September 11, 2007
Opec makes like the Federal Reserve
As I write – about 10am European time - Opec ministers in Vienna are still debating whether to announce an increase in oil production. The comments of the ministers and officials arriving for a working breakfast with non-Opec countries earlier this morning were less than illuminating. The most telling was from Abdallah el-Badri, Opec’s secretary-general, who described near-$80 oil as a “problem”.
His choice of word shows how the caricature of Opec as short-term revenue maximisers is misplaced, and does a lot to explain why a production increase is now on the table.
There has been a lot of talk (including in the FT) about the how Opec remembers the Jakarta meeting in November 1997, when a rise in production was followed by the coincidence of the Asian financial crisis with two warm winters, which drove oil down to $10.
But there is another parallel that is perhaps more relevant – and particularly apposite today, on the sixth anniversary ‑ the aftermath of the September 11 attacks, when Opec, led by Saudi Arabia, helped steady nerves by promising that the oil would keep flowing. The group raised its production in January 2003, after Venezuela’s production was disrupted by a strike. (FT stories may require subscription.)
The financial turmoil resulting from the subprime crisis has been less dramatic, of course. But its economic implications could ultimately be more profound. Today is a chance for Opec to join the US Federal Reserve and the other central banks and authorities in playing its part in keeping the world economy out of recession.
