The Saudis Are Running OPEC's Show -- More Than Ever
By Stanley Reed
At 7 A.M. every morning at the OPEC meetings in Vienna, a small group of reporters would gather in a hotel lobby to accompany Saudi Oil Minister Ali Naimi on his sunrise jog. Imagine their confusion and disappointment when, 45 minutes past the hour on Jan. 18, Ali Naimi hadn't shown. Just as the scribes were about to give up and disperse, four men dressed in running gear sprang from the elevators -- Naimi, his burly Austrian bodyguard, and two Saudi aides. They burst out into the still semi-dark street pursued by a pack of hungry journalists.
Though he's 65, the Saudi Minister is more than a match for the reporters -- some of them half his age. Dressed in a crisp blue jogging suit and wearing New Balance 1200 trainers, he starts out at a fast walk. Later he breaks into a run that leaves one of his aides and most of the reporters far behind. Perhaps there is a message here for the other OPEC oil ministers, who sometimes challenge Ali Naimi's views and aren't as focused about keeping fit as he is. Not only does Saudi Arabia have the most oil, but its minister can run them into the ground.
Naimi certainly got his way at this meeting. The Saudis decided, based on "scientific" study of the data, that a cut of 1.5 million barrels per day was warranted to stabilize plunging prices. Hawks, including Iran, argued for a cut of 2 million. In earlier times, OPEC might have just split the difference. Indeed, that was what an OPEC committee recommended. But Saudi wishes prevailed.
DAY OF THE LOCUST.
Still, there was a certain amount of drama before the Jan. 17 announcement. An Iraqi delegate circulated among reporters in the Intercontinental Hotel lobby, calling for cuts of 2 million to 3 million barrels per day. Rumors swirled that OPEC would compromise at 1.7 million. Soon, journalists gathered outside an "informal" ministers' meeting at the Intercontinental, where the production cuts would be finalized. When the first ministers emerged, reporters and TV crews swarmed like locusts to get the word on the decision.
These scrums have a surreal air. The official is usually completely hidden by the reporters, television cameras, and fuzzy microphone booms. The whole assemblage moves through the lobby like a weird, multilegged creature with antennas. And this beast has a bite as well. Sometimes the ministers' bodyguards punch and kick at overintrusive cameras.
But this was a cheerful gathering. Oil prices are up again. OPEC received an average of $28 per barrel for its oil last year, compared to $17 in 1999 and a politically and economically disastrous $12 in 1998. And OPEC and the Saudis seem determined to prolong the good times for as long as they can.
There seems to be little interest in heeding Western warnings that continued high prices could lead to recession. After all, not long ago, when the U.S. economy was humming along and OPEC and the oil industry were dismissed as Old Economy, there was little talk about giving OPEC members, many of which experienced severe financial strain, a helping hand. "If I was in their shoes, I would do the same thing," says Edward L. Morse, an analyst at Hess Energy Trading in New York. "Nobody came to their rescue in 1998."
Privately, OPEC officials seemed quite satisfied to see financial speculators in the U.S. humbled. If anything, the U.S. slowdown was the reason for OPEC to cut production further so as to prop prices up, they say.
The continuing Israeli/Palestinian strife is another largely unspoken reason why the Saudis and other big Arab exporters are thumbing their noses at the U.S. One Arab official termed the street violence between Palestinians and Israelis a "holocaust" and blasted the West for doing nothing to stop it. Though he said the Arabs would not resort to an oil embargo because "this would just hurt us," clearly there is little incentive to bend to American wishes on oil.
In the present poisonous atmosphere, no one wanted to be seen as doing American bidding. Small wonder there was much puzzlement over U.S. Energy Secretary Bill Richardson's high-profile press conference, calling on OPEC ministers to go easy on production cuts. If he really wanted to have a prayer of accomplishing anything, many wondered privately, why didn't he just make a few discrete phone calls?
Instead, OPEC's decision leaves the West at the mercy of new uncertainties. OPEC is assuming Iraq will resume exporting 2 million barrels of oil per day. Recently, Baghdad has been exporting only about a quarter of that as it fights with the U.N. over export targets. Iraq has been saying it will resume normal exports, but the truth is nobody knows what the country will do. Rumors even circulated at this ministerial meeting that Saddam Hussein is incapacitated -- though they aren't given much credibility.
OPEC is well aware that if the Iraqis continue to keep most of their oil off the market, prices may spike. But that's a problem for consumers worldwide, not for OPEC. For now, the oil ministers are back in the driver's seat and enjoying every minute of it.
Reed, London bureau chief for Business Week, attended the OPEC conference in Vienna
Edited by Douglas Harbrecht