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#15 - JRL 7070
Financial Times (UK)
February 19, 2003
LETTERS TO THE EDITOR: Iraq and Russia could not replace Saudi Arabia as oil guarantors
From Mr Robert Mabro.

Sir, Mr Chris Weafer affirms that "what the US needs to do is to find a substitute for Saudi's now increasingly unreliable role as supply and price guarantor" (Letters, February 17). He believes that "the substitute" comprises Iraq, Russia and the Caspian. This view ignores that fact that if Saudi Arabia is able to play the guarantor's role it is simply because it has been willing to hold a huge amount of surplus production capacity. This enabled it to mitigate the impact of the loss of Iraqi and Kuwaiti exports in 1990; and more recently to produce the extra 1m barrels a day needed to compensate for the losses arising from the Venezuelan crisis. And it is likely that Saudi Arabia will be called upon to increase its oil production significantly as soon as the war on Iraq begins.

Neither Iraq, nor Russia, nor the Caspian will ever be able or willing to invest in and maintain a significant volume of surplus capacity, the necessary condition for the performance of the swing producer's role. That Saudi Arabia is becoming an increasingly unreliable supplier is an opinion that lacks the backing of evidence on current behaviour.

The argument as regards the future relates to the possible use of the oil weapon. But will the current Saudi government, or a more radical regime coming to power after a revolution, use the "oil weapon" against the US?

The answer is no, for the simple reason that the US - unfettered by the countervailing power of the Soviet Union as it was in 1973 - will treat such an action as a casus belli and occupy the Saudi oilfields.

Even a fundamentalist regime will take note of the danger and resist the temptation of cutting off supplies.

Robert Mabro, Director, Oxford Institute for Energy Studies, Oxford OX2 6FA

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