Former Saudi Oil Minister Yamani calls for change in oil pricing policy

["Today's Encounter" programme, moderated by Hatim Ghandir, interviews Shaykh Ahmad Zaki Yamani, former Saudi oil minister and head of the Centre for Global Energy Studies in London - date not given; recorded]

Doha Al-Jazeera Satellite Channel Television in Arabic at 1430 gmt on 11 July carries a new episode of its weekly "Today's Encounter" programme, featuring an interview with Shaykh Ahmad Zaki Yamani, head of the Centre for Global Energy Studies in London, by Hatim Ghandir.

Ghandir says that this episode will discuss "recent developments in world energy and oil markets, and why oil prices are out of control." It will also discuss "the responsibility of oil producing and consuming countries, and the reality behind the conflict of opinions, contradictory opinions, and the accusations exchanged between oil producing and consuming countries."

Asked whether oil prices are out of control, Yamani says: "The main cause for what is currently taking place is the present pricing system being used for the coming decades," adding that there are other causes that helped price speculators "to raise oil prices in all directions." He adds that "we might be surprised to see oil prices dropping in the future. Thus, the issue is not the responsibility of oil producing and consuming countries only, but there are other sides, such as oil companies which contribute to raising oil prices, because this rise falls within their interests. Banks, financial institutions, and investment companies also have great interest in the hike in oil prices, because they draw billions of USD profits from what is currently taking place."

Asked whether he agrees with OPEC on the assumption that companies, reserve funds, and oil consuming countries are the cause of this problem, Yamani says that these are not the only cause, but one of many, adding that "OPEC also contributed to this problem; when the oil price soared and exceeded 28 USD in 2003, which was the maximum limit OPEC could allow, an increase in oil production was expected to take place at the time, but OPEC reduced production. Following this decision, oil prices began to rise continuously." He adds that OPEC wanted to play the role of oil companies with regard to oil storage.

Ghandir notes that OPEC pumped more oil into the markets and considered itself not responsible for what was happening, and he asks Yamani whether OPEC's role has distanced it from the supply and demand formula. Yamani denies that OPEC's role has been cancelled, explaining that Saudi Arabia increased production by 300,000 barrels and later by another 200,000 barrels. He says: "But in order for this extra production to reach the markets, it needs 40 days. Thus far, we have not yet noticed the effect of Saudi Arabia's action." He adds that this action coincided with Nigeria's decision to decrease production.

Asked to confirm whether the hike in oil prices disadvantages OPEC countries, Yamani says that he supports the hike in oil prices when it is justified, but not in the current manner, explaining that the current hike in prices causes great harm not only to the world economy, but also to oil producing countries in the future. He says that the current soaring prices of food commodities and the prevailing economic recession in several world countries are linked to the rise in oil prices.

Asked whether there are certain parties that benefit from the increasing prices and are pushing towards further increases, Yamani says that "despite the harm caused to them, some oil consuming countries do this, because they want to stop being reliant upon oil, particularly in the Middle East and the Arab Gulf areas." He explains that many countries are spending money on alternative energy resources, which one day will cause oil prices to drop.

Asked to confirm whether the drop in the value of the USD has directly resulted in raising oil prices, Yamani says that this is some type of speculation, explaining that companies buy oil to compensate for losses incurred from the decrease in the USD value, similarly as people used to buy gold to compensate for weak currencies.

Ghandir notes that the current OPEC oil pricing policy is still using the USD as the main pricing currency, and he asks Yamani whether there are plans to replace the USD with a basket of currencies or use a different currency. Yamani says: "We have to differentiate between two things: First, tying pricing to the USD; and second, confining the oil price to the USD," explaining that OPEC tries to tie oil pricing to strong currencies in order to draw the highest profits.

Asked whether the current events in world oil markets are fabricated politically and economically, Yamani confirms that this issue is economically fabricated with some minimal political fabrication, explaining that as long as world banks, investment companies, and insurance companies remain active in this market, making enormous profits, and as long as they circulate rumours about a US or an Israeli strike against Iran, oil prices will continue to soar. He says: "If the Americans act recklessly or if Israel were given the US green light to strike at Iran, then the world economy would come to an end."

Asked whether oil policies adopted by Arab producing countries have benefited the Arab region economically, Yamani denies that this had happened, saying: "Grave mistakes were committed by OPEC oil producing countries, as they earned enormous sums of money that are unprecendented in the history of any world country; however, we have not seen any real outcome of these sums of money and effect on the days to come." Asked to comment on the current investments in European and US markets worth billions of US dollars, Yamani says that "the real investment is in human beings. If you want to boost the entity of any state, you should invest in the human resources, because they are the real wealth, not the money that is stashed abroad, oil reserves, metals buried in the ground, or technology."

Asked to confirm whether OPEC countries have achieved better harmony in the last two years than previously, Yamani confirms that there has never been accord among these countries. Asked how he assesses the inclination by some oil producing countries to seek other energy sources, he says that this inclination is very minimal in the Arab Gulf states, but it is growing on a wide scale in a number of world countries.

Ghandir notes that all world efforts have not succeeded so far in finding alternative energy resources for commercial use, and he asks Yamani's opinion on this issue. Yamani says: "Real work in this regard began during the last three years only. Prior to that, the United States was seriously seeking to find alternatives for oil within its territory, and this is why, for instance, it invaded Iraq, took various actions, and helped in and contributed towards the production of Russian oil, despite the acute differences between the two countries." He adds that when the United States realized that alternative energy resources could not help it to do without the Arab Gulf oil, it started to get involved in huge investments "aided by the soaring oil prices."

Asked to comment on the lack of coordination between Arab oil producing and consuming countries, Yamani says that there is no coordination among Arab states, explaining that "Jordan sometimes needs some assistance to save it from collapse, so Iraq extends help to it in return for a political gain, and Saudi Arabia sometimes extends aid to Jordan out of sympathy, in the absence of any type of cooperation."

Asked whether he is optimistic about the future of oil in the Arab region, Yamani says that he wishes to be optimistic, adding that "what concerns me is seeing oil alternatives unavoidably coming in and oil reserves remaining in the ground, against which we can do nothing, particularly as oil is the main source of income to governments, particularly in our country, Saudi Arabia."

Asked what he would advise OPEC leaders to do at this current phase, Yamani says: "If I were permitted to give advice, oil pricing should be changed from what it is currently. This is the first method or step. If this thing is not implemented, we will continue to witness price ups and downs."

Asked to explain what chances Arab oil producing countries have of converting their production from oil to gas, Yamani says that "gas will be one of energy resources in the future. When the present role of oil ends, gas will become the alternative, because it is a clean source of energy."

Source: Al-Jazeera TV, Doha, in Arabic 1430 gmt 11 Jul 08