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OPEC Meeting Ends without Consensus

OPEC’s meeting in Vienna a couple days ago ended without the cartel agreeing on a production level. This hasn’t happened in years (if memory serves, the last time was during the Iran-Iraq War), and it has left many questioning the organization’s future.

After 5 hours of talks, the Saudi Arabian Oil Minister Ali al-Naimi said, “It was one of the worst meetings we’ve ever had. We were unable to reach an agreement.”

The divisions in the body are now out in the open. It is clear that the group isn’t speaking as one right now. Indeed in the case of member-state Libya, nobody is sure even who speaks legitimately for that country. This time around, Khadafy’s guy turned up late. Adding to the sense of tension, he was seated next to the delegate from Qatar (whose government is bombing his).

The real division, though, was between the Saudi-led faction with spare capacity (and which tends to be more sympathetic to consumers’ needs) and the Iranian and Venezuelan-led bloc that is at capacity (and therefore has no interest in raising production, as it will lower prices and therefore their income). According to Minister Naimi, the other group was “vehemently against increasing production.” He added, “In 16 years, I’ve never seen an obstinate position.”

Iran didn’t see it that way. Mohammad Aliabadi, the acting Iranian oil minister and current OPEC president, said the meeting he chaired was “polite and cordial. He rejected Mr. Naimi’s description of it, “I don’t know why he called it the worst meeting.” Naturally, Iran would feel that way – without a consensus, the current levels officially continue. That’s a win for Iran.

Saudi Arabia, though, is unaccustomed to not getting its way at OPEC, and it is boosting its production anyway. With 70% of the spare capacity in OPEC, Saudi remains the 800-pound gorilla in the group. Unilaterally, the kingdom will boost production by 13% from May levels to 10 million barrels daily. It last produced that much in 1981, according to the Energy Information Agency.

Looking at the big picture, OPEC didn’t break up this last week (no matter what a few on talk radio have claimed), and it is likely to paper over the differences at its next meeting six months from now. The organization got through the Iran-Iraq War and the Iraqi occupation of Kuwait. In comparison, the current situation is merely a bump in the road. Its members’ interests remain the same – to get as much for a barrel of oil as possible without sparking radical changes in energy consumption by over-pricing.



Jeff Myhre

Jeff Myhre is a graduate of the University of Colorado where he double majored in history and international affairs. He earned his PhD at the London School of Economics in international relations, and his dissertation was published by Westview Press under the title The Antarctic Treaty System: Politics, Law and Diplomacy. He is the founder of The Kensington Review, an online journal of commentary launched in 2002 which discusses politics, economics and social developments. He has written on European politics, international finance, and energy and resource issues in numerous publications and for such private entities as Lloyd's of London Press and Moody's Investors Service. He is a member of both the Foreign Policy Association and the World Policy Institute.