US 'playing with fire', warns Yamani

By Andrew Walker
BBC Economics correspondent

BBC  3/14/2003

Oil is the major objective for the United States in seeking to occupy Iraq, according to the former Saudi Arabian Petroleum Minister Sheikh Zaki Yamani.

Sheikh Yamani, who was the leading figure in oil producers' cartel Opec for 25 years, gave his assessment of the push for regime change in a BBC interview.

He said the US is aiming to secure its oil supplies. In his view, the US wants to reduce its dependence on oil from the Gulf, and from Saudi Arabia in particular.

Sheikh Yamani said the US had wanted to do this very quickly after 11 September 2001.

He said the US accused Saudi Arabia of being the main source of terrorist activities, backing them financially and ideologically.

Long-standing ambition

It is certainly true that most of those who carried out the attacks were Saudi nationals.

For the US, he said, the real answer is to have Iraqi crude.

Iraq could quadruple its current level of oil production - taking it to eight million barrels a day - by the end of the decade, he said.

And much of it could be exported via the Eastern Mediterranean Sea, ending US dependence on oil passing through the Strait of Hormuz - a narrow waterway leading out of the Gulf.

Seven years or so ago, he saw a letter addressed to ex-President Clinton by a group of politicians advising him to attack Iraq, occupy the country and operate the oilfields.

Those who signed the letter are now in power - including Vice-President Richard Cheney, Secretary of Defense Donald Rumsfeld, his deputy Paul Wolfowitz and Deputy Secretary of State Richard Armitage.

Opec a casualty?

However, Sheikh Yamani said, victory against Iraq could have one outcome the US does not want - the end of Opec.

If there is a stable political future for Iraq then the price of oil will start coming down.

He believes that with more Iraqi oil flooding the market, Opec members would fight among themselves as some try to increase their production too.

However, Saudi Arabia would shoulder the burden of maintaining price control by reducing its production, he said.

But one day the Saudis would not be able to do this any more, "and that's the end of Opec", he said.

That is definitely not the outcome the US wants to see.

US faces pain too

US interests would not be served by a very low price.

A number of US states are oil producers, and a low price of oil these states would hit them hard, he said.

When the price of oil collapsed in 1986, George Bush senior - then US Vice President - asked Saudi Arabia to raise the price of oil, he recalled.

"America does not want a very low price of oil, that is obvious," said Sheikh Yamani.

This negative view of Opec's prospects - assuming a successful war for the US - is in striking contrast to that of mainstream energy forecasters, who predict the cartel's market share would rise.

Stark warning

The key difference between Sheikh Yamani's outlook and theirs is that he thinks technology "is against oil producers".

"It is reducing the cost of discovery, the cost of development and the cost of production."

The result, he argued, is likely to be more output from Russia, the Caspian Sea and West Africa.

Technology is also cutting the consumption of oil. It adds up to bleak outlook

If the war goes badly for the US, then oil prices - in the near future at least - could hit the upward path.

If Saddam Hussein sets fire to his oilfields, attacks neighbouring Kuwait, Saudi Arabia and Iran or uses biological weapons on them, the world will see high oil prices - "something very disturbing", the Sheik said.

And even the low oil price scenario could lead to political instability in oil producing countries that may rebound against the West and oil consuming countries.

"You are playing with fire," he warned.

Story from BBC NEWS:

Published: 2003/03/14 18:55:28