Interviews Banned
Normally, OPEC ministers show up to answer journalists’ questions, but this time it was decided that the ministers would not be allowed to talk to reporters. Although it was no secret to anyone that OPEC was to discuss reduction in its output levels, this meeting has become very tough because of the obligation for all member states to cut output. Iran remained opposed to such obligation, while Saudi Arabia did not cease to back it.
Apparently, everything was ready for the US decision to materialize. However, Iran’s petroleum minister expressed his opposition. Journalists present in Vienna said that Zangeneh’s insistence and firmness did not let the US-desired decision come true. Meantime, ministers turned up to talk to reporters.
As usual, Zangeneh was inundated with journalists as everyone knew pretty well that his remarks would hint at the final outcome of the 175th ministerial meeting.
Although unlawful US sanctions have cut Iran’s oil exports, the country – a founding member of OPEC – wields clout with fellow members. Iran’s view has always influenced OPEC decisions. Even if all OPEC members oppose Iran’s decision, no agreement would be achieved without Iran’s green light. That means nothing but Iran’s victory.
Iran Exception Normal
Ahead of the closed meeting of OPEC ministers, Zangeneh said: “Exempting Iran from the output cut agreement is not abnormal.”
When asked if Iran was seeking exemption, he replied: “Naturally! Anything other than that would be abnormal.”
“All of Iran’s financial transactions are in currencies other than US dollar. Since Iran is under conditions it has to be exempted from production cut, it will not join any agreement on production cut as long as sanctions have not been fully lifted,” said the Iranian minister.
“It’s very clear that under the present circumstances where we are faced with sanctions imposed on Iran’s oil, we cannot remove more oil from the market and reduce our production any further,” he said.
Zangeneh said OPEC members “must understand our conditions and we expect them to cooperate with us.”
“This is minimum cooperation. Should they refuse to do so we will not agree to any other decision,” he added.
US in No Position to Dictate Decisions
The Saudi energy minister told reporters the OPEC meeting was to discuss production cut between 500,000 b/d and 1.5 mb/d.
“Regardless of the outcome, all our efforts will be focused on supply-demand balance,” he said, adding: “Then we can be assured that the market will not return to the conditions of increased crude oil storage.”
The Hook-Falih meeting and Zangeneh’s remarks about US meddling with OPEC affairs had made the conditions more difficult for the Saudi energy minister.
The Falih-Hook meeting came while OPEC has in recent years sought to be independent in its policies. The US has always made efforts to influence the view of its OPEC allies; however, it was the first time that the US sent an envoy to Vienna to hold talks with some OPEC members just one day ahead of their meeting. Everything hinted at the outbreak of an oil war.
Asked if Hook had repeated President Trump’s demand for not cutting output, Falih said: “The US envoy is not in a position to dictate anything upon us. Our policy of supply decline will be in the interest of the Saudi kingdom and all other participants.”
In response to a question if Saudi Arabia was not worried about Trump’s warnings against production cut, he said: “Mr. Trump is speaking for US consumers. The US is the largest consumer of oil as it accounts for 20% of world oil consumption. Just like French or Indian consumers, US consumers are looking for lower-cost energy. Therefore, the US is in its right to look for inexpensive energy for its citizens. However, what would happen, will be in favor of balance between supply and demand.”
No Agreement after 6 Hours
The long-awaited 175th OPEC meeting started behind closed doors. Any speculation about the outcome of the meeting was difficult due to Zangeneh’s firm position for Iran to be exempted from any production cut. Six hours after, the ministers left the meeting. Zangeneh said the meeting was very tough, adding: “We will make efforts for the conclusion of talks.”
For his part, the Saudi minister just told reporters that the talks would continue. Iraqi Oil Minister Thamir Ghadhban also said talks would continue on OPEC output levels.
Novak Meets with Zangeneh, Falih
The ministerial meeting ended inconclusively and everything was postponed to the following day. On December 7 OPEC and non-OPEC partners were planned to hold a meeting on production cut.
Non-OPEC producer Russia’s Energy Minister Alexander Novak met with Zangeneh. The meeting was followed by talks between Novak and Falih.
The meetings and talks raised expectations for an OPEC agreement. Some foreign media initially claimed Iran had agreed to OPEC production cut while the Iranian delegates expressly said any agreement was out of the question. The Iranian delegates said that no OPEC agreement would be achieved as long as Iran’s request has not been accepted.
Rumors and Media War
As talks lingered on rumors of Iran’s agreement were strengthened. On one side, some analysts believed that due to the impact of US sanctions on Iran the involvement or non-involvement of Iran with an OPEC production cut would be ineffective. In their view, Iran had no option but to obey OPEC’s decision. Rumors also spread of Zangeneh’s threat that Iran would quit OPEC membership if its demand is not met. All proved to have been media speculation against Iran.
Dismissing rumors, the Iranian delegates said Zangeneh had never uttered such threat of Iran’s OPEC exit. Iran is a founding member of OPEC, now 57 years, and has no intention of leaving it.
