MIDDLE EAST BRIEF FOR 15 DECEMBER 1987.

Created: 12/15/1987

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SUBJECTi MIDDLE EAST BRIEF fROMi PAS. ITtKS

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I. OfEC; CURRENT AGREEMENT EXTENDED

PECi CURRENT AGREEMENT EXTENDED

OPEC ENDED ITS SIX-DAY MEETING YtSTlROAY WITHF II MEMBERS AGREEING ONLY TO EXTEND THE CURRENT ACCORD UNTIL JUNE.

IRAO REMAINED OUTSIDE THE AGREEMENT BECAUSE IT WASUOTA EQUAL TOAN'S.OM IRAN FOR AN IirWfll ATE in THF OFFIC AL PRICE OF CRUDE ER BARREL WAS REJECTEO. BUT3 .GrIeD^'SpEC WOULD ADDRESS THE PRICING ISSUE AT TH NEXT SCMtOULED MEETING IN JUNE. YESTERDAY, SPOT BRICES Ft* NORTH SEA

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BRENT FELL BYOLLAR5 PER BARREL ON THE HEWS THAT OPEC WAS LIKELY TO EXTEND THE CURRENT AGREEMENT.

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THE EXTENSION OF THE AGREEMENTACK OF CONSENSUS WITHIN THE CARTEL THAT MIGHT LEAD TO FURTHER PRICE EROSION. OPEC FAILED TO AGREE TO CURTAIL OUTPUT--CURRENTLY ABOUTILLION BARRELS PERPERIODS OF WEAK SEASONAL DEMAND. DEMAND FOR OPEC OIL IN THE FIRST QUARTER OF FOR EXAMPLE. MAY BE AS MUCHELOW CURRENT PRODUCTION LEVELS. WHICH WILL PUT CONSIDERABLE DOWNWARD PRESSURE ON PRICES IF MEMBERS TRY TO SUSTAIN OUTPUT.

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THERE ARE FEW INDICATIONS THAT MEMBERS ARE WILLING TO TRIM PRODUCTION. INDEED, SAUDI ARABIA APPEARS INTENT ON MAINTAINING ITS MARKET SHARE, ANO INOONESIA AND NIGERIA ARE PLANNING TO INCREASE THEIR OUTPUT IN COMING MONTHS REGAROLESS OF THE OUTCOME OF THE MEETING. RIYADH PROBABLY WOULO BE WILLING TO REDUCE OUTPUT SOMEWHAT TO SUPPORT PRICES BUT WILL NOT YIELO TO PRESSURE /ROM OTHER MEMBERS TO RESUME THE ROLE OF LONE SWING PRODUCER. MOREOVER. SAUDI ARABIA HIS YET TO TAKE STtPS TO PRESS KUWAIT ANOTHE LJAE--TWO OF OPECS BIGGESTCUT OUTPUT.

THE IRANIAN PETROLEUM MINISTER RETURNED HOME FOR CONSULTATIONS OURING THE MEETING, REFLECTING TEHRAN'S UNCERTAINTY ABOUT HOW TO REACT TO OPECS REJECTION OF ITS OEMANO. TEHRAN PROBABLY SIGNED THE ACCORD DESPITE SOME RELUCTANCE BECAUSE IT FEARED THAT FAILURE TO REACH AN AGREEMENT WOULO FURTHER OEPRESS PRICES. TEHRAN WILL PROBABLY TRY TO INTIMIDATE GULF PRODUCERS INTO LOWERING THEIR OUTPUT AND SUPPORTING PRICES IN THE NEAR TERM, BUT ITS LEVERAGE IS LIMITED.

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--KENYAN POLICE AND UGANDAN MILITAR YESTERDAY . . . FIVE UGANOANS KILLEO, CONFLICT PROBABLY INITIATED BY LOCAL COMMAND DOWN BY OFFICIALS IN NAIROBI AND KAMPALA.

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Original document.

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