Complex Made Simple

Oil is not well: Who’s to blame for failing talks?

  • OPEC members to meet on November 30 in Vienna
  • Iran wants to regain the oil market share it had lost during years of international sanctions
  • Saudi reluctant to make concessions to Tehran

 

Almost one year has passed since Organization of the Petroleum Exporting Countries (OPEC) members gathered first time to decide on curtailing crude output to prevent a further decline of falling oil prices.

The members of the cartel have held at least five meetings since they met at Vienna on December 4 last year, but there is no sight of concrete action in regards to constraining oil production.

In a meeting in Algeria on September 28, the members agreed modest production cuts, its first since 2008, but without finalising the deal. They announced that they would meet again in Vienna on October 29 only to announce their next gathering before a scheduled regular OPEC meeting on November 30.

Why do the talks fail? The first and foremost reason is the obvious and visible difference within OPEC. The prolonged rivalry between Saudi Arabia and Iran has posed greater threat to any successful outcome of the meetings. Failure to woo non-cartel members to freeze or cut output has also been a roadblock.

So who is to blame for the unsuccessful bids?

 

Who wants what in OPEC?

Iran’s post-sanctions woes: Tehran argues it wants to regain the oil market share it had lost during years of international sanctions, which were eased earlier this year as part of a nuclear deal with the United States and other world powers.

Relentless Saudi: Riyadh, which is fighting several proxy wars with Tehran, including in Syria and Yemen, is reluctant to make concessions to Tehran although the kingdom had softened its stance prior to the September meeting, saying that Iran, Nigeria and Libya would be allowed to produce “at maximum levels that make sense” as part of any output limit. But the Gulf’s largest economy has now bigger issues at home that would stop it from compromising on any deal which will see it sacrificing its share of oil supply and others getting away with their record output.

Iraq following Iran’s suit: Iraq too wants an exemption from output cuts, saying it has been hit economically from prolonged conflicts in the country. It also says that it needs funds to fight Islamic State but its co-members are not in agreement.

Venuzela’a economic agonies: The South American country, which is facing economic and political turmoil, is the hardest-hit by the oil price crisis. As it has no time for a bargain before a total collapse, the country’s President Nicolas Maduro has been touring the oil-producing nations to raise support for a deal to boost prices by cutting output.

 

Waiting for OPEC

Oil producers outside the cartel made no specific commitment during the latest joint meeting in Vienna over limiting oil output levels to prop up prices.

Officials and experts from non-OPEC nations, including Azerbaijan, Brazil, Kazakhstan, Mexico, Oman and Russia, made no public comments, though they all have said they look forward to a deal.

It is most likely that they are waiting for OPEC members to settle their disputes first and make clear gains in terms of production curbs.

Reuters reported on Saturday, quoting two unnamed OPEC sources, that Russian energy officials told the gathering in Vienna that Moscow was still willing to freeze its output levels if OPEC agreed to cap its production.

“Russia is ready but they want to see in detail figures agreed for yesterday,” one of the sources said. Another source said Russia would freeze production if OPEC agreed to reduce output.