Iran shrugs off oil sanctions, OPEC ministers move toward consensus on output

VIENNA - Iran's oil minister on Thursday shrugged off the tightening international squeeze on his country's oil exports, declaring that Tehran was not feeling the pinch and warning that an energy-hungry world could not do without Iranian oil and natural gas.

Rostam Ghazemi spoke to reporters as he and other OPEC ministers headed into a meeting marked by a spillover of strategic and political rivalries between Sunni Saudi Arabia and Shiite Iran, with the two countries at odds over how much oil the organization should produce.

Iran would be happy to see output lowered to raise prices, while the Saudis came to the meeting looking to increase production to make crude more affordable. Many of the world's major consuming nations are struggling against a stubborn economic downturn that could be exacerbated by any decision to inflate oil prices by cutting supply.

Differences appeared to be resolved as ministers gathered Thursday, with several suggesting the 12-member Organization of the Petroleum Exporting Countries would opt to keep the present ceiling of 30 million barrels a day. That would be a compromise, formally bridging the Saudi and Iranian standpoints.

But OPEC members normally ignore the official quota ? OPEC's daily output is now at close to 33 million barrels ? and the Saudis, and others with capacity, were expected to keep overproducing to make up for any shortfall caused by the sanctions on Iranian oil.

Iran, in contrast, is faced with the prospects of having to cut its output of oil, which makes up nearly 80 percent of its foreign exchange earnings. Sanctions levied by the U.S. over Tehran's refusal to curb its nuclear program have already cut significantly into exports ? from about 2.5 million barrels a day last year to between 1.2 and 1.8 million barrels now, according to estimates by U.S. officials. A European Union embargo on Iranian crude that starts July 1 will tighten the squeeze.

The oil-related sanctions are only part of the regime of U.N. and other international penalties levied against Iran for its refusal to curb uranium enrichment. Tehran says it is enriching only to create reactor fuel and insists it is not interested in atomic arms. But concern remains strong because enrichment to high levels also can produce the core of nuclear weapons.

Iran has cautioned the Saudis not to use the oil weapon against it, and Ghazemi on Wednesday warned the U.S. and Europe that their tactics will backfire.

"The use of instruments such as sanctions or direct military interventions in energy-producing countries will increase the price of oil and market volatility," he told an OPEC seminar.

On Thursday, he denied that Iran was hurting.

"Our exports remain as before," he declared, adding that the oil embargo will "not have any negative impact on Iran."

Asserting that Iran has the most combined oil and gas reserves in the world, he suggested his country held the long-term upper hand, despite the embargoes and that the globe could not meet its energy needs without input from Tehran.

"Do you think the world can ignore this energy?" he said. Asked whether the Islamic Republic will be forced to sell its crude at deep discounts because of the sanctions he said, "Never."

Saudi Arabia, OPEC's No. 1 producer, usually sets price and output policies ? it now accounts for nearly a third of OPEC production ? and came to the meeting keen to keep a lid on prices. But with rival Iran pushing to cut production, and even Gulf nations that normally back the Saudis expressing concern over prices that are down more than 20 percent from just a few months ago, Saudi Arabia appeared to have abandoned attempts to ram through an OPEC production increase and to be ready to settle for maintaining the status quo Thursday .

"Consensus .... is the goal of our organization," Angolan Oil Minister Jose Botelho de Vasconcelos told reporters in comments that suggested differences had been bridged. Referring to the existing output target of 30 million barrels a day, he said: "I think this ceiling is good."

In another manifestation of their rivalries, both Iran and the Saudis are fielding candidates for the post of OPEC secretary general, to be filled in December when Abdullah Al-Badry of Libya retires. But Ecuador also is in the race, along with Iraq, and expectations are high that the ministers will opt for Wilson Pastor of Ecuador at this meeting or the next as a compromise.

Saudi-Iranian tensions are an embarrassment to OPEC, a self-proclaimed market regulator that seeks to project an image of calm unanimity, and Saudi Oil Minister Ali Naimi refused to answer questions on the issue as he prepared to join the meeting Thursday. But he earlier denied tightening the screws on Iran by selectively providing crude to consumers honoring the Iran embargo, telling reporters his country sells to whoever buys.

"We don't sit and say: `We want to sell to this country or that country (or) whatever,'" he said.

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Margaret Childs contributed.

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