SAUDI ARABIA could raise its crude oil production by 2 mbpd almost immediately, Oil Minister Ali Al Naimi says while describing as “disturbing” Iranian threats that have roiled oil markets recently.

Earlier this year, Iran’s Opec governor Ali Khatibi had warned Arab oil producers against colluding with the West by agreeing to offset any gap in supply should Iranian crude oil be subjected to an embargo.

“Let me put it this way. I don’t think all these pronouncements are helpful to the international oil market or to the price of oil. It’s really disturbing,” Al Naimi said in an interview. I believe we can easily get to 11.4, 11.8 (mbpd) almost immediately, in a few days because all we need is (to) turn valves,” he said when asked how soon Saudi Arabia could turn up the taps in the event of a supply disruption. “To get to the next 700,000 or so, we probably need about 90 days.”

Saudi Arabia, the world’s leading oil exporter, has total oil production capacity of 12.5 mbpd.

Al Naimi was responding to questions about fears of a supply gap should Iranian oil exports of 2.2 mbpd be interrupted as a result of tighter sanctions and a threatened EU oil embargo.

He stressed that Saudi Arabia maintained spare production capacity to meet any emergency shortage in supplies and to satisfy demand from its customers.

“This spare capacity is to respond to emergencies worldwide. To respond to a customer demand. That is really the focus. Our focus is not who drops out of production but who wants more,” Al Naimi said, referring to Saudi Arabia’s decision to raise output to make up for the loss of output in the US Gulf as a result of Hurricane Katrina in 2005.

The kingdom, the biggest crude oil exporter to China, was prepared to meet requests for additional supplies from China and other buyers, Al Naimi said.

“We know their (China’s) overall demand fluctuates over the course of the year by between 400,000 and 500,000 bpd. But like prudent customers, they have diversified their supplies,” he said.

“So if we were asked to provide an additional 200,000 or 300,000 bpd, that’s not a big deal because you know we have the capacity to produce 12.5 mbpd,” Al Naimi said, adding that Saudi Arabia has been producing between 9.4 mbpd and 9.8 mbpd. The US, which in December imposed sanctions against Iran’s Central Bank making it more difficult for Opec’s second biggest producer to receive payment for its crude oil exports, has urged Asian oil consumers China, Japan and South Korea to lessen their reliance on Iranian oil.

Naimi was interviewed in Dhahran, where Saudi Aramco and China’s biggest refiner Sinopec signed an agreement earlier this year build a 400,000 bpd oil refinery in Yanbu on the Red Sea Coast. The signing ceremony coincided with a visit to Riyadh by Chinese Premier Wen Jiabao, who reportedly raised the issue of energy security with Saudi King Abdullah and other senior officials.

Aramco ... having the capacity to step up

When asked whether Japanese and South Korean fears about the potential loss of Iranian oil were justified and whether Saudi Arabia would be able to meet any supply gap from Iran, Al Naimi replied: “Absolutely. As long as they are customers, we will honour their requests.”

Oil prices have been rattled by threats from some Iranian officials that they would block oil traffic through the Strait of Hormuz should their oil exports be targeted by sanctions.

Al Naimi said he did not think any closure of the strait would last long and CNN quoted him as saying that while half of total Saudi oil exports are shipped through the Arabian Gulf waterway, Saudi Arabia had other alternatives.

“I personally do not believe that the strait, if it were shut, will be shut for any length of time. The world cannot stand for that,” Al Naimi said.

Al Naimi also says he would like to see oil prices stabilised at around $100/b, explaining that he was referring to an average of Nymex crude, Brent and the Opec basket. “Our wish and hope is that we can stabilise this oil price and keep it at a level around $100...for the average of the crudes worldwide. If we were able as producers and consumers to average $100, I think the world economy would be in better shape,” Al Naimi said.

Al Naimi’s comments came as Iran faced a barrage of international sanctions including an oil embargo worked out by the EU, a move that shut off a market for roughly 20 per cent of Iranian crude exports. With exports to the US already under an existing decades-old embargo, Iran is now facing the prospect of losing market share in Asia to rival producers, namely Opec kingpin Saudi Arabia with which its relations have been testy in the past year.

Khatibi, meanwhile, advised Arab oil producers to exercise wisdom, adding that a Western oil embargo would come only if the other Gulf producers provided assurances that they would raise their output.

“If our southern neighbours cooperate with adventurist countries by replacing Iran’s oil with their own, these countries will be considered accomplices in subsequent events,” Khatibi said in the strongest warning so far by Tehran to fellow Opec oil producers in the region. “The consequences of such action cannot be predicted. Therefore the southern Arab neighbours should adopt reasonable policies and not cooperate with the adventurists,” Khatibi said, referring to the Western powers.

“If these countries make a mistake and give a green light, this will be a historic green light. Then they will wish that things return to the way they are now. But it won’t be easy,” he adds. The region’s main Arab producers are Saudi Arabia, Kuwait, the UAE, Qatar and Iraq, all Opec members, along with non-Opec Oman. Khatibi made no specific mention of Saudi Arabia but another Iranian oil official said the kingdom would not be able to substitute Iranian oil.

“Even now, there is a shortage of around 5 million barrels of crude oil on global markets and producers have not covered this demand,” Mohsen Qamsari, NIOC’s director for international affairs, was quoted as saying by student news agency ISNA. He referred to a gap between current supply of around 85 mbpd and demand of 90 mbpd. The second thing is that the only Saudi Arabian oil that can replace Iran’s in the global markets is ‘medium,’ and production [of that grade] is only around 1.2 mbpd,” Qamsari said.

“On the other side, Saudi Arabia has regular customers for this amount and has committed to its sale. Therefore, Saudi Arabia has no surplus oil that can replace Iran’s oil in the global markets,” he added.

He put Iran’s oil exports at around 2.3 mbpd.

Washington is pressing for a new set of sanctions that would cut Iran’s oil exports to its global customers while an EU embargo on Iranian crude oil went into effect this July, as part of growing international pressure on Iran over its nuclear programme.

Senior Iranian military officials and some politicians have stated that should Iran be prevented from exporting oil, it would consider blocking oil traffic through the strategic Strait of Hormuz.

Khatibi referred to the security of tanker traffic through the strait, saying the entire region would suffer the consequences of any disruption to traffic through the Gulf. “The Strait of Hormuz is part of the region and if the regional countries unanimously say ‘no’ to things that are detrimental to the region’s security, certainly nothing will happen,” he said.

Washington issued a warning to Tehran over the threat to oil traffic through the strait in a rare communication with Iranian officials. It also sent a private warning to Iran’s supreme leader, Ayatollah Ali Khamenei.