Ahmadinejad: Oil Price Is Lower Than Value

Chron.com:

Wading into oil politics for the first time, Iran's hard-line president said Wednesday that crude oil prices _ now at record levels _ still are below their true value.

In statements likely to rattle world oil markets, President Mahmoud Ahmadinejad also said developed countries, not producing countries like Iran, are benefiting the most from the current high prices.

"The global oil price has not reached its real value yet. The products derived from crude oil are sold at prices dozens of times higher than those charged by oil-producing countries," state-run Tehran radio quoted Ahmadinejad as saying.

"The developed nations are the biggest beneficiary of the added value of oil products," he said.

The president, who is embroiled with the West and the United Nations over Tehran's nuclear program, stopped short of saying Iran would use oil as a weapon, a tactic much feared by his antagonists on the nuclear issue. Nor did he say what oil prices should be.

Oil prices leapt above $72 a barrel Wednesday, settling at a record high for the third straight day.

"The products derived from crude oil cost over 10 times the price of oil sold by producing states. Developed and powerful countries benefit more from its value-added than any party," Ahmadinejad said.

Oil prices should be determined on the basis of market supply and demand, the Iranian leader said.

"Oil is the major asset of nations possessing it. Its price should not be lowered on the pretext that it will prove harmful to developing states, thus permitting the world powers to benefit the most from it," he said.

George Orwel, an analyst at the New York-based Petroleum Intelligence Weekly said he thought Ahmadinejad was playing the oil card to resist pressure over Iran's nuclear program.

"They are using the oil as a political football. Every time there's an issue with Iran, the oil market freaks out," he said in a telephone interview.

Earlier this week, as oil prices pushed above $70 a barrel, ABN Amro broker Lee Fader said the trigger was heightened fear about U.S. military action against Iran, which has said it would go ahead with plans to enrich uranium in defiance of the United States, Europe and the U.N. nuclear agency.

Iran says its nuclear ambitions are peaceful, but the West fears it is intent on arming itself with nuclear weapons.

If the United States were to attack Iran, Tehran might try to cripple the world economy by putting a stranglehold on the oil that moves through the Strait of Hormuz _ a narrow, strategically important waterway running to Iran's south.

While discounting Ahmadinejad's seriousness in his Wednesday comments about the value of oil, Orwel conceded the oil industry could not do without the 2.5 million barrels that Iran exports daily.

"Ahmadinejad is trying to show his muscle so that the Bush administration can realize the consequences on the oil market of further confrontation with Iran," Orwel said, adding that he fully expected Iran to threaten to cut off oil if the confrontation with the West continued.

While Ahmadinejad did not say he would use oil as a weapon in his dispute with the West, Interior Minister Mostafa Pourmohammadi said last month the oil card was in play.

"If (they) politicize our nuclear case, we will use any means. We are rich in energy resources. We have control over the biggest and the most sensitive energy route of the world," he said, referring to the Straits of Hormuz.

In keeping with Iranian leaders' tendency of late to contradict themselves, Foreign Minister Manouchehr Mottaki later denied Iran would adopt such a policy. READ MORE

Iran is the world's fourth-largest oil-producing country and the second in OPEC.

Ahmadinejad urged oil-producing countries _ within and outside the Organization of Petroleum Exporting Countries _ to establish a fund to help alleviate the pressure resulting from high oil prices on Third World nations.

Oppenheimer & Co. oil analyst Fadel Gheit said he considered it unlikely that Iran had any intention of cutting off its oil, the lifeline of its economy.

Gheit noted, however, that there was some truth in Ahmadinejad's comment on developed countries benefiting most from increased oil prices, though the statement would likely be seen as an attempt at "fanning the flames" of a red-hot oil market.

"What he's saying makes a lot of sense. Unfortunately, the source of the comment is going to send jitters in the market," Gheit said.

"The street value (of oil) is triple what OPEC is making," Gheit added, referring to the value of a barrel of gasoline versus the value of a barrel of oil.

Gheit estimated that in London, where the retail price of gasoline is about $6 a gallon, about $150 worth of gasoline can be made and sold from every $50 barrel of oil.

"That is why Exxon Mobil and all the rest make so much money," he said.