THE
OBSERVER Sunday
14th January 2001 – Page 7 Business Section
Saudi
dove in the oil slick
Sheikh Yamani tells Oliver
Morgan and Faisal Islam why a production cut would hurt everyone
- even Opec
Special
report: the petrol war
Sunday January 14, 2001
The Observer
'So, you want to talk about oil.' As understatements go, this
one was worthy of a laconic Clint Eastwood. For the man sitting
on the other side of a fruit-strewn table, dressed in a well cut
three-piece suit, is none other than His Excellency Sheikh Ahmed
Zaki Yamani, a man whose name is synonymous with black gold.
It is late
on Friday evening and Yamani is tired. He has flown in from his
home in Saudi Arabia's seaside city, Jeddah, to address the
Royal Institute of International Affairs on the future of the
oil market.
As ever he
had barely spoken what was on his mind before his words were
flashing around the world's newswires. The man who dominated the
oil market as oil minister of Saudi Arabia in the Seventies is
no longer a decision-maker at Opec, but he still has it in his
power to captivate market traders, executives, politicians -
even presidents - with his views.
His
presence in London comes at a fragile time for the world
economy, as concerns mount that further jumps in the oil price
could tip slowdown in to global recession.
So, yes, we
did want to talk about oil.
As it
happens Yamani does not believe that his commodity was directly
responsible for the US economy putting on the brakes: 'The
slowdown in the US cannot really be attributed to the high price
of oil. The reason we have a problem now within the US economy
is corporate earnings, which are shrinking.'
However, he
believes higher energy costs are a significant factor in slowing
US corporate earnings: 'The corporates are paying more for their
energy bills. It is not a direct reflection on industry - but it
is on corporate earnings.'
Against
this backdrop he questions the wisdom of Organisation of
Petroleum Exporting Countries taking steps to shore up the price
of oil by making cuts in production of up to 2 million barrels
per day when it meets on Wednesday in Vienna.
He believes
increasing the price could worsen the economic situation in the
US - with knock-on effects in the Far East and Europe - to the
long-term detriment of producers, as industrialised nations seek
other sources of oil, and of power.
In this, he
has remained consistent for 30 years: in the Seventies he was
not persuaded of the benefits to Opec of hiking crude prices by
the 400 per cent that came about in 1973. The importance of
North Sea oil and the fall in Opec's contribution to global
production, from 70 per cent to less than 30 per cent, are
testimony to his wisdom.
Nevertheless,
Yamani is only too aware that Opec has the power to influence
events in the current climate. He thinks there is a 50 per cent
chance that Opec will follow Saudi Arabia's lead and agree to
cuts of 1.5 million barrels per day (bpd).
However he
has made it clear that a cut now would be unwise, because Iraq
has reduced its own production from around 1.2million bpd to
around 600,000.
Yamani is
especially concerned about the hawkish role played by Venezuela
since the arrival of Hugo Chavez as its President. Chavez and
his Oil Minister - new Opec Secretary-General Ali Rodriguez -
have galvanized the cartel over the past two years in a
successful attempt to treble an oil price that had slumped to
less than $10. He believes this policy derives from Venezuela's
moves to cut investment in new production.
'In
Venezuela it is a new government with a new philosophy. When
they came they stopped investment in upstream and the capacity
of Venezuela came down. Instead of having 800,000 barrels a day
surplus, it disappeared. Now it cannot produce any more [than it
is currently].'
Yamani
believes that if hawkish tactics are employed, they will have
seriously detrimental implications both for Venezuela and for
Opec as a whole.
'There are
countries which want to extract every last barrel. They are part
of a group who would like to have a higher oil price -
Venezuela, Libya, Algeria and Iran.'
As a result
of pressures between these countries and 'core' states with huge
reserves such as his own Saudi Arabia, he believes Opec itself
may begin to unravel.He says candidly: 'Opec will be less in
number.'
By when?
'Probably
by the end of the decade. Iraq, Kuwait, Saudi Arabia, Iran, the
United Arab Emirates and Venezuela will be there in future.'
The sheikh
says he does not miss the day-to-day cut and thrust that
characterised the Seventies oil crisis. However, it is with a
smile that he adds: 'When you deal with oil you have to take so
many other things into consideration.'
The
suggestion is that politics, rather than economics, is the key.
And the fascination of oil diplomacy clearly animates him more
than the numbers, which he can rattle effortlessly off the top
of his elegant head.
The key
political question in his mind now is the same as it was in 1973
- relations between Israel and its Arab neighbours.
'It is very
worrying,' he says. 'Barak is cornered. He brought back his
Foreign Minister from Paris, met him in the airport and said
"Go and talk to the Palestinians." The man is
desperate.'
He singles
out the period between 20 January, when President Clinton leaves
office, and 6 February, the date of Israeli elections, as
especially sensitive times, given recent Middle Eastern history.
The
implications for oil prices are unquantifiable. But Yamani
ventures: 'Perhaps people will panic and think they have to buy
oil.'
However, he
is at pains to point out that the global political backdrop is
now very different.
His voice
quickens further when he reminisces about the era of great oil
diplomacy in the Seventies and his contemporary, former US
Secretary of State Henry Kissinger.
At this
point he makes an extraordinary claim: 'I am 100 per cent sure
that the Americans were behind the increase in the price of oil.
The oil companies were in in real trouble at that time, they had
borrowed a lot of money and they needed a high oil price to save
them.'
He says he
was convinced of this by the attitude of the Shah of Iran, who
in one crucial day in 1974 moved from the Saudi view, that a
hike would be dangerous to Opec because it would alienate the
US, to advocating higher prices.
'King
Faisal sent me to the Shah of Iran, who said: "Why are you
against the increase in the price of oil? That is what they
want? Ask Henry Kissinger - he is the one who wants a higher
price".'
Yamani
contends that proof of his long-held belief has recently emerged
in the minutes of a secret meeting on a Swedish island, where UK
and US officials determined to orchestrate a 400 per cent
increase in the oil price.
These
extraordinary insights come as US/Opec relations once again
return to the spotlight: President-elect George W Bush last week
warned Opec of the implications of a price hike.
When asked
whether oil had proved to be a blessing or a curse for
oil-producing countries, the Sheikh smiled enigmatically: 'I am
worried about the future. If you get money so easily, you relax
and you lose your muscles.'
He believes
that the oil age will end not for lack of oil, but because of
technology. His concern for the long-term economic prospects of
his people is clear.
For him,
that cut on Wednesday may be the first step in the wrong
direction.
Fast
facts
'Yamani or
your life,' cried one headline during the oil crises of the
Seventies. That reflected Sheikh Ahmed Zaki Yamani's role as the
public face of the Opec oil-producer's cartel.
Yamani was
Saudi Oil Minister from 1962 to 1986. During that time he
escaped the assassin who killed King Faisal, and survived
kidnapping by Carlos 'The Jackal'.
He now
chairs the respected Centre for Global Energy Studies, famous
for its exhaustive knowledge of world trends. He also runs the
Al-Furqan Islamic Heritage Centre in south London.
Last year Yamani said that the oil prices were
destined to crash in the long term and, the world would never
use up the last drop of oil, because it would not need to: 'The
Stone Age did not come to an end because we had a lack of
stones, and the oil age will not come to an end because we have
a lack of oil.'
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