OPEC model is dead: oil analyst

VIENNA (AFP) Apr 06, 2003
The model used by the Organisation for Petroleum Exporting Countries (OPEC) to regulate the supply and price of crude oil "is dead", Leo Drollas, of the London-based Center for Global Energy Studies (CGES), says.

Here are three questions and answers with the oil analyst.

Q: Why has the OPEC model become obsolete?

A: The OPEC model is dead and there are two reasons for that. Firstly, by controlling output with quotas in order to keep prices high, OPEC constrains the oil demand. Secondly, and this is a perverse consequence, it encourages non-OPEC output. (Notably from Russia, Norway and Mexico). Therefore, OPEC is losing market share.

Q: Can OPEC allow Iraq to defect from the organisation?

A: Iraq has not been part of the quota process since July 1990. There will be attempts by OPEC to deal with the new government to get Iraq back into the fold early, because Iraq has such big potential. I have a feeling Iraq might leave OPEC or remain without quotas. In order to keep solidarity, OPEC may well treat Iraq as a special case. Because if Iraq leaves OPEC will be mortally wounded.

Q: What are your views on the Iraqi oil industry?

A: The Iraqi oil industry needs to start again, have a fresh start with a new model that needs to be applied across the board, to agriculture, and industry, and to trade. It is the price the country will have to pay for democracy.

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