The war between Iran and Iraq has apparently forced several members of the Organization of Petroleum Exporting Countries to rescind their recent gentlemen's agreement to cut oil production by 10 percent, Western and OPEC energy officials said yesterday.
In fact, continued fighting between the two Persian Gulf states could prompt OPEC members to increase their production to meet any significant oil shortfall, according to a high official of Venezuela, an OPEC member.
In Bahrain, oil experts confirmed that OPEC members were shelving plans for production cuts later this year to tighten a slack oil market, and they said Saudi Arabia had suggested the postponement.
In New York, Saudi Foreign Minister Prince Saud Faisal denied that Saudia Arabia had agreed to any production cutback plan in the first place.
So far, Iranian-Iraqi warfare has had little effect on world oil supplies, and oil experts generally are expressing optimism that a market shortage will be avoided.
British Energy Secretary David Howell, visiting Washington for talks with U.S. Energy Secretary Charles Duncan, told reporters that OPEC's informal decision at its Vienna meeting earlier this month to trim production 10 percent had been shelved for the time being.
"My understanding is that that agreement is now on ice," Howell told reporters.
Howell said he reached this understanding after a visit to Venezuela Wednesday, where he was told that the Vienna agreement had to be reconsidered because of the Iranian-Iraqi war.
The Iraqi National Oil Co., meanwhile, reportedly has told foreign buyers that it has stopped all oil exports, apparently meaning deliveries through pipelines to Mediterranean Sea terminals as well as from its own battle-ravaged Persian Gulf outlets.
Before the fighting inflicted heavy damage on both countries' oil facilities, Iraq had been exporting about 3 million barrels of oil a day and Iran an estimated 500,000.
In Paris, International Energy Agency officials confirmed that Iraqi pipelines to Turkish and Syrian terminals had been shut down, halting the flow of between 800,000 and 1 million barrels of crude a day for export. The officials said they did not yet know whether the pipelines had been damaged by the war or Iraq had closed them as a precautionary measure.
While the loss of Iranian and Iraqi exports in effect exceeds the planned 10 percent OPEC production cut -- the organization has been producing about 27 million barrels a day lately -- Western stockpiles are so high that shortages should be avoided even if Iraq and Iran are unable to resume oil shipments through the Persian Gulf for the rest of the year, according to energy officials.
Ulf Lantzke, the executive director of the International Energy Agency, told reporters after conferring with Duncan that "at this moment, there is no reason for any drastic moves."
However, Lantzke said he was basing his assessment on the assumptions that other oil producing nations would maintain current production and that Iraq would continue to ship oil by pipeline to the Mediterranean. It was not immediately clear what effect the closing of Iraq's pipelines would have on Lantzke's optimistic assessment.
Oil specialists, privately confirming Howell's understanding that OPEC is shelving its production cutback, told Washington Post correspondent Stuart Auerbach in Manama, Bahrain, that the cutback and its goal of price stabilization had already been achieved by the Iranian-Iraqi fighting.
The sources in Bahrain said Saudi Arabia had initiated the move to end the cutback. The Saudis reportedly told OPEC members that, coming on top of an estimated 12 to 17 percent OPEC production loss from the Iranian and Iraqi cutoffs, the 10 percent cutback would cause chaos in the world oil market.
Saudis said this would aggravate inflation throughout the world and harm the economies of the oil-producing nations, according to the Bahrain sources.
Leading OPEC members, including the Persian Gulf states of Kuwait and the United Arab Emirates, back the Saudi position, the sources said.
However, there was no immediate word on the positions of Libya and Algeria, two other major Arab oil producers.
Venezuela indicated it supports the postponement of OPEC production cutbacks. British Energy Secretary Howell said Venezuelan Oil Minister Humberto Calderon Berti told him that he thought "in the present situation it was very important for all sides to act in a moderate way and not seek to exploit the situation."
In Strasbourg, France, the president of the Venezuelan Congress, Godfredo Gonzales, went even further.
Gonzalez, attending a meeting of the European Council, told reporters, "All OPEC countries including Venezuela will increase as far as possible their oil production to cover any eventual shortfall brought about by the Iraq-Iran war." He did not elaborate.
Venezuela produces about 2.3 million barrels of oil a day, most of which is exported to the United States.
U.S. Energy Department officials indicated they welcomed but were somewhat puzzled by Gonzalez's remarks. The Iranian-Iraqi fighting "still hasn't really tightened the market" and is not now expected to cause an oil crisis one official said.
In Mexico City, the Mexican government said it could not increase its oil production in response to the Iranian-Iraqi war. However, Mexico, which is not an OPEC member, has no plan to cut back production either.