VIENNA It is no exaggeration to say the impact of the pending U.S. and European sanctions against Iran are one of the most taboo subjects at an OPEC meeting in years.
A visitor from Mars could well walk away from the day to day events in Vienna under the impression that the impending U.S. and European sanctions regimes has nothing to do with Iranian oil exports.
Ministers and delegates are extremely reticent to discuss the subject of the sanctions, set to take effect July 1, which may well force Tehran, OPEC's No. 2 producer, to slash output.
Already Iranian crude shipments are down by an estimated 1 million barrels per day, according to the International Energy Agency, as Tehran's customers in Europe and Asia cut back purchases ahead of the sanctions.
Instead, ministers focus, at least publicly, on the risks to world economic growth due to Europe's sovereign debt crisis and debate the real size of the growing overhang of oil stocks in consumer nations.
The problem for OPEC on Iran is twofold. First, and foremost, no one really knows what the ultimate effect of the sanctions will be so there's no real grounds to make a policy decision.
Secondly, despite historical antagonism between Iran and some members of OPEC, notably Saudi Arabia and the other Gulf Arab states, there seems to be at least a tacit agreement not to politicize OPEC policy.
Although the market has coped well in recent months with lower Iranian oil exports, this has come at a period of traditionally slack demand for crude.
No one is ready to venture an opinion about what will happen July 1.
There is genuine relief amongst most delegations that the sanctions have not yet triggered a spike in oil prices. But this is also accompanied by an element of disbelief.
How can it be that oil prices have fallen $30 a barrel at the same time as 1 million bpd of Iranian oil exports have been knocked out of the market?, delegates ask.
Much will depend on third quarter demand, which is expected to get a boost from normal seasonal upswings plus Japanese and Middle Eastern consumption for power generation.
So the risk is higher demand, plus an additional drop in Iranian oil exports could transform the situation in the oil market quickly.
But this concern has to be tempered among OPEC policymakers by a realization that the last thing the world economy needs right now is a spike in the price of crude.
Although cheaper oil is helping moderate fuel costs in the United States, for instance, the sliding Euro has cut into the benefit for Europe, which imports 80 percent of its oil.
It is not just the developed world that is struggling with oil costs. India's surging import bill for oil comes as it battles a growing current account deficit that has emerged as a drag on growth.
ABOVE THE PAY GRADE
The other factor that seems to be keeping Iran out of the discussion is the fact that this issue is being dealt with at the highest levels.
Oil ministers, if they have received any instructions from their superiors, appear to have been told to do their best to keep OPEC relatively harmonious and avoid anything that could send crude prices sharply lower.
Of course, there is nothing unusual about a certain amount of unreality defining the public agenda of OPEC meetings.
This is, after all, the same group that currently has a 30 million bpd production target that is likely to be rolled over even though it stands 750,000 bpd below what OPEC's own experts believe production levels need to be just to keep the market balanced.
A Saudi suggestion that the ceiling should perhaps be raised went over rather badly, even if it would hardly have made an impact on the amount of oil actually going to market.
Oil output by the OPEC members governed by the ceiling is currently 1.6 million bpd over the target, and no one suggested raising to that level.
But OPEC will not be able to avoid the topic of the Iran oil sanctions for long. Past experience with Iraq under Saddam Hussein shows that once oil sanctions are in place, they are very difficult to lift.
Barring a last-minute breakthrough in talks between Iran and Western governments over Tehran's disputed nuclear program, the curtailment of Iranian crude exports looks set to become a long term feature of the oil market.
That might be something that the world economy can handle during this period of weakness but it lays the groundwork for longer term challenges to sustainable oil prices in the future once growth revives.
(Editing by William Hardy)
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