Former Saudi oil minister says world reaching third oil crisis

Speculation is contributing to higher world oil prices, not imbalances between supply and demand, according to Saudi Arabia's former minister of oil, Sheik Ahmed Zaki Yamani, in a published interview.

Eric Watkins
Senior Correspondent

LOS ANGELES, June 20 -- Speculation is contributing to higher world oil prices, not imbalances between supply and demand, according to Saudi Arabia's former minister of oil, Sheik Ahmed Zaki Yamani, in a published interview.

Asked if current conditions are approaching a third oil crisis, Yamani said, "Yes, I think so. This is a new oil crisis. Oil prices are very high." He said that the two earlier oil crises of the 1970s were caused by "a lack of supply, but now it is because of problems with the price-setting system" in the futures market.

"Traders buy and sell depending on speculation and rumors, not supply and demand," he told Japan's Nikkei newspaper. "That is why even though Saudi Arabia announced increases in production—300,000 b/d and 200,000 b/d—oil prices in the market did not respond well. On the other hand, prices went so high on reports that the US might attack Iran. So much money is flowing into the market; it's almost like gambling."

Despite the current situation regarding prices, Yamani felt that the price will fall to $70/bbl by 2010.

"It will not take so long to see a change in market sentiment, perhaps by 2010," he said. "In addition, there has been a change in the energy consumption mix. China, Japan, the US, and European countries are looking at nuclear energy. There are new types of liquid energy converted from coal and gas. Solar and wind energy sources are emerging: biofuels, hydrogen, and so on. Also China subsidizes oil prices. Without the subsidies, consumption will decrease.

At the same time, Yamani suggested that under extreme conditions the price could range even higher. "If the US or Israeli forces attack Iran. If and only if they attacked, the oil price would go up to $200 immediately. The Strait of Hormuz [would] be shut down by Iran. I do not see the US attacking Iran, based on logical thinking. But you never know."

The former minister noted that the Organization of Petroleum Exporting Countries accounted for 70% of world oil production in the 1970s but that it now produces 40%. He said, "OPEC reduced production and let prices rise, placing a priority on profit. On the other hand, OPEC lost market share. OPEC does not particularly take into account a stable supply of oil in the world market and stable oil prices. Those countries are satisfied with high revenues. This attitude of OPEC has not changed."

In defense of his own policies as the Saudi oil minister, Yamani said he was the only one at OPEC meetings "who insisted on maintaining market share and supplying enough oil to the world market with lower prices. It was 1985 that Saudi Arabia stopped playing a role as the swing producer, and OPEC itself can no longer control the price of oil."

Contact Eric Watkins at hippalus@yahoo.com.

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