OPEC oil ministers gathered in Vienna on 11 March for their regular quarterly meeting and to reflect on months of high prices that their reassuring words seemed powerless to lower. WTI briefly topped $40 in February – a level not seen since 1991 – and prices have rarely sunk below $30 for several months.

As had been widely anticipated, the output ceiling of 24.5 million barrels a day (b/d) was left unchanged. Indeed, Secretary-General Alvaro Silva denied it had even been on the agenda. Nor was any pledge made for a formal suspension of quotas if war in Iraq goes ahead – a move some consumer nations wished to see. Instead came another promise from Saudi Arabia to keep the market supplied. Saudi Oil Minister Ali al-Naimi told the world that there was ‘plenty’ of spare capacity in the kingdom and that: ‘The test is, when the need is there, whether we will use the capacity or not, and I can assure you we will.’

While prices dipped marginally in the aftermath of the statement, OPEC ministers have been preaching the same message for months to no avail. A stronger statement in Vienna was blocked by Iran and Libya, protesting that it would give the impression of facilitating a US attack.

The uncertainty over a possible war in Iraq has turned the market into a soap opera. Oil prices move on the latest instalments: down if Iraq destroys a missile or France threatens a veto; up when the White House dismisses these developments as irrelevant.

OPEC President Abdullah al-Attiyah estimated on 10 March that war fears were adding a premium of $6-7 a barrel, although $2-3 might be more accurate. ‘Market fundamentals, namely low US stocks, are also contributing,’ says a London-based analyst.

Most analysts are now agreed that war, if quick and clean, would be better in the long run for both oil prices and the global economy than the current uncertainty, even if an immediate price spike is regarded as inevitable.

However, not all observers believe that the loss of some 2 million b/d of official and illicit Iraqi oil exports can be easily made good. And the picture could be even worse if there are serious collateral supply interruptions. Kuwait has warned that about one third of its capacity, some 700,000 b/d, may be shut down for safety reasons in the event of war. And if any other disruption were to occur simultaneously, a genuine shortage would be created at a time when crude oil stocks in the US and elsewhere are at historic lows – they have been driven down by the prevailing high prices, a particularly chilly northern hemisphere winter and the decrease in Venezuelan exports.

Independent sources estimate Saudi Arabia’s February production averaged 8.7 million b/d, leaving about 1.3 million b/d spare of the 10.0 million b/d Al-Naimi says the kingdom could pump within two weeks. Raising output to its full 10 million capacity would take 90 days, he estimates. The remaining leeway comes from the UAE, Iran, Algeria, Qatar and Nigeria which could between them squeeze out about an additional 900,000 b/d. UAE Oil Minister Obaid bin Saif al-Nasseri warned before the Vienna meeting that its capacity was ‘nearly full’ and that compensating for lost barrels from Iraq and Kuwait would be ‘very difficult’.

Put simply, analysts fear that OPEC could narrowly meet the challenge of an Iraqi outage, but only barring other problems.

The other question is whether OPEC is willing to ratchet up production to such levels – a step never previously taken. Other members do not share the political objections of Iran and Libya, but fear loss of market share to those able to increase output. Memories of the 1990-91 Gulf war, though, are prominent. On that occasion, the taps were opened to secure supply. Simultaneously, fearing a shortage, consumer countries immediately drew down on their stocks, creating a glut of oil that depressed prices to $15. Even without a drawdown, oil from the Gulf takes some 45 days to reach the world’s biggest consumer, the US.

Prices have been kept high in recent months partly because Gulf producers fear that if they respond to high prices by increasing output, the oil will hit the market during the second quarter, when demand traditionally falls by about 2 million b/d, creating a glut. Similarly, if they respond to war by immediately pumping to maximum capacity, and the war is over within a matter of weeks, there will be too much oil on the market and prices will collapse. ‘This is definitely a worry for the Saudis,’ says the London-based analyst.

Positive signs are that this time around importers and exporters are seeking a more co-ordinated approach. US Energy Secretary Spencer Abraham met OPEC representatives in Vienna and assured them that the US Strategic Petroleum Reserve would only be released in the event of ‘severe supply disruptions’ and then only for a short period.

Similar signs of co-operation have been emanating from the International Energy Agency (IEA), the body which co-ordinates consumer countries’ strategic stocks. Executive director Claude Mandril reports that he is in constant contact with Silva and that the IEA will assess the reaction of OPEC producers to the outbreak of war before ordering a release of stocks.

The window is narrow, however. Mandril speaks of the assessment being made within ‘hours’ of hostilities beginning. The time-frame is a good illustration of the precarious position in which the oil market now stands.