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Here’s why Iran and Iraq should worry OPEC

A worker adjusts the valve of an oil pipe at West Qurna oilfield in Iraq's southern province of Basra.
Atef Hassan | Reuters
A worker adjusts the valve of an oil pipe at West Qurna oilfield in Iraq's southern province of Basra.

Caveat emptor! The big Organization of Petroleum Exporting Countries (OPEC) summer pow-wow is only 24 days away now and ceteris paribus we should see a continuation of the status quo. Right that's enough Latin, the only languages that really count at the meeting will be Arabic, Farsi, Kurdish and money, namely petrodollars.

As far as I can see, this one is about how Saudi Arabia, Iran and Iraq solve a growing problem of how you cap OPEC production – and thereby falling prices - at a time when Baghdad and Tehran are desperate to up output.

Despite the rally from the mid-$40 region, OPEC could be hundreds of billions light in terms of revenues this year causing some to once again trot out the old, tired and inaccurate line that OPEC is losing its importance in world energy supply.

I even read a report under the headline 'OPEC going broke…' Really?

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Well no-one is doubting that the loose alliance is fractured, sometimes dysfunctional and limited in its adherence to stated production levels but going broke and irrelevant? Dream on.

What is clear though is that some countries desperately need the petro-dollars that would come from increased production. Iran and Iraq are not only near the top of that list but also have the capacity to ratchet up their levels, albeit with the caveat in Iran's case of completing nuclear talks.

Bernstein Research has just put out a briefing on the importance of Iraqi and Iranian production ahead of the OPEC meeting on 5th June and amid the reams of statistics I pulled out a few. And if you think it's only Saudi Arabia that matters then look again at these numbers on Iran and Iraq:-

  1. Iran has 1 percent of global population but an estimated 157 billion barrels of proven crude oil reserves.
  2. The Iranian number equates to 9.5 percent of world total and is fourth largest amongst all countries after Venezuela, Saudi Arabia and Canada.
  3. Iran also has the second-largest proven gas reserves at 1,193 trillion cubic feet – 17 percent of the world's resources and 35 percent of OPEC's.

And the Iraqi numbers are not to be sniffed at either:-

  1. Iraq comes close with 144 billion barrels of proved crude oil reserves.
  2. The Iraqi figure equates to 9 percent of the world total and is fifth largest globally.
  3. Iraq is the second-largest OPEC producer currently, producing 3.4 million barrels per day, equating to 4.3 percent of the world total.

To put this in context, Bernstein's report says there are roughly 1,6 trillion barrels of proven oil reserves in the world.

Read MoreOPEC slams oil producers with 'go-it-alone' attitudes

So Iran and Iraq are potentially the major players who could upset not only OPEC equilibrium with their challenge to number one producer Saudi but have the ability to put the skids under the big rally in oil off the March lows.

Follow Steve on Twitter: @steve_sedgwick