Iran + Russia + Venezuela = Dissent at OPEC Summit

On November 18, 2007, Iranian President Mahmoud Ahmadinejad said members of the Organization of Petroleum Exporting Countries (OPEC) have expressed interest in converting their cash reserves into a currency other than the rapidly depreciating U.S. dollar.

The meeting was held in the Saudi capital Riyadh, with heads of states and delegates from 13 of the world's biggest oil-producing nations, was the third full OPEC summit since the organization was created in 1960.

Ahmadinejad's comments at the rare OPEC summit meeting also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within OPEC.

Oil is priced in U.S. dollars on the world market, and the currency's depreciation is a significant source of concern to oil produces as it has played a role in the increase in crude prices and the decrease in the value of their dollar reserves.

Saudi Arabia's King Abdullah had tried make the environmental impact of the oil industry on the environment the topic of the summit, but faced continual interference from both Iran and Venezuela.

Iran and Venezuela proposed trading oil in a basket of currencies to replace the historic link to the dollar, but they had not been able to generate support from enough fellow OPEC members. Many OPEC members, such as Saudi Arabia, are U.S. allies.

Both Iran and Venezuela are currently at odds with the U.S., and their proposal may have political, as well as economic motivations. Iran is in a dispute with Washington over its nuclear program, and Venezuela’s President Hugo Chavez is an open critic of U.S. President George Bush. U.S. sanctions on Iran have made it increasingly difficult, if not impossible, for the country to do business in dollars.

A day earlier, Saudi Arabia opposed a move by Iran on Friday to have OPEC include concerns over the falling dollar included in the summit's closing statement after the weekend meeting. Saudi Arabia's foreign minister even warned that even talking publicly about the currency's decline could further hurt its value. But by Sunday, it appeared that Saudi Arabia had compromised.

Though the final declaration delivered Sunday did not specifically mention concern over the weak dollar, the organization directed its finance ministers to study the issue. Iran went a step further and said OPEC will form a committee to study the dollar's impact on oil prices and investigate the ramifications of a currency basket.

Algeria's Oil Minister, Chakib Khelil, said he would urge Russia, the second-biggest oil supplier, to join OPEC when he became president of the organization.

Russia attends OPEC meetings as an observer nation.

Khelil will become OPEC president on January 1, 2008.

What If Gazprom Becomes A Russian National Asset?

Gazprom is the largest Russian company and the biggest extractor of natural gas in the world.

With sales of US$ 31 billion in 2004, it accounts for about 93% of Russian natural gas production and with reserves of 28,800 km3, it controls 16% of the world's gas reserves. After acquisition of the oil company Sibneft, Gazprom, with 119 billion barrels of reserves, ranks behind only Saudi Arabia, with 263 billion barrels, and Iran, with 133 billion barrels, as the world's biggest owner of oil and oil equivalent in natural gas.

By the end of 2004 Gazprom was the sole gas supplier to at least Bosnia-Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova and Slovakia, and provided 97 percent of Bulgaria's gas, 89 percent of Hungary's, 86 percent of Poland's, nearly three-quarters of the Czech Republic's, 67 percent of Turkey's, 65 percent of Austria's, about 40 percent of Romania's, 36 percent of Germany's, 27 percent of Italy's, and 25 percent of France's. The European Union gets about 25% of its gas supplies from this company.

On July 4, 2007 the Russian State Duma passed a bill giving Gazprom and Transneft the authority to create their own security forces with greater powers than other private security firms. Gennady Gudkov, a deputy in the State Duma who opposed the bill, raised concerns by calling it a “Pandora’s box... This law envisages the creation of corporate armies. If we pass this law, we will all become servants of Gazprom and Transneft.” If Communist Party proposals for renationallization of certain assets are realized, Gudkov’s concern may be part of a larger issue as the newly formed security forces would have to be re-integrated with existing Russian security forces.

In June 2007, TNK-BP, a subsidiary of BP Plc agreed to sell its stake in Kovykta field in Siberia to Gazprom after the Russian authorities questioned BP's right to export the gas to markets outside Russia. On June 23, 2007, the governments of Russia and Italy signed a memorandum of understanding to cooperate on a joint venture between Gazprom and Eni SpA to construct a 558-mile (900 km) long gas pipeline to carry 1.05 Tcf (30 billion cubic meters) of gas per year from Russia to Europe.

The South Stream pipeline would extend under the Black Sea to Bulgaria with a south fork extending to Italy and a north fork to Hungary. Following the alleged violation of previous agreements and the failure of negotiations, on August 1, 2007 Gazprom announced that it would cut gas supplies to Belarus by 45% from August 3 over a $456 million debt. Talks are continuing and Belarus has asked for more time to pay. Although the revived dispute is not expected to hit supplies to Europe, the European Commission is said to view the situation “very seriously.”