger world event has been superimposed on top of it.'

At the moment, Iraq is not producing oil. Under United Nations sanctions it is allowed to pump some, to fund reparations and humanitarian imports, but it chooses not to.

Although Opec is far more secure than it was at the time of the oil price crash in 1986, or during the Gulf crisis, it is thus operating in the shadow of greater powers.

These are the powers that will decide the future of Iraq's oil flow, which could rapidly be restored to three million barrels per day. They are the agents by which Saddam Hussein's rule might end: perhaps politicians in Washington, perhaps F-15 pilots, perhaps assassins in Baghdad.

There will be plenty to worry about when the Iraqi ruler goes. Meanwhile, Opec will just have to get its public relations act together. As Mr Nichol put it: 'The boat will need to rock, but let's wait until the storm comes.'

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