U.S. Should Leave Iraq in OPEC

Abstract: Developments this week in Iraq, Iran, Pakistan, and Saudi Arabia provide strong evidence regarding why the United States should not make any rash decision about Iraq's continued membership in OPEC.

Analysis: The upcoming meeting of the Organization of Petroleum Exporting Countries should be more notable for what does not happen than for any dramatic action taken by Iraq or its occupying power.

Cuts to production, now running around 26.7 million barrels per day (mmb/d)(excluding Iraq), will top the agenda of the June 11 meeting in Doha, Qatar.

Unofficially, lots of people are watching to see if the United States exercises sweeping powers recently granted by the United Nations to pull Iraq out of the 43-year-old cartel.

The chances of that happening should be about as likely Tom Cruise suddenly growing four inches so that he no longer has to look up to ex-wife Nicole Kidman. The messy divorce of the film stars pales in comparison to the complications that could easily hurt President George W. Bush's chance for re-election if his administration makes a shortsighted decision on Iraq.

Aside from ideological reasons, there are no real economic or political challenges that necessitate the U.S. removing Iraq--a founding member when OPEC was created in September 1960--from the organization.

Production in the savagely looted nation is currently around 700,000 b/d, a far cry from the roughly 2.5 million pumped every day before the war started in March. Iraqi oil officials have said it may not reach the pre-war level, about three percent of global demand, until this fall.

Iraq has remained a member of OPEC for the past 13 years, but it was excluded from output quotas imposed on members because of UN sanctions slapped against Iraq after the 1990 invasion of Kuwait.

Some Arab commentators have speculated the U.S. will use next month's meeting to announce Iraq's withdrawal from OPEC. Their suspicions have not been mitigated by statements to the contrary by U.S. and Iraqi officials.

"Iraq is a founder member of OPEC and Iraq has been a member for the last four decades. ... We really don't have any problem with OPEC," Thamir Ghadhban, Iraq's de facto oil minister, recently told reporters.

If next week's U.S.-brokered meeting in Jordan between Israeli Prime Minister Ariel Sharon and Palestinian Prime Minister Mahmoud Abbas fails to move down Bush's Middle East peace roadmap, the president might be tempted to take Iraq out of OPEC. Not only would it deflect attention from a personal political embarrassment, the decision would depress oil prices from traders betting a broken cartel would be unable to impose production discipline and keep up prices.

Cheaper crude would certainly benefit the U.S. economy, still ailing despite a weaker dollar that is boosting exports and curbing imports. A Commerce Department report this week showed U.S. manufacturers of durable goods-- products such as cars and home appliances that last more than three years--fell in April by 2.4 percent. It was the largest drop in seven months, emphasizing the deep trouble faced by manufacturers who have cut jobs for 33 consecutive months.

But recent developments in Iraq, Saudi Arabia, Pakistan, and Iran should stop Bush and his advisors from taking a rash step when it comes to Iraq's membership in OPEC.

This week's deaths of four American soldiers from armed attacks show Iraq is hardly a pacified nation. U.S. military leaders are now planning to keep most of their troops in the country, where they will be used to put down unrest and extend American control.

Unhappiness among Iraqis will increase substantially if they lose an important status symbol, one which represented throwing off the yoke of Britain, its former colonial master.

With anger already simmering about the military only protecting the oil ministry from widespread looting that devastated the country, Iraq leaving OPEC will be hailed by U.S. opponents as another sign the war was about oil, not freedom or weapons of mass destruction. This will only increase the danger to the U.S. soldiers who remain in the country. Body bags flown in from a foreign land are hardly the image that a president running for re-election wants to have appearing almost daily in newspapers or on television.

In Saudi Arabia, the firing this week of Jamal Khashoggi, editor-in-chief of Al Watan, a daily newspaper critical of Islamic militancy, is not a good omen for the Bush administration.

The silencing of a leading voice calling for reform shows the Saudi government is afraid or unwilling to tackle some of the more conservative elements in its society. This action raises questions about how serious Saudi Arabia is about cracking down on religious institutions that allegedly fund al-Qaeda and how long the U.S. can depend on the world's largest oil producer for supply given deep cleavages in the country.

As for Iran, the U.S. is already butting heads over that country's efforts to establish a Shia-led theocracy in Iraq, its alleged support for al-Qaeda members within its borders, and fears that Iran is trying to develop nuclear weapons. (A long-awaited report from the International Atomic Energy Agency on Iran's use of nuclear technology is scheduled to be released next month, which should help resolve the controversy.)

Removing Iraq from OPEC would hand Iran's mullahs, locked in a struggle for power with Western-inclined reformers led by President Mohammed Khatami, another weapon.

Adding complications to Middle East dynamics was the introduction this week of a program of Islamic laws in a province of Pakistan. A religious coalition, called the Mutahida Majlis-e-Amal (MMA), introduced a bill to implement sharia, a strict interpretation of Islamic law, in the North West Frontier Province.

The province borders Afghanistan, making it important in the fight against terrorism. But the U.S. can apply limited pressure on Pakistani leader Pervez Musharraf, who is trying to get changes that would extend his presidential powers. The MMA could provide him with the needed votes to ensure victory, making it doubtful he will crack down too hard on the coalition that gained strength at the provincial and federal levels last November on an anti-American election platform.

It's not a big leap to imagine Islamic fundamentalists setting up Taliban-style schools in the Pakistani province, with Iraq's withdrawal from OPEC used as a lesson to teach young students to hate everything associated with the Stars and Stripes.

In addition to numerous troubles in the Middle East, Bush also must look closer to home when trying to determine Iraq's path. A strike last December crippled production in Venezuela, a top supplier of crude to the U.S., and boosted North American gasoline prices. President Hugo Chavez survived the challenge and Venezuela's output has risen sharply in recent months, but ongoing opposition to his rule could produce another round of unrest and interrupted oil exports.

If Bush wants his middle initial to ring with the "w" in "w"inning presidential elections, he should leave the decision about Iraq's role in OPEC up to the country's future government. To do otherwise would simply reinforce the image of the U.S. as a global bully and sow acrimony that will, as Sept. 11 demonstrated, result in a very bitter harvest.