Sweet and Sour: Kuwait out of step with Opec in bid to please US

Whoever joked that Iraq was now the 51st US state hasn't looked at Kuwait lately. This little oil-producing country that Saddam Hussain tried to gobble up as his 19th province more than a decade ago has in recent months completed its transformation into an American outpost. It also appears to have become Washington's proxy within Opec.

Kuwait, with an elected parliament, tends to give us more political debate than any other Gulf state but that does not necessarily make the country any easier to read. The political chatter is healthy but it is the Al Sabah family that rules the roost there with a lot of help from their grateful American allies.

On April 1, the US rewarded Kuwait for its unflinching support by according the country the status of "major non-Nato ally".

This will allow Kuwaiti companies to bid on certain US Defence Department contracts and to take part in cooperative research and development programmes with the Pentagon. It also places Kuwaiti companies in a better position to bid for reconstruction jobs in Iraq.

On March 31, Kuwait's position at the Opec meeting in Vienna provided further proof that Kuwaiti officials were no longer shy about openly displaying their pro-American stance.

Kuwait's oil minister, Sheikh Ahmed Fahed Al Sabah, was virtually alone among the 11 ministers to hold out for a delay in implementing a production cut of one million barrels per day — at least in his public statements.

Opec insiders say there was no dissent inside the closed Opec meetings. The UAE was also uncomfortable with the idea of a production cut while oil prices are near 14 year highs but went along with the majority.

Not so Kuwait, which signed up to the agreement then proceeded to criticise it at every opportunity, echoing Washington's displeasure with the Opec agreement. Kuwaiti Foreign Minister Sheikh Mohammed Al Sabah took the unusual step of slamming Opec's decision as "irrational".

One should mention here that Sheikh Mohammed was in Washington at the time and high oil prices, specifically high gasoline prices at the US pump, have become a hot topic in this presidential race.

Sheikh Mohammed said his country would act if the world economy suffered as a result of the Opec decision.

Spare capacity

Soothing words indeed for an American audience but not very realistic given that Kuwait is among the smaller producers within Opec and possesses no spare capacity to play with.

Back in Kuwait, Sheikh Ahmed Fahed again issued statements assuring consumers that Kuwait would not allow an "unjustified increase" in oil prices, reiterating that he had argued for a postponement of the Opec decision to reduce oil supply.

A traditional Opec price hawk, Kuwait may not be able to maintain this dovish oil policy to please its US friends in the longer term. After all, the economy is still heavily reliant on oil revenues and Kuwait needs to top up its future generations fund to make up for the lean years when oil prices were low.

True, Kuwait has embarked on a programme of economic and political reform but nobody expects changes overnight.

Foreign cash

Ironically, Kuwait would have more clout within Opec if it raised its production capacity but the government's plans to sign long-term service agreements with foreign oil majors to develop its northern oilfields has been held up, partly by parliament's desire to have more say in the legislation.

But it is doubtful the government will allow the elected house to sabotage its efforts indefinitely. Kuwait will want to lock in foreign cash before Iraq is back on its feet wooing potential investors.

In the meantime, the country's elevated status as a close American friend in the region is paying off. Kuwait has won a high-profile contract to run Iraq's mobile phone network and has become a transit point for military and business traffic to and from Iraq.

The provisional government of Iraq made its home in Kuwait before it headed for Baghdad after the end of the US-led war and a lot of Kuwaiti businessmen made vital contacts with the people who are the movers and shakers in Iraq these days.

While the leadership has got the political megaphone pointed directly towards Washington, some Kuwaitis watching developments north of their border in Iraq are not so happy with the way their US ally is handling the occupation of Iraq.

A year ago, fear and loathing characterised the feelings of Kuwaitis towards Saddam's Iraq, whose troops invaded their country and occupied it brutally for seven months. But among a small section of Kuwaitis, such feelings are slowly giving way to sympathy.

This week, a group of Kuwaiti politicians and political activists formed a "parliamentary-popular" committee to support the Iraqi people against the US-led occupation. There are even small signs of cracks between Kuwait's Sunnis and the minority Shi'ites.

Seen from Kuwait's perspective, the enemy next door has been occupied by a friendly power and not a moment too soon. But Iraq is far from pacified as events this last week have shown.

The writer is Middle East editor of Platts, energy information division of the McGraw-Hill Companies. The opinions expressed in this column are the author's and do not reflect those of Platts