Russian and Saudi Arabian officials decided Tuesday to freeze oil production levels contingent on Iran following suit, but Iranian officials were conspicuously absent from the talk, portending bad things for the agreement.
Saudi Arabian, Russian and Venezuelan oil ministers agreed to freeze output after meeting in Qatar’s capital of Doha.
The House of Saud, for its part, indicated in recent media accounts that it would not freeze or cut oil production unless all of its competitors decided to ratchet down their crude production as well. But the oil-rich country’s situation appears to have changed: Government officials are now open to a freeze.
“The reason we agreed to a potential freeze of production is simply the beginning of a process” over next few months,” Saudi Oil Minister Ali Al-Naimi told reporters Tuesday in Doha. “We don’t want significant gyrations in prices. We don’t want a reduction in supply. We want to meet demand. We want a stable oil price.”
Analysts argue Saudi Arabia may not be that concerned about Iran’s refusal to keep prices down, primarily because the House of Saud can use Iran as a proxy to keep outputs high.
Brandon Friedman, a senior fellow at the Foreign Policy Research Institute (FPRI), told The Daily Caller News Foundation Tuesday that it would shift output increases to Iran, while at the same time draw Russia closer to Saudi Arabia.
“Saudis are trying to provide some incentives to Russia to be more flexible regarding the political process in Syria,” Friedman said about Saudi Arabia’s ambition to get closer to Russia.
He added: “The Saudis are even willing to sacrifice some market share” to the Iranians if it means helping Russia’s oil markets, so President Vladimir Putin can continue pushing Iran out of Syria unabated.
Iran’s decision to rebuke the agreement helps Saudi Arabia on two fronts, according to Friedman’s colleague at FPRI, Amin Tarzi. It helps Russia push Iran out of Syria and it could drop oil prices still further into the mire, Tarzi told TheDCNF Tuesday.
“From a Saudi perspective, one of the deal’s attractions is that it shifts some of the responsibility for continued overproduction and price weakness onto arch rival Iran,” John Kemp, a senior market analyst with Reuters Thomson, mirrored Friedman’s comments in a column Tuesday.
The halt on oil production could go a long way toward pointing oil prices north, moving the oil market from a two-year low to something closer to its high in 2014.
Oil prices initially jumped to $35.55 a barrel following the Doha meeting, but tumbled to $33 after it was revealed that Iran might reject the deal.
Iran looks like an unwilling participant in the agreement, however, as the country ‘s officials indicate plans on increasing, not freezing or cutting, oil output in hopes of defending the country’s market share.
“Our situation is totally different to those countries that have been producing at high levels for the past few years,” one source told Reuters.
Bijan Zanganeh, Iran’s oil minister, suggested Tehran would turn down the agreement to freeze oil output, arguing the country would refuse to give up on its share of the global oil market.
Analysts believe Iran is a crucial cog in the agreement.
“This is an announcement of a production freeze among countries whose production didn’t even grow recently,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, told reporters Tuesday, adding, “If Iran and Iraq are not a part of the agreement, it’s not worth much — and even then there is still a question of compliance.”
The fact that Iran is just now entering a glutted oil market after being yoked by Western sanctions, complicates the agreement. Even so, Saudi Arabia, one of Iran’s archenemies, may etch out some special terms for Iran’s oil industry.
Sources tell Reuters that Iran may be offered special terms to entice an agreement on the output freeze deal.
“Iran is returning to the market and needs to be given a special chance but it also needs to make some calculations,” one source told Reuters.
Oil remains about 70 percent below its $100 per barrel peak in 2014.
In fact, supply still exceeds demand and oil stockpiles are stacking up at record levels, including in the U.S., where oil reserves have not been this glutted since the early 1930s.
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