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Stratfor.com's Global Intelligence Update - 8 June 2000 __________________________________________ Know your world. http://www.stratfor.com _________________________________________ More on Stratfor.com: Vodka and Centralization, Shaken Not Stirred The Kremlin has taken control of Russia's vodka industry both to chip away at regional leaders' power base and to supplement the national budget. The bold move, however, foreshadows even bolder moves - the Kremlin's future usurpation of other profitable industries. http://www.stratfor.com/CIS/commentary/0006080124.htm _________________________________________ Why the Price of Oil Will Likely Remain High Summary Iraq will soon increase oil exports by 700,000 barrels per day, reopening the previously damaged Khor al-Omaia oil terminal. However, illegal Iraqi oil exports depend on Iranian cooperation to find their way to the open waters of the Persian Gulf. As a result, Tehran will soon use its newfound leverage to influence decisions on production and prices at the upcoming meeting of the Organization of Petroleum Exporting Countries (OPEC). If Tehran gets its way, the price of oil will hover at the comparatively high price of about $28 per barrel. Analysis Rafid al-Diboni, director general of Iraq's state-run Southern Oil Company, told the Al-Ilam newspaper June 7 that two of four loading quays at Khor al-Omaia oil terminal have been repaired and will resume operations "soon." Located just west of Iraq's main oil terminal at Mina al-Bakr, Khor al-Omaia was virtually destroyed in the 1980-88 Iran-Iraq war and damaged again in the 1991 Gulf War. According to the U.S. Energy Information Administration (EIA), repairs began in 1993. When the terminal is fixed, its capacity will near 1.2 million barrels per day (bpd). With two of four loading quays reportedly repaired, Khor al-Omaia should be able to boost exports by 600,000 to 700,000 barrels each day. With current Iraqi production around 2.6 million barrels, such an increase would put Iraq's output near 3.2 - 3.3 million bpd - close to pre-Gulf War levels. Iraq clearly timed its announcement in advance of the next OPEC meeting in Vienna, Austria, in two weeks. There the cartel will decide whether to raise production and lower prices, now at about $28 per barrel. Baghdad probably made its announcement in the hope of swaying the cartel not to raise production quotas; the Iraqi regime is not subject to quotas because of U.N. sanctions dating back to the Gulf War, and Baghdad favors limiting production and propping up prices. Oil smuggling accounts for nearly all of the country's revenues beyond the ceiling set by the U.N. oil-for-food program. ________________________________________________________________ Would you like to see full text? http://www.stratfor.com/SERVICES/giu2000/060800.ASP ___________________________________________________________________ Iraq is effectively threatening to single-handedly affect the world price of oil. At the June 21 meeting, OPEC members will have to deal with the threat of increased Iraqi oil production. Whether Iraq's claim is true or false, it must be dealt with as a legitimate possibility. A 700,000 bpd increase by Iraq would equal half of the increase - 1.4 million bpd - that OPEC members agreed to in March. But Baghdad is not in control of its own oil shipments. Iraq's archrival, Iran, controls routes to the Persian Gulf. U.S. Navy Vice Adm. Charles Moore, coordinator of the U.S.-led Maritime Interdiction Force, has said that Iran facilitated Iraqi oil smuggling. Two months ago, Tehran suddenly ceased cooperation and began seizing tankers. But on June 1, the Iranian regime apparently resumed its tacit cooperation with smugglers, allowing them to traverse coastal waters. Iran has already demonstrated its willingness to use Iraqi smuggling to its own political benefit, in both relations with OPEC and with the United States. Iran opposed OPEC's March decision to increase production and stabilize prices. Tehran began seizing tankers shortly after the last OPEC meeting, where it withdrew from the cartel's agreement. The cartel's success has depended upon forging a strong political consensus among competing members. Saudi Arabia and Venezuela, along with non-member Mexico, spearheaded the production cuts of March 1999 that, in turn, led to the highest oil prices since the Gulf War. But since Iraq and Iran distanced themselves from the cartel's March decision, OPEC has begun to fracture. The cartel's ability to secure consensus has been severely damaged. _______________________________________________________________ For more on the Middle East, see: http://www.stratfor.com/MEAF/default.htm __________________________________________________________________ Iran will come to Vienna ready to throw its weight around. Iraq wants to export as much oil as possible - that is a given. But Iran effectively controls the level of Iraqi exports. Therefore, the announcement of a potential increase in Iraq's export capacity effectively gives Iran considerably more influence in negotiations with OPEC. It allows Tehran to speak with the weight of two countries' export capacities behind it. And if Tehran gets its way, as is likely, production increases will be minimal - and the price of oil will stay high in the months to come. (c) 2000 WNI, Inc. _______________________________________________ SUBSCRIBE to the free, daily Global Intelligence Update. 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