Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 11, 1991 TAG: 9102110162
SECTION: NATIONAL/INTERNATIONAL PAGE: A-6 EDITION: METRO
SOURCE: The New York Times
DATELINE: LENGTH: Medium
The Persian Gulf war may do long-lasting damage to the Organization of Petroleum Exporting Countries, experts in the international oil market say, because it has stimulated oil-producing countries to add capacity, to replace oil that came from the wells of Iraq and Kuwait, while at the same time increasing prices and depressing global demand.
Oil from Iraq and Kuwait has been embargoed since the Aug. 2 invasion of Kuwait by Iraq. But the other 11 members of OPEC are producing at least as much oil as all 13 did before the war, and when Kuwaiti and Iraqi oil returns to the market a glut is likely, depressing prices.
And to raise money for reconstruction, Iraq and Kuwait may well want to produce far more than the prewar quotas assigned to them by OPEC. Saudi Arabia will also need more revenue, having pledged billions of dollars to countries hurt by the war.
On the one hand, a postwar effort to demonstrate Arab solidarity might reinforce OPEC's ties. But such a movement would presumably involve sharing oil wealth among Arab nations - and that would also raise the revenue requirements of Saudi Arabia and other Persian Gulf countries with large production capacity.
They might try to raise money by raising oil prices, but in the past they have sought more revenue by simply pumping more oil.
And when all the hungry players sit down to slice up the market, they will find the pie has shrunk. The higher oil prices of the last six months have stifled demand by 1 million to 2 million barrels a day.
There have been previous rifts within OPEC, including those reflecting the eight-year war between Iran and Iraq that ended in 1988. And there is always tension between the interests of Saudi Arabia, which has huge reserves and wants a low price so the world stays reliant on oil, and countries like Iraq and Iran that want high revenues to spur development.
But many analysts say OPEC's task is tougher than ever.
"Organizationally, how are these people going to get together?" said Thomas McHale, an economist and international oil expert at Goldman, Sachs & Co. "I don't think anybody's going to be able to sit down and have an effective quota that lasts more than a week or two."
Charles Maxwell, the chief energy strategist at C.J. Lawrence, predicted a new OPEC agreement on quotas for oil production would be impossible.
The war and diplomatic efforts to end it may take unforeseen turns, but most analysts expect Iraq and Kuwait to resume pumping oil as soon as they can after the shooting stops.
"As soon as they are able to produce, they are going to produce with a vengeance," said Karen Kramer, an analyst at Mideast Report, a New York-based newsletter. She and others do not assume the United States, which could still have troops in the region, will have much effect on pumping decisions.
OPEC Listener, a newsletter distributed by telecopier, recently estimated the damage to Kuwaiti oil installations at $40 billion; other war damage to the country will presumably run billions of dollars more.
Iraq is also certain to sustain billions in damage, and if Saddam Hussein's presidency does not survive the war, that country will have an even stronger case to be allowed to pump oil to promote recovery.
In the month before Iraq invaded Kuwait, the two countries together produced nearly 5 million barrels of oil a day of OPEC's total of 23.7 million barrels.
In a way, the damage to wells, pipelines and loading terminals in Iraq and Kuwait is an antidote to the scramble to produce, giving OPEC some breathing room because repairs will take months.
If they resume pumping, and compensating cuts are not made by other countries, the price of oil will sink sharply, said Geoffrey Heal, a professor at the Columbia Business School and a specialist in resource economics.
"I think we will see oil prices at an absolute all-time low," he said. "I'd be willing to bet some money on oil prices getting down toward $10 a barrel by the end of summer of this year."
by CNB