An article written by Ebrahim Fallahi and published on Tehran Times of September 28, 2016. It is about the recent informal OPEC meeting held on the sidelines of the International Energy Forum 2016 ( IEF ), which groups producers and consumers.
It is against a background of the generalised exporting countries and Big Oil companies earnings shrinking, prompting OPEC producers and rival Russia to look for re-energising as it were, the oil market thus boosting revenues from oil exports and help their crippled budgets.
The idea among producers is to come to some agreement on a freeze of production levels but a deal has yet to be reached as it seems now it is complicated by acute political rivalry between Iran and Saudi Arabia, which are fighting several proxy-wars in the Middle East, including in Syria and Yemen.
Sources told Reuters last week that Saudi Arabia had offered to reduce its output if Iran agreed to freeze production, a shift in Riyadh’s position as the kingdom had previously refused to discuss output cuts.
Algiers meeting outcome hanging in the balance
Senior officials, corporate executives, representatives of international institutions and experts from all around the world along with major oil producers have come together in Algiers to attend the 15th International Energy Forum (IEF) from Sept. 26-28.
But the spotlight is more fixed on the sidelines than the main event, OPEC and key non-OPEC countries will hold an informal meeting today to discuss ways of stabilizing the oil market.
Iran and Saudi Arabia, the two main players in this scene, are standing in two different poles.
“Both countries are coming from different positions,” said Jason Tuvey, Middle East economist at consulting firm Capital Economics told Bloomberg.
On one side stands Saudi Arabia, hit by economic crisis at home and facing a second year of record budget deficit.
The kingdom’s move towards economic reforms aiming at reducing the effects of falling oil prices has resulted in a financial chaos and Riyadh is squandering its foreign exchange reserves.
In a latest attempt to recover from the unexpected turmoil, Saudis decided to cut the ministers’ salaries by 20 percent and scale back financial perks for public sector employees in one of the most drastic measures.
Now with the IEF opportunity on the horizon, in an attempt to save the sinking economy, Saudis tried to throw the world’s expectations ball into their longtime rival’s court, offering a reduction in oil production if Iran caps its output.
Almost all market and oil experts believe that the Saudis’ offer hasn’t originated from a good will.
“Saudi output had risen too steeply in recent months and even if it were cut to pre-summer levels, Iran would see an offer to freeze its own output as unfair,” Reuters quoted Gary Ross, a veteran OPEC watcher and founder of U.S.-based think tank PIRA.
“It is a carefully calculated offer because Saudi Arabia knows it will not be acceptable to Iran … Saudi Arabia wants to put the blame of OPEC inaction in Algiers on Iran,” Ross said.
On the other side, Iran, emerging from years of sanctions, says it agrees to cooperate with OPEC to help the oil market recover, but expects others to respect its right to regain its lost share of the market.
The Persian Gulf nation which has never been relied on oil as much as its rival refused to play along with Riyadh’s shifted position.
“Tehran would love to have higher oil prices, but Iran is the OPEC country that had to do fewer budget sacrifices due to cheap oil,” Bloomberg quoted Olivier Jakob, an analyst at Petromatrix GmbH in Zug, Switzerland as saying: “They feel they have a strong hand.”
On Monday before the IEF opening, Iranian Oil Minister Bijan Namdar Zanganeh who had called the meeting just advisory before leaving Tehran for Algiers, told the press that although the country backs any measure to help stabilizing the oil market, the country does not intend to cut its oil production.
Iran believes its fair production share in OPEC should be higher than its current output. What Iran wants is having the right to raise output to about 4.1-4.2 million bpd. The country should be allowed to produce 12.7 percent of the group’s output, the volume it was extracting before the sanctions cut its production.
Referring to the next formal OPEC meeting in Vienna on Nov. 30, Zanganeh said that “It is not the time for decision-making. We will try to reach agreement for November,” Reuters reported.
These comments were followed by a wave of different reactions both from the market and other participants to the meeting. In an immediate reaction Saudi Energy Minister Khalid al-Falih responded to Iran’s slap changing its position once again saying that “This is a consultative meeting … We will consult with everyone else, we will hear the views, we will hear the secretariat of OPEC and also hear from consumers.”
Saudi Arabia and Iran on Tuesday dashed hopes that OPEC oil producers could clinch an output-limiting deal in Algeria this week as sources within the exporter group said the differences between the Kingdom and Tehran remained too wide, Reuters wrote.
At the end of the first day of the IEF meeting, the participants left for Sheraton Hotel empty handed eyeing today’s informal talks.
The question remains now, whether Iran accepts to go along with other OPEC members to cut its production.
The answer will soon be revealed.