All these rumors and speculation made it difficult to predict the outcome of the ministerial meeting. There was also news that the 175th meeting of the Conference would end inconclusively. Breath-taking hours were passing.
Saudi Firm on Stance
Although Iran insisted on its position, the Saudi minister reiterated that everyone has to contribute to OPEC production cut.
Reuters market analyst John Kemp tweeted that Saudi Arabia’s insistence on not exempting Iran was strange as Iran was already producing and exporting below its capacity. He wrote that Saudi Arabia was giving the control of the kingdom’s oil policy to Tehran without having realized it for the moment.
10hr of Talks and Iran Exemption
After nearly 10 hours of talks during two days, white smoke came out of OPEC’s chimney. OPEC ministers agreed to reduce their output by 800,000 b/d for a six-month period starting January 1, 2019. OPEC members will revise the decision in April 2019 for next step. Iran, Venezuela and Libya were exempted from production cut. The revelation of OPEC decision led to a 2% rise in oil prices.
Zangeneh’s insistence on Iran’s exemption from OPEC production cuts was indicative of his foresight for the country not to lose the market.
“We did our best to not allow Iran’s oil market share be affected in the long term,” the minister said.
Asked about the meeting by CNN, Zangeneh said: “Iran’s exemption from the OPEC production cut is good for us because we are under US pressure and it was unfair to be pressured additionally by OPEC.”
Exemption Not Symbolic
Some media announced that Iran’s exemption from OPEC production was symbolic, but Zangeneh said: “The market reaction shows us how well this agreement has been. From the very beginning we wanted exemption and we were finally granted exemption.”
Regarding the share of countries in the agreement, the Iranian minister said: “Finally, it was agreed that the production be declined 2.5%, but in the final statement nothing has been mentioned about the quota of different countries. It has only referred to the 2.5% cut.”
US Attempts Futile
Asked if the presence of Brian Hook meant the US interference with oil affairs, Zangeneh said: “I don’t know when the US president and administration would learn that it would not be acceptable for OPEC to be openly pressured.”
“First I thought he was there to submit the US request for OPEC membership, but I realized then he had come to push OPEC members to pressure Iran,” he added.
“Although the US efforts seem to have failed for that purpose, I don’t know when the US will learn a lesson from this kind of behavior vis-à-vis other nations and independent organizations,” said Zangeneh.
Non-OPEC 400,000 b/d Cut
In addition to OPEC members’ agreement on production cut, non-OPEC oil producers decided to cut 400,000 b/d from their output. Oil giant Russia was instrumental in the non-OPEC output cut deal.
“Russia is not influential within OPEC, but its role could not be disregarded in the agreement between OPEC and non-OPEC,” said Zangeneh.
In a concluding statement, the 5th OPEC and non-OPEC Ministerial Meeting, “following deliberations on the immediate oil market prospects and in view of a growing imbalance between global oil supply and demand in 2019, hereby decided to adjust the overall production by 1.2 mb/d, effective as of January 2019 for an initial period of six months. The contributions from OPEC and the voluntary contributions from non-OPEC participating countries of the ‘Declaration of Cooperation’ will correspond to 0.8 mb/d (2.5%), and 0.4 mb/d (2.0%), respectively.”
“The Meeting decided that the next OPEC and non-OPEC Ministerial Meeting will convene in Vienna, Austria, in April 2019,” it said.
Challenging but Effective Agreement
Russia’s Novak described the oil cut agreement as challenging.
“In the past several years, Russia’s cooperation with OPEC members has proven effective and has produced positive results in the market,” he said.
“We have shown the market that through joint action we are able to overcome one of the toughest market crises and we can react to all market challenges in case prices fluctuate unreasonably,” he added.
Novak said the agreement for 1.2 mb/d oil output decline was a democratic move aimed at reasonable regulation of the market.
Zangeneh, the Triumphant Face
The OPEC 175th ministerial meeting, which was compared with an oil war between the US allies and Iran, ended and Tehran did not back down from its position.
President Trump resorted to every tool at his disposal to influence OPEC decisions and keep prices from rising OPEC and non-OPEC allies finally reached consensus to reduce output for a 6-month period.
Iran emerged as a winner from the contentious talks, saying it’s secured an exemption from cuts as it suffers the impacts of US sanctions, wrote Bloomberg.
OPEC finally broke an impasse over production curbs, agreeing on a larger-than-expected cut with allies after two days of fractious negotiations in Vienna.
“Crude surged as much as 5.8 percent in London, raising the risk that the deal could anger President Trump, who had urged OPEC to keep the taps open and prices low,” Bloomberg wrote.
“Given how much expectations were down played around the outcome of this meeting, this result comes as a welcome surprise,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas. “OPEC has given the oil market a rudder that appeared largely absent.”
Producers will use October output levels as a baseline for cuts and the agreement will be revised in April. Russia has proposed a contribution equivalent to a 2 percent reduction from that month, according to one delegate, who said figures are still under discussion. Such a cut would be 228,000 b/d, Bloomberg calculations show, higher than its initial pitch for no more than 150,000 b/d.