Once the Persian Gulf crisis is over, the world will find itself flooded with oil as nations start arguing over how much crude each should pump, experts believe.
OPEC nations that stepped up production to offset the loss of Iraqi and Kuwaiti crude will be caught in a double whammy as prices come crashing down and the previously boycotted oil pushes its way into the market. The producers will have a tough time trying to agree on who should cut back and by how much, analysts say."That's inevitable, and it may be very difficult for them to do, because when the crisis ends, the 11 OPEC countries other than Iraq and Kuwait will already be producing more oil than the world needs from all of OPEC," said Philip Dodge, an oil analyst with Nomura Securities International Inc.
After Iraq invaded Kuwait in early August, the international embargo of their oil created a shortfall of about 4 million barrels of crude a day.
Saudi Arabia and Venezuela immediately began pushing for higher production levels to erase the deficit. OPEC oil ministers eventually agreed to temporarily lift the cartel's quotas.
Within weeks, the combination of more oil and less demand had virtually erased the shortfall.
Saudi Arabia, the world's biggest exporter, says it plans to keep pumping more.
Since the crisis began, Saudi production has gone up about 57 percent, from around 5.2 million barrels a day to around 8.2 million barrels a day. The Saudis hope to bring production to 8.5 million barrels a day in the near future, and they want to raise capacity to a potential level of 10 million barrels a day within the next two years.
It remains unclear whether a war in the Gulf would damage any Middle East production facilities or how long it would take to repair any damage. The Iran-Iraq war showed it is hard to stop the flow of oil through repeated bombings, although experts agree that Iraqi troops might be able to cause greater damage to Kuwaiti facilities by blowing them up with explosives placed right at the wellhead.
Regardless of any damage or its longevity, the oil markets will eventually feel the glut as Iraqi and Kuwaiti crude gets back in.
Once that happens, the nations that increased their production during the crisis will probably be reluctant to cut back, particularly since their oil will bring far less money per barrel.
Adjusting quotas won't be easy, and some in the industry believe the strains on the Organization of Petroleum Exporting Countries will be great.