The Foreign Service Journal, December 2003

policies in oil-consuming countries to discourage sharp rises in oil consumption. A continuation of sluggish world economic activity may help. Under such a scenario, analysts suggest that oil demand may grow by no more than 4 million b/d between 2002 and 2005, or roughly 1.3 million b/d a year, with about 60 percent of that growth coming from China and elsewhere in Asia. Non-OPEC oil supplies, including production increases from Russia and the Caspian Basin, are expected to total 3 million b/d over the same period. This would only leave OPEC with one million b/d in market share growth over the period to 2005. As Iraq alone could push output up by one million b/d and expected increases from Algeria and Nigeria might also amount to that much, OPEC could have increased difficulty sustaining its current oil price targets without shutting in substantial produc- tive capacity. Some analysts such as Adam Sieminski of Deutsche Bank believe that OPEC will want Saudi Arabia to cut its produc- tion to make room for increases by other cartel members, but it remains to be seen how much market share the kingdom will be willing to sacrifice to defend prices. At the same time, Riyadh has made clear in public statements that it will not look on passively if Russia continues to grab market share away from OPEC, and any Russian government will have to move cautiously to avoid stimulating a price war among major oil producers. This pressure will be increased by 2007 and beyond, if Iraq is able to make significant headway in achieving some large-scale expansion of its production capacity. OPEC’s ability to raise prices in the short run to levels that may damage the economies of major consuming countries poses a major policy challenge. Oil price volatility can inhibit investment and eco- nomic growth and spur inflation in major economies that purchase consumer country exports. The burden of rising energy import costs also threatens social stability in such key regional consuming countries as India, Pakistan, and Southeast Asia. Moreover, supply con- straints also make it easier for govern- ments or sub-national groups to threaten vital interests of the U.S., the E.U., Japan F O C U S 28 F O R E I G N S E R V I C E J O U R N A L / D E C E M B E R 2 0 0 3 Source: British Petroleum Top Ten Oil Producers, 2002 Percent World Total End 2002 Barrels Daily (Thousands) 12% 9.90% 10.70% 5.00% 4.80% 4.70% 4.40% 4.30% 3.30% 3.80% 0 2000 4000 6000 8000 10000 Canada UK Venezuela Norway Iran China Mexico Russia USA Saudi Arabia 2280 2463 2942 3366 3330 3387 3585 7698 7698 8680 0 5000 10000 15000 20000 Top Ten Oil Consumers, 2002 Italy France Canada India South Korea Russia Germany Japan China USA Percent World Total End 2002 Barrels Daily (Thousands) 25% 7.00% 6.90% 3.60% 3.50% 3.00% 2.80% 2.50% 2.60% 2.60% 1943 1967 1988 2090 2288 2469 2709 5337 5362 19649