A new rivalry at the top of the Organization of the Petroleum Exporting Countries oil group has emerged, pitting up and coming Iraq against undisputed cartel heavyweight Saudi Arabia. Having overtaken Iran as OPEC's second biggest producer, a rejuvenated Iraq is beginning to worry Riyadh.
At Wednesday's meeting of the OPEC, the opening salvos were fired in the struggle over who takes responsibility for cutting output if oil prices, now at a comfortable USD 108 per barrel, start falling. After 20 years of war sanctions and civil strife that left its oil industry in disarray, Iraq is no mood to consider curtailing output just as it starts to take off.
Mr Falah Alamri Iraq's Opec Governor said that "Iraq will never cut production. Some countries that have increased their production in the last two years they should do so. This is a sovereign issue not an OPEC issue. That was a clear reference to Saudi Arabia, which this summer lifted output to 30 year high above 10 million barrels a day to prevent oil prices ballooning after Western sanctions on Iran halved its production.”
Mr Alamri said that the view from Riyadh, said delegates at the meeting is that Iraq should contribute to the next round of OPEC supply curbs. If Saudi pushed that line there would be "dark days ahead" warned a senior Iraqi official saying Baghdad would not even consider output restraints until 2014.
OPEC agreed to retain its 30 million barrel per day output target and meet next on May 31 but many market observers think supply restrictions may be needed sooner rather than later if producers want to prevent slow global growth sending prices tumbling.
Mr Raad Alkadiri of Washington consultancy PFC Energy said that "Every additional barrel that Iraq produces reinforces its confidence and its expectations that higher production is achievable and it will negotiate on that basis. Now OPEC is dealing with a much more confident Iraq and Baghdad is looking at regional politics and is less willing to compromise."
Mr Neil Atkinson director of energy research at Datamonitor said that "Iraq is impervious to arguments. It says that it was subject to sanctions for so long that it has a free pass to rebuild its economy."
Output from OPEC is already down sharply from the highs of the summer when the Saudi surge took the 12 member group to nearly 32 million barrels per day. Production in November was down to 30.8 million with Saudi easing to 9.5 million.
But Opec may need to ease further to balance the market in the first half of next year when demand depressed by a stagnant economy, its own forecasts indicate the requirement for Opec crude will come in at only 29.25 million barrels per day.
Mr Youcef Yousfi energy minister of Algeria said that "We're concerned by the drop in demand and the high level of stocks. There is rising oil from places like the United States and Iraqi output is rising quite sharply. There's a risk that we see a sharp drop in price next year."
Mr Abdul Kareem Luaibi oil minister of Iraq said that the world's fastest growing crude exporter, Iraq expects more gains next year as foreign companies push production towards the highest level ever. Output began to rise in earnest in 2010 after Baghdad secured service contracts with companies such as BP, Eni , Exxon Mobil and Royal Dutch Shell
Mr Luaibi said that output in 2013 is expected to average 3.7 million barrels per day just shy of an all time high of 3.8 million hit in 1979 with exports running at 2.9 million barrels per day including 250,000 barrels per day contributed by the semi autonomous northern Kurdistan Regional Government.
