Global Independent Analytics

Oil freeze deal faces trouble as Saudi-Iran tensions spike

A spike in tensions between arch-rivals Saudi Arabia and Iran appeared on Sunday to ruin prospects of the first binding oil output deal in 15 years between OPEC and non-OPEC nations

Rania el Gamal and Reem Shamseddine for Reuters report: Some 18 OPEC and non-OPEC oil producers, including Russia, had been meant to meet in the Qatari capital of Doha on Sunday morning and quickly rubber-stamp a deal to freeze output at January levels until October 2016.

But the meeting was postponed after OPEC's de facto leader Saudi Arabia told participants it wanted all OPEC members to take part in the freeze, according to OPEC sources.

However the meeting was postponed after Saudi Arabia, the OPEC’s de-facto leader, assumed that all OPEC members should take part in the freeze. Earlier Riyadh has insisted on excluding Iran from the negotiations, because of Tehran’s refusal to take part in production freeze, attempting to get back its oil market share after the Western sanctions have been lifted. Deputy Crown Prince Mohammed bin Salman said that the kingdom could only raise their production and restrain the output only if Iran agreed to the deal’s conditions.

Gamal and Shamseddine continue: “With the deal running into trouble, oil ministers in Doha met with the Qatari emir, Sheikh Tamim bin Hamad al-Thani - who was instrumental in promoting output stability in recent months.

But a new draft seen by sources thereafter contained none of the binding points of the previous outline. Ministers are due to start talks at around 1200-1230 GMT (8:00-8:30 am EDT), according to sources.”

"I am not sure you can call it a freeze," one OPEC source said.

A senior oil industry source said: "The problem now is to come up with something that excludes Iran, makes the Saudis happy and doesn't upset Russia."

If the participants do not agree on the deal, it would indicate a resumption of a battle for market share between the major oil producers and likely halt a recent recovery in prices. "If there is no deal today, it will be more than just Iran that Saudi Arabia will be targeting. If there is no freeze, that would directly affect North American production going forward, perhaps something Saudis might like to see," said Natixis oil analyst Abhishek Deshpande.

“Iran's oil minister Bijan Zanganeh said on Saturday OPEC and non-OPEC should simply accept the reality of Iran's return to the oil market: "If Iran freezes its oil production ... it cannot benefit from the lifting of sanctions."

Although a freeze would be a significant step for oil producers, it would have only a limited impact on global supply and the market is unlikely to rebalance before 2017, the International Energy Agency said on Thursday,” conclude Gamal and Shamseddine.

 

By Stefan Paraber for GIA.

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