Iraq's Oil Minister and OPEC president Abdul Kareem Luaibi (L) sits next to OPEC Secretary General Adullah al-Badri as he reaches his hand to a journalist during an OPEC meeting in Vienna December 12, 2012. OPEC oil ministers meet on Wednesday expected to hold production limits steady despite forecasts for a fall in demand in the first half of 2013. REUTERS/Heinz-Peter Bader (AUSTRIA - Tags: POLITICS ENERGY BUSINESS)

Amena Bakr and Emma Farge Vienna

A new rivalry at the top of the Opec group of oil exporters has emerged, pitting up-and-coming Iraq against undisputed cartel heavyweight Saudi Arabia.

Having overtaken Iran as Opec’s second-biggest producer, a rejuvenated Iraq is beginning to worry Riyadh.

At yesterday’s meeting of Opec the opening salvos were fired in the struggle over who takes responsibility for cutting output if oil prices, now at a comfortable $108 (R937) a barrel, start falling.

After 20 years of war, sanctions and civil strife that left its oil industry in disarray, Iraq is in no mood to consider curtailing output just as it starts to take off.

“Iraq will never cut output,” Iraq’s Opec governor, Falah Alamri, said. “Countries that have increased their production in the last two years – they should do so. This is a sovereign issue, not an Opec issue.”

That was a clear reference to Saudi Arabia, which earlier this year lifted output to a 30-year high above 10 million barrels a day to prevent oil prices ballooning after Western sanctions on Iran halved its production.

The view from Riyadh, said delegates at the meeting, was that Iraq should not just contribute, but lead, the next round of Opec supply curbs.

If Saudi Arabia pushed that line there would be “dark days ahead”, warned a senior Iraqi official, saying Baghdad would not even consider output restraints until 2014.

Opec delegates said yesterday that the group had agreed to retain its output target at 30 million barrels a day, but many market observers think supply restrictions may be needed sooner rather than later if producers want to prevent slow global growth sending prices tumbling.

“Every additional barrel that Iraq produces reinforces its confidence and its expectations that higher production is achievable – and it will negotiate on that basis,” said Raad Alkadiri of PFC Energy.

“Now Opec is dealing with a much more confident Iraq and Baghdad is looking at regional politics and is less willing to compromise.”

Neil Atkinson, the director of energy research at Datamonitor, said: “Iraq is impervious to arguments. It says that it was subject to sanctions for so long that it has a free pass to rebuild its economy.”

Output from Opec is already down sharply from mid-year highs when the Saudi surge took the 12-member group to nearly 32 million barrels a day.

Production in November was down to 30.8 million barrels a day, with Saudi output easing to 9.5 million barrels a day.

But Opec may need to ease further to balance the market in the first half of next year when, with demand depressed by a stagnant economy, its own forecasts indicate that demand for Opec crude will come in at only 29.25 million barrels a day.

“We’re concerned by the drop in demand and the high level of stocks,” Algerian Energy Minister Youcef Yousfi said.

Atkinson noted: “There is rising oil from places like the US and Iraqi output is rising quite sharply. There’s a risk that we see a sharp drop in price next year.”

Iraq is the fastest-growing crude exporter and Iraqi Oil Minister Abdul-Kareem Luaibi said on Sunday that it expected more gains next year as foreign companies pushed production towards the highest level ever.

Output began to rise in earnest in 2010 after Baghdad secured service contracts with firms such as BP, Eni , Exxon Mobil and Royal Dutch Shell.

Flows have now reached 3.4 million barrels a day – up nearly a million barrels from when oil companies got down to work three years ago. Luaibi said output in 2013 was set to average 3.7 million barrels a day – just shy of an all-time high of 3.8 million barrels a day, hit in 1979. – Reuters