OPEC warns against military
conflict with Iran
VIENNA: The head of the
Organization of Petroleum Exporting Countries warned Thursday that oil prices
would see an "unlimited" increase in the case of a military conflict
because the group's members would be unable to make up the lost production.
"We really cannot
production - it's not feasible to replace it," Abdalla
Salem El-Badri, the OPEC secretary general, said
during an interview.
Iran, the second-largest
producing country in OPEC, after Saudi Arabia, produces about 4 million
barrels of oil a day out of the daily worldwide production of close to 87
million barrels. The country has been locked in a lengthy dispute with Western
countries over its nuclear ambitions.
In recent weeks, the price
of oil has risen higher on speculation that Israel could be preparing to attack
Iranian nuclear facilities. The saber-rattling intensified this week with
missile tests by Iran.
That has further shaken oil markets
because of concerns that any conflict with Iran could disrupt oil shipments
from the Gulf region.
"The prices would go
unlimited," Badri said during the interview,
referring to the effect of a military conflict. "I can't give you a
Analysts said the timing of Badri's remarks was noteworthy, given that the idea of an
attack on Iran
has been around for years. In addition, an attack on Iran
would probably not specifically target oil facilities, said Johannes Benigni, managing director of JBC, an oil research and
consulting firm in Vienna.
"Perhaps OPEC wants to
say to the Americans in particular that there would be an economic price to be
paid for an attack on Iran,"
said Daniel Gros, director of the Center for European
Policy Studies in Brussels.
"Gulf leaders also know that if a war broke out, the situation of some Gulf states
also would become more uncomfortable and could have political difficulties for
them domestically," he said, noting that some have their own Shia minorities.
Badri, a former
oil executive who has headed the oil industry in Libya and also served as deputy
prime minister of that country, called for a peaceful solution. He also suggested that an
additional military conflict in the Middle East, besides the ongoing conflict
would be severe and long-lasting.
"If something happened
there, nobody would be able to solve it," he said.
The United States, Israel
and other Western countries say Iran
is seeking to develop nuclear weapons, but Iran says the program is only for
Badri said that current
geopolitical tensions were among the principal reasons why oil prices were so
He said that a shortfall in
refining capacity and a weak dollar were other factors, and he reiterated
OPEC's position that speculation on oil markets probably was the most
But he said that reserves of
oil were plentiful and that worries about scarcity were misplaced.
Proven reserves of
conventional oil worldwide rose slightly to about
1.205 trillion barrels in 2007 from 1.195 trillion barrels in 2006,
according to one of two annual reports issued by OPEC on Thursday.
Supplies from Russia and Norway and other nations outside
the 13-member OPEC are expected to keep growing, helped by technologies like
turning gas and coal into liquid fuel and extracting oil from tar sands and
Even so, Badri
sought to assuage concerns about a supply shock, saying that OPEC members
already were investing $160 billion in new production capacity up to 2012.
But he said additional
investment in future production capacity could be limited, potentially
sharpening a dispute with consuming nations about whether sufficient steps are
being taken to meet demand over the
The International Energy Agency,
an energy monitor based in Paris and financed by industrialized nations, warned
in its annual medium term report this month that oil supplies would remain
tight over the next few years, despite the record-high prices. The IEA noted
low spare capacity from OPEC, among other factors. It said that prices were
high mostly because of fast-growing demand from rapidly industrializing
countries like China,
rather than because of market speculation.
On Tuesday, leaders of the
Group of 8 economic powers warned that surging oil prices could be a key factor
undermining world growth and called on petroleum suppliers to increase
production and refining and to increase investment in oil exploration and
output over the medium term.
Some analysts have predicted
that oil prices could reach $200 a barrel this year as oil consumption
continues to rise rapidly while supplies lag.
Arabia has said it would raise output in July. But OPEC
has not officially increased output since a meeting last September. The next meeting
of the group is in September. Badri said it was too
early to say whether OPEC would raise output then.