March 9, 2000. Copyright 2000. Graphic News. All rights reserved.

BACK OVER THE BARREL

LONDON, March 9, Graphic News: OIL PRICES have rocketed to new highs as OPEC oil ministers decide whether to continue holding the world over a barrel.

Twelve months of tight supply orchestrated by the Organization of the Petroleum Exporting Countries and non-OPEC producers such as Mexico has pushed April delivery U.S. light crude to $34.13 a barrel Ð its highest since the 1991 Gulf War Ð and more than three times its $10-lows of just over a year ago.

The crisis has seen President Clinton dispatch Energy Secretary Bill Richardson to the Middle East, London and Norway Ð the worldÕs second-largest oil exporter Ð Òon the greatest hostage recovery effort since President Carter sent the military to Tehran,Ó according to Frank Murkowski, Chairman of the U.S. Senate Energy and Natural Resources Committee. ÒThis time, the hostage is U.S. energy security,Ó he said, refering to global oil stockpiles approaching 23-year lows.

Mr Richardson met with oil ministers of dominant OPEC power Saudi Arabia and Venezuela and key non-OPEC ally Mexico in London last week to argue for a swift increase in output to stabilize an overheated market. But they said they had yet to decide how much more to pump and when to do it. The decision would be announced when OPEC ministers meet for crucial talks in Vienna on March 27.

The price hike is the result of pressure by an Òinternal cartelÓ of Gulf nations which has emerged within OPEC. Iran, with fellow hawks Libya and Algeria, has held to the strategy of pumping less oil to force up the price and VenezuelaÕs capacity has been reduced sharply under the current government.

Iraq lacks production equipment to boost output and remains under United Nations sanctions, and in addition Oil Minister Amir Muhammed Rasheed has said current oil prices are Òsuitable and acceptable.Ó

Nigeria, an important supplier to Europe and America, is facing political troubles Ð Nigerian oil workers began an indefinite strike on March 6.

To make matters worse, storms in the North Sea have disrupted loadings from NorwayÕs Statfjord and Gullfaks oil platforms and other fields have also cut back on production.

Historically OPEC price hikes have been associated with lights going out, three-day-weeks and 50mph (80km/h) speed limits. The West has suffered inflation and recession following each oil crisis since the appearance of OPEC in 1960.

Originally formed to set up a unified front to negotiate prices with foreign oil companies operating in the Middle East, the original members, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela have now expanded to eleven.

In 1973 when OPEC raised oil prices by 70% in retaliation for Arab defeats in the Middle East war, it marked the end of the WestÕs long postwar boom, bringing unemployment and falling living standards. The oil crises in 1979 and 1990 again led to soaring inflation on the back of higher oil prices and wage rises Ð and painful recessions followed.

Over the last ten years Western nations have reduced their dependence on imported oil, leading to world over-production and a price-slump to below $10 a barrel. Now OPEC faces divisions over production policy after supply curbs expire on March 31.

In the last week Saudi Arabia, Venezuela and Mexico have signalled they are willing to open the taps on supplies, while Iran, backed by Algeria and Libya, has said it wants a guarantee that the Saudis would seek a price range of $20-$25 a barrel in the long term. Saudi ArabiaÕs relationship with its key customer, the United States, may yet prevent a millennium oil crisis.
Sources: Reuters, Associated Press, OPEC
/ENDS