Saudis: No fuel shortage to justify inflation

Saudi Arabia will raise oil production to record levels within weeks in an attempt to avert an escalation of social and political unrest around the world. King Abdullah signaled the commitment to the UN secretary general, Ban Ki-moon, at the weekend after the impact of skyrocketing oil prices on food sparked protests and riots from Spain to South Korea. Next month, the Saudis will be pumping an extra half-a-million barrels of oil a day compared to last month, bringing total Saudi production to 9.7 million barrels a day, their highest ever level. But the world's biggest oil exporters are coupling the increase with an appeal to western Europe to cut fuel taxes to lower the price of petrol to consumers. Saudi Arabia, which has called an emergency meeting of oil producers and consumers in the port city Jeddah next Sunday, says the energy crisis has not been caused purely by market pressures but by a speculative bubble. Saudi Arabia and OPEC believe there are no shortages to justify the sudden surge in prices. Ban held talks with King Abdullah at the royal palace in Jeddah on June 14 for more than an hour which were dominated by the energy crisis. The Saudi monarch shared his concern that the oil price was "abnormally high" although he blamed "national policies" in the West, Ban said. "He was also suggesting that consumers should play their own role," he added. Just before his departure for London, he had a telephone conversation with the Saudi oil minister, Ali al-Naimi, who told him that Saudi Arabia had raised production this month by 300,000 barrels per day at the request of consumers, and next month would raise output by a further 200,000 barrels per day. Ban said: "He told me they will respond positively whenever there is a request for an increase in production. So there will be no shortage of oil." Naimi said Saudi Arabia was responding to requests from between 30 and 60 consumer countries. Finance ministers from the Group of Eight nations meeting in Tokyo on June 15 added to the chorus urging Saudi Arabia to increase production. The UN chief said he had asked the Saudi minister whether the additional output would be enough to help stabilize the market, adding: "He said the consumers and others should play their own role." Ban, who flew to Saudi Arabia after a meeting in London with British Prime Minister Gordon Brown the day before as the UK was in the grip of a protest by truck drivers, conveyed the concerns of world leaders about the impending oil crisis. The South Korean secretary general said: "Unless we properly manage these issues, this may create a cascade of all other challenges and prices, affecting not only social and economic issues but also creating political instability." But it appears the Saudis are just as worried that record prices could dampen growth in the industrialized West and lower demand, which would in turn hurt the kingdom. As well as the protests in Britain, oil-related protests have swept Europe and Asia in recent weeks. Violence has erupted in Spain, riot police were deployed in Malaysia, several Indian states have been hit by fuel-related strikes and most of South Korea's main ports have been paralyzed by blockades. Ban said the King shared his view that the prices of oil and food were intricately linked to the issue of flooding and drought caused by climate change and needed to be dealt with comprehensively. "But while he acknowledged this concern, he also expressed his own concern that common effort and coordination are required, particularly from consumer countries," Ban said. Saudi Arabia, which is the only OPEC member with spare capacity, has been under pressure from the Bush administration to increase production, with gas now costing a record $4 per gallon in the US. But the Saudis argue that although the barrel has jumped as high as $140 recently, they are earning less in real terms owing to the decline in the value of the dollar. Until now they have hesitated to announce a large increase over a sustained period, sticking to the OPEC line which blames Western speculators for the increase.