Publish Date: 5 January 2013 - 10:08

An emerging alliance between Iran and Iraq in OPEC is expected to undermine Saudi Arabia and could push up oil prices sharply, western media reports said.

Iran and Iraq are two of the top producers in the Organization of Petroleum Exporting Countries and between them of nearly 300 billion barrels of oil. Oil industry insiders say Iraq also sits on as much as 150 billion barrels in unexplored reservoirs.

An agreement by these two countries that dominate the northern Persian Gulf, a strategic zone that currently produces at least one third of the world's oil supplies, could have immense geopolitical consequences, despite an expected US shale oil boom, a UPI report said.

Iran has always been a price hawk, seeking to keep prices as high as the market will entertain, while the Saudis and the other Arab monarchies in the Persian Gulf have generally sought to lower prices to support the western powers that are their main customers.

The recovery of Iraq's badly rundown oil industry since Saddam's downfall has thrust it back into the major producers' league and it needs high prices to generate the funds for its post-Saddam reconstruction.

So it has moved from its alignment with Saudi Arabia to stand alongside Iran within OPEC, adding significant weight to the price hawks.

This trend is likely to alter the geopolitical landscape in the strategic Persian Gulf region.

"Over time, the likelihood of Iraq needing to accommodate Iranian strategic interests is most likely…, and this has especially wide regional consequences," observed George Friedman, chief executive officer of the US global security consultancy Stratfor.

Now Algeria's military-backed government, in sore need of copious oil revenue to buy itself out of the pro-democracy current surging through the Arab world, has became what the Financial Times calls "the uber hawk" in OPEC.

"Algeria's growing hawkish voice is important because it is giving firepower to the other countries calling for higher oil prices in OPEC," Javier Blas, the Financial Times' commodities editor, observed recently.

Oil prices are running at around $100-$110 a barrel. Iraq, for example, would like to see that go up to $120 as it shoots for a production level of around 10 million bpd over the next 5-6 years.
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