What’s after the collapse of the Doha talks?
Washington - Oil market observers were shocked that consultations in Doha between members of the Organisation of the Petroleum Exporting Companies (OPEC) and a half dozen independent oil producers about a “production freeze” collapsed over the insistence by Saudi Arabia that every OPEC member adhere to the accord — a move clearly aimed at Iran.
Some OPEC watchers were stunned that the 11th-hour intervention from Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz seemingly derailed what most producers attending believed was nearly a done deal. Russian Energy Minister Alexander Novak left the meeting furious that the Gulf OPEC states were responsible for “undoing two months of negotiations” by demanding that Iran be a party to the agreement.
The outcome of the Doha get-together shouldn’t have been a shocker; as politics has played a significant role throughout OPEC’s history. Disagreements between Iran and Saudi Arabia over production policy within OPEC have resulted in weak accords or ineffective rollovers of previous agreements. Strained diplomatic relations between the two Gulf powers cannot help but colour their willingness to cooperate within the organisation.
The deputy crown prince’s involvement not only scuppered the success of the Doha meeting, it revealed just how influential he is in directing Saudi oil policy.
It is also telling that Tehran snubbed the Doha gathering. Iranian Oil Minister Bijan Zanganeh was supposedly sending a representative as Iran would just be observing, but that delegate was a no-show, which may well have further irked the Saudis.
The Saudis’ decision in late 2014 to reclaim market share caused deep divisions within OPEC as Riyadh sacrificed price for market share. The Saudis had backing from their Gulf allies and other supporters within OPEC to ensure that the group did not cut output when global demand eroded amid plentiful oil supplies and as international crude prices tanked.
This Saudi-led initiative occurred at the same time that a sanctions-bound Iran was deep in negotiations with world powers over a nuclear framework deal, which was worrisome to Riyadh, fearing an ultimate shift in regional dominance.
With the partial lifting of Western sanctions last January, Tehran was able to resume oil exports at full tilt. Saudi Arabia was not willing to help Iran by boosting prices through a proposal initially pushed by OPEC member Venezuela and independent producer Russia that involved collaborative production cuts.
When Saudi Arabia, Qatar, Venezuela and Russia surprised oil markets in February with a pact to freeze crude output at January levels, the caveat was that the rest of OPEC, as well as major independent producers, needed to make the same commitment for the deal to have teeth. Iran’s response was that it was unwilling to participate in a freeze agreement as it was working to restore its oil production capacity to the pre-sanctions level of 4.2 million barrels per day (bpd).
While Saudi Arabia remained surprisingly quiet in February when Iran stated its opposition to participating in freezing output, Deputy Crown Prince Salman made it clear in an April 1st interview with Bloomberg News that Tehran’s position was unacceptable.
He was quoted as saying: “If all countries agree to freeze production, we’re ready… If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door.”
Two weeks later, he cautioned that the kingdom could immediately raise its oil production by more than 1 million bpd from its current 10.2 million bpd and bring on an additional 1 million bpd within six to nine months “if we wanted to”.
That veiled threat and the Saudi insistence on Iranian participation in any collective agreement between OPEC and non-OPEC members seem to have coincided with reports that Iranian exports have begun to climb higher than expected, no doubt worrying Riyadh about the effect these additional barrels would have on oil markets as well as on Tehran’s improving post-sanctions economic picture.
The Saudis have stated that a production freeze agreement is still on the table and could be discussed at the regularly scheduled June 2nd OPEC conference in Vienna. That gives Riyadh several weeks to assess market conditions and monitor Iran’s oil volumes.
The collapse of the Doha talks does theoretically give free rein to Russia and Saudi Arabia to bump up their production while allowing others, such as Iraq, to continue to pump at heightened levels. While these extra barrels could weaken crude prices ahead of the June meeting, Riyadh could instead blame Iran for refusing to sign on to the Doha freeze agreement.