Changing relationships and the threat of oversupply are rocking the oil market's foundations.
While the market's supply manager edges toward cooperation with the consuming world, its largest consumer has put the Muslim world on edge with its deepening military quagmire in Iraq.
The supply manager, the Organization of Petroleum Exporting Countries, soon must decide whether to continue ceding market share to nonmember producers, speakers said here Sept. 8 at the Middle East Petroleum and Gas Conference.
"Cooperation [between producing and consuming countries] is central to OPEC's thinking and has been for many years," declared Alvaro Silva-Calderón, secretary-general of the exporters' group.
The need for cooperation, he said, comes from the dilemma of producing nations anticipating huge investments to assure the market of adequate supply without knowing precisely how much consumers will need.
A nod toward cooperation came from Claude Mandil, executive director of the International Energy Agency, a group set up by industrialized consuming nations as a counterbalance to OPEC.
"The relationship [between OPEC and IEA] has evolved and very much improved in recent years," Mandil said.
He appealed for stability and sustainability in the oil market, conditions he said depended on "market-driven dynamism," adequate investment, environmental integrity, diversification of producers' economies, and producer-consumer dialog.
OPEC market share paradox
Mandil also noted a paradox: While in the long term OPEC's share of the oil market will grow, recently it has shrunk. The IEA director wondered how long the group would accept this trend.
He also warned against complacency about adequacy of investment in production capacity, saying, "We should not take for granted that these funds will magically appear."
Michael C. Daly, president of BP Gulf States & Pakistan, Abu Dhabi, said erosion of OPEC's share of the oil market might continue through 2010.
"Worldwide consumption growth can be largely accommodated by non-OPEC production growth" in most of that period, he said.
Daly projected increases in output by the end of the decade at 2.5 million b/d each from Russia and the Caspian region, 4.5 million b/d from deepwater projects, and 1.5-2 million b/d from nonconventional sources such as oil sands in Canada and heavy oil from Venezuela.
The 11-12 million b/d of new production from these sources will more than offset a decline in output from traditional non-OPEC sources of 4-6 million b/d, producing a net gain—and competition with OPEC supply—of 5-8 million b/d.
US's policy in Iraq under fire
US policy in Iraq came under sharp criticism at the meeting.
Rosemary Hollis, head of the Royal Institute of International Affairs Middle East Program, faulted the administration of US President George W. Bush for failing to plan for the period after the war.
"Iraq could become some sort of vortex, some sort of maelstrom," she warned.
The ingredients for what Hollis called "meltdown" in Iraq are continued lawlessness, growing disillusion, the possibility that the new Governing Council involving Iraqis proves ineffective or is ignored, the prospect that international groups and companies stay away from Iraq, the chance that Iraqi society fragments, and the attraction of Iraqi chaos to Al-Qaeda terrorists.
Hollis said the US has four options: "pile in more men and money;" turn to the United Nations for help but retain military control; hand over political, military, and economic management to the UN; and hand over all Iraqi administration as soon as possible.
"At the moment we have a combination of all four," Hollis said.
Youssef M. Ibrahim, a US citizen and managing director of the Strategic Energy Investment Group in Dubai, denounced actions in Iraq of the Bush administration, alleging "confusion over where the war on terrorism ends and where the civilized world—especially Islam—begins."
He said the solution is for the US to turn away from occupation, cut the number of troops in Iraq by half and replace those withdrawn with UN forces, and give up insistence on military decision-making.
Ibrahim said opinion polls show rapidly falling support for the US in Arab and Muslim countries.
Effects on Iran
Bijan Khajehpour, managing director, Atieh Bahar Consulting of Tehran, said the US presence in Iraq is changing Iranian politics.
An "inward" political orientation dominant since the Islamic revolution of 1979 is giving way to new attention to foreign policy—in part, Khajehpour said, because most Iranians consider the US motive in Iraq to be "regional domination."
A response has been a tendency toward consolidation of a previously fractured Iranian regime, he said.
Although Iran lacks confidence in the ability of the US to manage geopolitical issues and believes the US "politicizes everything about Iran," he expects the Iranian government to seek a formal dialog with the US as it moves to reestablish its position in international relations.
Iran might experience two major shifts as a result of the ouster of Saddam Hussein from Baghdad, Khajehpour said. Najaf, Iraq, might replace Qom, Iran, as the geographic center of Shia Islam, which could weaken theocratic pressures in Iran. And an Iraq friendly to Iran would shift the investment emphasis to oil projects in western Iran, which were considered in jeopardy as long as the Baathists were in power.
