Saudi Arabia is unlikely to agree to an Opec deal that forces it to shoulder too much of the burden and lets Iran “off the hook” when the group meets to finalise production cuts at the end of next month, according to a report by the Oxford Institute for Energy Studies.
The Organization of Petroleum Exporting Countries’ de-facto leader is typically unwilling to “act unilaterally” and any agreement at the meeting on November 30 should be part of a collective effort, analysts Bassam Fattouh and Amrita Sen wrote in the report. The kingdom is likely to insist that Iran “has to agree to freeze production,” according to the report.
Iran, along with Libya and Nigeria, was exempt from participating when Opec said in Algiers it would cut output to help raise prices.
“While Saudi Arabia has shown willingness to cooperate, this does not imply that the fundamentals of Saudi oil policy have necessarily changed nor that the kingdom would accept any deal irrespective of the key principles that have been guiding Saudi oil policy so far,” the analysts wrote.
Saudi Arabia led an Opec decision in November 2014 to keep pumping crude freely as it tried to drive US shale producers out of business and enhance market share. That decision swelled inventories in the US to the highest in more than 30 years and drove down the price of crude to a 12-year low. A previous attempt in April to restrict production collapsed after Saudi Arabia insisted Iran would have to participate, a condition rejected by Tehran as it strove to ramp up exports that had been curbed by sanctions.
Crude’s slump hit the economies of all oil producing nations, with Saudi Arabia selling bonds to raise money and even reducing subsidies on fuels to fund its budget. In a surprise U- turn, Opec agreed on September 28 to reduce output to a range of 32.5mn to 33mn bpd, compared with about 33.4mn in September. The accord helped push crude prices to a 15-month high above $50 a barrel earlier this month, although they have subsequently fallen amid doubts the group will follow through on its pledge.
Iraq has asked to be exempt from cutting production because it’s embroiled in a war with Islamic militants and needs the funds. Iran wants to keep raising production that had been curbed for years because of international sanctions against its nuclear programme. Russia, which is the biggest producer outside Opec, has said it will consider supporting any decision the group takes. It has also increased its output estimate for this year.
“Letting Iran ‘off the hook’, even if there is a clear realization that Iran would not be able to increase output much from its current level in the next few months, is not an option for Saudi Arabia,” Fattouh and Sen wrote. “This will not only make the deal unattractive in the current environment of rising geopolitical tensions but would also have the effect of diluting the impact of any potential deal.”
An Opec committee meeting, which will try to resolve differences over how much individual members should produce, kicked off in Vienna on Friday. At the start of the deliberations, the group’s secretary general Mohammed Barkindo urged members to “forge ahead together.” The road map to implement the Algiers deal is taking shape, he said. The Algiers accord of September 28 is “primarily geared” toward bringing down “the high, unsustainable level of inventories that have built up over the last two years or so,” he said on October 18. Saudi Arabian Energy and Industry Minister Khalid al-Falih said the following day he’s confident the organisation will succeed.

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