Well, you don’t get OPEC cooperation by pulling out of OPEC…
I am well aware of the discussions in this area as they are of a professional interest to me.
Sure, for a company. A company’s interests are rather different from national interests. Obviously the oil majors want maximum flexibility, and are not huge fans of OPEC (although not always opponents either). The analysis of OPEC is not one of technical oil production, for which he is of course more qualified, but national strategic interests.
Yes, well when one is * proconsul * one’s opinions, however ‘suggested’ take on certain meanings and weights. It was better not to have said any such thing. The entire statement has fed a frenzy of rather bad press in Arabic.
Well, I will cop to being in a rush and not fully explicating. Simplistic reasoning, no.
Well, enough, this is of course a single country analysis.
To really get a grip on this one needs to look at the overall strategic picture.
Well, I did not explicitely touch upon this, that is true. However my comments were not strictly on the financial strategy of production, they were also to the larger strategic picture, both economic and political.
Of course it would not, but it also would not pay to pump under duress, and likely at extraction rates that imply an unaccetable and inappropriately high discount rate, when one can get altnerate financing.
No, Sam it is not just silly, it’s bloody clear if you look at the entire picture. Now I will note that I did not express myself clearly above, so I apologize for that lack of clarity. Second, letme note that I am not arguing that Iraq should be a pillar of OPEC, toeing quota lines and all that. Absolutely not. Iraq should behave like the bad boy it always was in OPEC - strategic behaviour to extract the best deal from its coproducers.
However, when one looks at the big picture it is very clearly in Iraq’s interest to continue to participate in OPEC and play the game like the other OPEC members (publically supportive, back room cut throat beh. with strategic cheating).
First, on the political front. Withdrawal from OPEC under US influence or auspices will simply add to the damning impression that Iraq is nothing but a colony. That is for political reasons, as well as for the clear economic reasons that an OPEC breakup --possible I think in case of complete withdrawal – does not serve producers. I don’t think I need to elaborate on why Iraq needs to avoid seeming to be the US’ bitch, and why in fact that is not good for the US either.
Second, on economic grounds. Here we need to think strategically, not tactically.
(A) Price effects: It’s fairly clear from the history of the past 30 years that when OPEC cooperation breaks down, you get competitive, market share driven overproduction across the board. 1998-1999 price collapse was a recent example where OPEC cooperation broke down badly over cheating and market grabbing/protecting behaviour drove oil prices down to truly painful levels for crude producers. Iraq can easily anticipate that a pull out and produce as it will behaviour will lead to a downward price spiral, above all given stagnate current demand. While a counter argument is that much lower prices might be a boost to the global economy - esp. the US with its energy hunger and unit ineff. - it is not in any oil producer’s interest to see an uncontrolled downward spiral. If it is in their interests to see lower prices to boost trading partners economies, it’s best done in a coordinated manner. On this basis alone, our Bushies suggestions Iraq should leave / ignore OPEC are wrong headed, for Iraq’s long term interests.
(b) Strategic aid seeking: Depending on what implied discount rate Iraq sees in oil extraction versus storage, it seems likely that it is in Iraq’s national interest to not “self-fund” through maximum oil production now, above all in the above context noted which would not maximize prices. International financing for its needs via loans and grants are likely to have lower costs than the overall cost of self financing, both for the reasons of price instability and collapse noted, and for the reason that a quick return to high revenues is likely to undermine it’s strategic negotiations with note holders in the context f planned Paris/London Club plus negotiations on its debt. If we take likely grants and guarantees into thinking about the implied cost of using outside resources to refinance and finance reconstruction, it strikes me that it is highly likely Iraq obtains a better deal overall by not maximizing current production. Rather it should maximize current aid, above all grants and the like, while minimizing current production to strategically appear more worthy, less able to repay debts…
Well, I could go on, but I have other things to do. I believe this is clear enough. Sam, then, it is not muddy at all whether it is in Iraqi interest to follow the Bush man’s admin suggestion. It is clearly not in their interest, although it is in the Bush Administration’s interest. We have a clear conflict between Iraqi national interest and American here, and in colonial situations… well which wins out?
It is murky, however, what level of production in the context of extorting a quota from OPEC Iraq should aim for, since overshooting aid extraction could also blow up in Iraq’s face. They have to balance between being a charity case and getting things back up.
I should add that I wish the Administration would hire someone w/ exp in the region to vet public scripts bec. they do unnec. damage shooting from the hip as they do. Better turns of phrase and a more aggressive comm. posture (but one tailored to Arabs, not just us speaking louder), both in Iraq and regionally would be highly desirable.