TANGLED OPEC WEB ADDS TO OIL PRICE CONFUSION / THE FINANCIAL TIMES COMMODITIES ( RECOMMENDED READING )

Note from the editor

Tangled Opec web adds to oil price confusion

US policymakers often complain that when a crisis hits the global economic and financial system, Washington does not know who to phone in Europe for help.


Is the right person the president of the European Central Bank? Perhaps the chair of the Eurogroup, or the head of the European Commission or maybe the minister of Finance of one of the heavyweight countries, such as Germany and France?


The oil market suffers the same problem as the current crisis in Libya underlines.


Take Opec, the group which controls 40 per cent of global oil supplies. In theory, the cartel is the main interlocutor between consuming countries, represented by the International Energy Agency, and the top producers such as Saudi Arabia.


But this theory does not work in practice because of the complex internal politics within Opec.


The secretary general of the cartel represents the group, but on matters of calling an emergency meeting – needed to agree on a production boost, for example – a lot of the power is in the hands of the president of the group, which this year is Iran.


In article 12 of the Opec statute, it says an “extraordinary meeting of the [ministerial] conference may be convened at the request of a member country by the secretary general, after consultation with the president and approval by a simple majority of the member countries”. It does not explain what it means by “consultation with the president”, but many believe that it implies agreement.


Besides, according to article 35 of the statute, the president of the group could also convene “at any time” a consultative meeting. But with Tehran holding such a position until December, it is unlikely this article would be called upon.


Although the cartel’s by-laws open the door for a simple majority for calling an emergency meeting to discuss a production increase, in practice Opec acts usually by consensus. So if any of the 12-members is against an emergency meeting – as is happening right now, with both Tehran and Algiers voicing their opposition, while Kuwait City and Doha are in favour – the gathering is unlikely to go ahead unless big heavyweights push hard for it.


So in practice, oil consumers are left talking to individual countries, and that usually means a conversation with Saudi Arabia, the world’s largest oil exporter, and other moderates, including Kuwait, the United Arab Emirates and often Nigeria.

The complex Opec policymaking process means that decisions to increase oil output are often delayed, unless Saudi Arabia, as now, takes unilateral decisions. It is telling that since the supply crisis started three weeks ago in Libya Opec headquarters has said nothing. Even more telling when the current secretary general, Abdalla El-Badri is himself Libyan. No one should be surprised though. Just call Riyadh.