Saudi Arabia has decided to increase its oil production and to organize similar efforts by other major producers in order to insulate the international petroleum market from the effects of the Iraq-Iran war, a senior Saudi official said yesterday.
Foreign Minister Saud Faisal, in a telephone interview from New York, where he is attending sessions of the U.N. General Assembly, said the Saudi decision was made within the last several days.
He said it is "conceivable" that additional pumping has already begun to increase the production by the world's leading oil exporting nation.
Contradicting earlier press reports of a probable Saudi increase of 700,000 to 900,000 barrels per day, Saud said no specific figure has been established for the production increase. As he explained it, the Saudi decision is to do whatever is necessary and feasible, in cooperation with other producers, to alleviate the world market shortfall caused by the effect of the way on Iraqi and Iranian production.
"Market conditions will be the determining factor" in the new production levels, Saud said.
There is no way to say just how much additional oil will be needed, Saud said. Among other things, it is uncertain just how bad the damage has been in the last 12 days to the oil fields and related installations of Iraq and Iran, which together produced about 3 1/2 million barrels per day before they went to war.
Saud said Saudi Arabia already has received "a positive response" from other Persian Gulf producers to the plan to compensate for the impact of the war through a shared effort. In the gulf, Kuwait is the other producer believed to have the spare capacity for a major increase.
Discussions about collective efforts are also taking place with Organization of Petroleum Exporting Countries outside the Persian Gulf, according to Saud.
In Houston, Venezuelan Energy Minister Humberto Calderon Berti, the current president of OPEC, said the cartel's oil minister plan to meet in London Oct. 14 to review a "gentleman's agreement," adopted only two weeks ago, to lower production. Calderon said his country will maintain its production levels because "we think conditions have changed" due to the Iraq-Iran fighting.
A Harvard University energy specialist, Danel Yergin, said a production increase along the lines of the Saudi plan is "probably the most important thing that could be done now to stabilize the petroleum market."
Yergin also said a Saudi increase would be a continuation of that country's efforts since the fall of the shah of Iran early last year to reestablish its dominant position in the world oil market.
"The only dark cloud is that Saudi Arabia is on the Persian Gulf," Yergin said, and therefore dangerously close to the fighting between Iraq and Iran. The threat that the war could spread to other gulf oil producers, especially Saudi Arabia and Kuwait, has caused grave concern among governments and financial institutions.
Before the Iraq-Iran war, the world had a production surplus of 2 million to 2 1/2 million barrels per day above current needs, according to U.S. government data. In all the Iraq-Iran production of about 3 1/2 million barrels a day is stopped by the war, therefore, the net shortfall will be 1 million to 1 1/2 million barrels before inventory adjustments.
Saudi Arabia and lesser producers inside and outside the Persian Gulf are believed to have the spare capacity between them to make up a short-fall of 1 1/2 million barrels per day, at least on a temporary basis.
Despite the current Saudi plans, however, the world's oil problems could become more serious if the Iraq-Iran war is prolonged over many months, if the war spreads to other producers or if world demand rises due to economic conditions or hoarding.