Iran Oil Ministry Questions – Oliver Klaus, Energy Intelligence Answers
Which countries first raised the issue of oil production freeze? Why?
Venezuela led the charge within OPEC to reduce the group’s total oil production since prices went on a steep decline in mid-2014. The rationale behind the initiative was to stabilize the oil market and bolster prices. Venezuela’s efforts led to an initial agreement by Saudi Arabia, Qatar, Venezuela and non-OPEC Russia in February 2016 to freeze production at January levels, provided that other major producers followed suit.
How did OPEC and non-OPEC producers initially react to the oil freeze idea?
By early 2016, talk of a “grand bargain” between OPEC and non-OPEC on a coordinated production cut had been going on for months with Venezuela, which faced with serious economic problems due to the sharp fall in oil revenues, pushing the hardest for a deal. Due to the fast rate of non-OPEC supply growth, non-OPEC participation in a coordinated cut gained currency as a means to begin to rebalance markets and push prices higher. It was therefore critical to get non-OPEC producers, notably Russia, on board to join a potential deal.The agreement for a big freeze, even though it would have been based on January 2016’s record-high levels, hammered out in Doha in February behind closed doors by Saudi Arabia, Venezuela, Qatar and Russia,was meant to be a first step in that direction.
How do you assess developments since the oil freeze idea was raised until the Algiers meeting? How were OPEC countries, particularly Iran, instrumental in this regard?
Algeria marked an unexpected turning point after the OPEC/non-OPEC Doha meeting’s disappointment in April. Saudi Arabia, while sticking to its previous conditions, brought a more cooperative approach to the meeting, including an offer to cut Saudi production back to January levels if others did likewise - with the exemption of Iran, Libya and Nigeria, who were given special status. Iran showed more flexibility too, saying it would accept a deal to freeze production at “close to 4 million b/d”, which represented a small, but significant, shift. In general, the mood in Algeria among all OPEC members was more urgent than at other meetings, given that market forces were taking longer to rebalance fundamentals than expected, leading to heightened fears of another price slide.
What do you think of Iran-Saudi cooperation for an OPEC agreement despite political tensions?
Iran and Saudi Arabia adopting more flexible positions helped reach a deal that is ultimately both in their own and OPEC’s interests. The deal should accelerate market rebalancing and bolster prices. OPEC members in the past overcame political disagreements to make market-related critical decisions and the group has shown that it can still find consensus if conditions necessitate it – OPEC can only function if decision making isn’t constrained by political considerations. It is noteworthy, however, that a deal wouldn’t have been possible without the explicit support of non-OPEC producers and Russia in particular.
What do you think of Iran's insistence on reaching its pre-sanctions levels of oil production?
Iran’s position is understandable.
How do you assess Russia's role in the OPEC's oil production cut deal?
Russian diplomacy played an important role in bringing OPEC members together ahead of the group’s landmark deal in November, and it was essential to pulling off the first non-OPEC cut in 15 years. There wouldn’t have been a deal without Russia’s support. It remains to be seen whether Russia will live up to its commitment to take out a total of 300,000 b/d of oil production in 2017.
What do you think of Iran-Russia cooperation for an OPEC-non OPEC agreement, especially in the last 2 meetings in Vienna?
As mentioned above, cooperation between Russia and OPEC members in general and between Russia and key OPEC producers such as Iran was important both because it opened an important diplomatic channel and established the foundations for a joint agreement.
In your view, why did non-OPEC oil producers joined OPEC producers in production cut?
Economic pressures focused minds on finding common grounds. Producers realized that any meaningful market initiative would only succeed if OPEC and major non-OPEC producers acted jointly to give any production cuts sufficient weight.
How do you assess the oil market after the recent deal?
The market has got over the initial surprise of the accord, and now the focus is on whether thegroup of OPEC and non-OPEC producers can and will actually deliver.