IRAQ: A US-led military strike on Iraq would send oil prices up in the short term, though longer-term effects would depend on what happened in eighbouring producers, Saudi Arabia's Oil Minister said yesterday.
"There is no doubt that there would initially be a direct effect on prices. As to the medium and long terms, this would hinge on developments," Mr Ali al-Nuaimi told the Saudi-owned pan-Arab daily Al-Hayat in a reference to possible US-led military action against Iraq.
"Military intervention in an oil-producing country of Iraq's size is bound to have an effect. The extent to which it would have an effect on what might happen in the countries neighbouring Iraq, be that Saudi Arabia, Iran or Kuwait, all of which carry weight" in the crude-oil market, he said.
Mr Nuaimi, speaking after a meeting of Organisation of Petroleum Exporting Countries (OPEC)ministers which ended in Osaka, Japan, on Thursday with a decision to leave output unchanged until the end of the year, denied that the United States had put pressure on Saudi Arabia to engineer a production increase.
"Such talk is groundless. The United States did not interfere in this issue, and Saudi Arabia takes its decisions in accordance with its policies and interests and their impact on the world economy," said Mr Nuaimi, whose country, a close US ally, had been reported to favour an output increase.
The Minister said on Thursday that the 11-member OPEC would move immediately to increase production to ease any shortage in the event of a war in Iraq.
In his remarks to Al-Hayat, the Saudi official defended OPEC's decision to maintain its output ceiling at 21.7 million barrels per day (bpd) despite overproduction estimated at some two million bpd.
Excess production in fact amounts to around one million bpd,given that production by Iraq, which is not part of OPEC's quota system, has recently been halved to around one million bpd, he said.
Mr Nuaimi recalled that when OPEC raised its production ceiling in 1997 after member-states produced above their quotas by an average of 1.5 million bpd, the decision eventually led to an overall output increase of four million bpd.
The market could take the current excess production, and prices had remained within OPEC's target range of $22 to $28 a barrel, but the cartel would still try to curb overproduction, Mr Nuaimi said.
OPEC had been under intense pressure to increase oil production by up to 1.8 million bpd after prices broke $30 a barrel for the first time in 18 months in August amid fears of a US-led war on Iraq.