JEDDAH, 21 January 2004 — Dr. Mohammed Al-Sabban, senior adviser to the Saudi minister of petroleum has called on the major oil-consuming blocs to engage more with the oil producing countries. To maintain the buffer against fluctuations in supply that Saudi Arabia’s spare capacity represents, the adviser said, “The international community should help them in diversifying their economies in order to establish social and economic stability.” Improvements in technology over the last 20 years have drastically reduced production costs. Structural changes in the oil market have made predictions about the use of oil very unreliable. However, he said, “on the demand side, oil will continue to constitute 80 percent of the total energy mix.” He said that there were too many uncertainties to push forward with increasing production capacities. Oil products are heavily taxed in the EU - around $80 a barrel - and OECD countries. According to Dr. Al-Sabban, this has curtailed demand in the area. “Saudi Arabia is thinking globally and trying to diversify exports,” he said. Taxes are a disservice, he said, but continue in many disguises — global warming concerns, environmental concerns — and the result is that new development in the energy sector is heavily biased against oil products.

Peter Robertson, vice chairman of the board, Chevron, Texaco Corporation agreed that the Kingdom had repeatedly demonstrated its sense of responsibility for maintaining stability in the global oil market and described it as “the central banker for global oil.” Robertson recommended that government and companies must avoid three mistakes: That OPEC will be less important in the future, that the US, Europe and the Gulf States should depend less on each other and avoid complacency about social and economic trends.

He said that OPEC would remain important, but “that does not mean it will be the same as in the past.” He pointed out, “There will be greater production outside as well as inside OPEC and increased consumption - increased needs from China, Brazil and other developing countries.” He saw these as new opportunities for Saudi oil diplomacy.

Of reduced interdependence with the US and Europe he thought that this would transform a positive strategic relationship that has survived for over two-thirds of a century. In a globalized market, “Interdependence is inevitable,” he said. Trade and investment ties closely link the three regions and have acted as security ties. “They were tested in the cold war, and will be tested again in the war against terrorism,” he said. “The emphatic response is more, not less interdependence.”

Population - identified by Peter Robertson as “social trends” - continues to grow two to three times more quickly than GDP in the Arab world. “Governments have to move quickly to correct this ‘scissors’ effect and ensure meaningful work opportunities for their young. Private sector development and deregulation are the key,” Robertson said. He saw the mistakes as opportunities: For new leadership from cooperation between producers and consumers, for more not less interdependence in energy endeavors as well as security and political affairs and social and economic opportunities and for the development of rewarding opportunities to rising generations.”

In a brief analysis of the link between energy supplies and world economic health, Dr. Ray Irani, chairman and CEO of Occidental Petroleum, suggested that even with the oil price at $30 per barrel, it has not slowed economic growth in the US. “It has got used to high oil prices; pessimists see US GDP growing between four and five percent with oil prices in high $20 per barrel region,” he said. “As a percent of US GNP oil represents a much smaller percentage than years ago. From 1970 to today it has grown less than the price of hamburgers or cars.”

Taking a long view, Dr. Irani said that economic growth and social improvement required energy supplies. “China and India are 25 percent of world population but have only 2.3 percent of the world’s energy reserves. As their economy continues to grow and their well-being improves, they will need more energy.” They can afford to buy it, he said however, Africa cannot and this will limit growth.