The United States gave a warm welcome yesterday to an Opec agreement, hammered out under American pressure in an election year, that should lower oil prices by raising production. "These increases will help sustain worldwide economic growth and provide greater balance between oil supply and demand," said President Bill Clinton.
The deal leaves some uncertainty over fuel prices and the long-term political consequences for the US role in the Middle East, but Washington can claim it as a victory.
Nine of the oil ministers of the Organisation of Petroleum Exporting Countries agreed at a meeting in Vienna to increase production. Iran objected that "political considerations" had influenced the decision, while the 11th member, Iraq, is not part of the quota system as its production comes under the aegis of the UN.
The deal had been energetically promoted by the US government, anxious to defuse a threat to the American economy and a political time bomb. There has been rising concern in the West as oil prices soared after a decision by the cartel last year to cut production.
Russia, which is not an Opec member, notably took advantage of the prevailing high prices to finance its military campaign in Chechnya.
But coping with shrinking oil revenue and reducing Russia's reliance on oil exports could prove one of the first big challenges for the newly elected President Vladimir Putin. His popularity has been helped by the largely oil-spurred economic growth of recent months after a decade of decline.
In the US, opponents of the Clinton administration had accused it of negligence. But Bill Richardson, the US Energy Secretary, who had lobbied hard for measures to increase production, was jubilant. "This is good news for the American consumer. It's also good news for producer and consuming countries. What we will now see is a stable price and, for gasoline and diesel, gradual and modest declines over the summer," he said yesterday.
Americans have been outraged as petrol prices have soared to an average of $1.59 a gallon (22p per litre) from about $1. The difference between British and American prices is mainly caused by taxation.
Saudi Arabia, America's main Arab ally and the world's biggest producer, pushed through the agreement, which increases output by 1.45 million barrels daily, or 7 per cent. "This decision was made in the interests of producers and consumers in a prudent way. It will have a positive impact and moderate prices," said the Saudi Oil Minister, Ali al-Naimi.
But Mr Richardson's pressure backfired to some degree, with Iran highlighting its continued wariness of Washington by refusing to join the formal agreement. "The US intervention was beyond expectations. Never in the history of Opec has this been experienced before. There was a lot of resentment and a lot of resistance," said Iran's Opec governor, Hossein Kazempour Ardebili. Iran later announced that it would, in any case, increase production. "We will not lose market share," said Mr Kazempour.
Opec had tried to boost prices through the 1990s, but failed until last year when it regained discipline over production. Oil prices rose from below $10 a barrel to more than $30. Since the end of the Second World War, prices have averaged about $20, according to WTRG Economics, a US consultancy. Opec accounts for less than 40 per cent of world production, down from more than 50 per cent at the height of its power.
The longer-term questions are about politics as much as economics. The US prevailed upon Saudi Arabia to help it out, but Iran's rejection of the deal shows that it is a resurgent power: rivalry between Tehran and Riyadh for hegemony in the Gulf and over oil production predates the revolutionary Islamic regime installed in 1979.
None the less, the Saudi camp prevailed, and the US has reason for celebration: the immediate reduction in oil prices may be less important than Opec's ability to steer itself towards a soft landing for oil prices under Saudi leadership.Reuse content