Iran-Saudi Row Threatens Any OPEC Deal, Puts Role In Question

Iran-Saudi Row Threatens Any OPEC Deal, Puts Role In Question
As Iran reaches pre-sanction output levels, rising political tensions could dampen hopes for a production deal at the next OPEC meeting.

Reuters

LONDON/DUBAI, May 25 (Reuters) - OPEC's thorniest dilemma of the past year - at least from a purely oil standpoint - is about to disappear.

Less than six months after the lifting of Western sanctions, Iran is close to regaining normal oil export volumes, adding extra barrels to the market in an unexpectedly smooth way and helped by supply disruptions from Canada to Nigeria.

But the development will do little to repair dialogue, let alone help clinch a production deal, when OPEC meets next week amid rising political tensions between arch-rivals Iran and oil superpower Saudi Arabia, OPEC sources and delegates say.

Earlier this year, Tehran refused to join an initiative to boost prices by freezing output but signalled it would be part of a future effort once its production had recovered sufficiently. OPEC has no supply limit, having at its last meeting in December scrapped its production target.

According to International Energy Agency (IEA) figures, Iran's output has reached levels seen before the imposition of sanctions over its nuclear program. Tehran says it is not yet there.

But while Iran may be more willing now to talk, an increase in oil prices has reduced the urgency of propping up the market, OPEC delegates say. Oil has risen towards a more producer-friendly $50 from a 12-year low near $27 in January.

"I don't think OPEC will decide anything," a delegate from a major Middle East producer said. "The market is recovering because of supply disruptions and demand recovery."

A senior OPEC delegate, asked whether the group would make any changes to output policy at its June 2 meeting, said: "Nothing. The freeze is finished."

Within OPEC, Iran has long pushed for measures to support oil prices. That position puts it at odds with Saudi Arabia, the driving force behind OPEC's landmark November 2014 refusal to cut supply in order to boost the market.

Sources familiar with Iranian oil policy see no sign of any change of approach by Riyadh under new Saudi Energy Minister Khalid al-Falih - who is seen as a believer in reform and low oil prices.

"It really depends on those countries within OPEC with a high level of production," one such source said. "It does not seem that Saudi Arabia will be ready to cooperate with other members."

HIGHER EXPORTS

Iran has managed to increase oil exports significantly in 2016 after the lifting of sanctions in January.

It notched up output of 3.56 million barrels of oil per day in April, the IEA said, a level last reached in November 2011 before sanctions were tightened.


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Philippe | May. 28, 2016
Saudis Arabia and Iran have opposite objectives. Iran has a large population therefore requires a social budget large enough to keep its population under control. As long as the western sanctions were in effect, the nationalistic instinct of the Iranian populace kept peace with the Islamic dictatorship. Now that this Islamic dictatorship has outmaneuvered the West and Obama in particular, the social budget must satisfy the fidelity of the populace. Iran must produce enough crude oil for export to provide the funds for this social budget. The Saudis have a small population, 65 million for Iran versus 15/20 million for the Saudis. The Saudis social budget does not require the profits from high price crude oil. The Saudis have taken the option of no longer counting on the O&G production to feed the Saudis social budgets. To accomplish their policy the Saudis will IPO 5% of Aramco and use the sale for a Kingdom Investment Fund. The Saudis will invest all over the world and use the dividends to fun the Kingdom social budget. Iran does not have any other industry than O&G. The freedom to invest in Iran has been limited by the religious dictatorship. Iran is in no position to IPO any of its O&G installations. All possible partnerships with majors O&G are risky because of the Mullahs religious dictatorship. The constant political discords is making any private foreign investments unreliable midterm to long term. The Saudis 5% IPO of Aramco does not change the O&G policy. The Saudis control 95% of their assets. The Saudis may lose control of 5% of the production, but will still be able to manipulate the Kingdom production with the other 95%. The Saudis will be able by the Kingdom Investment Fun to influence the corporations they are shareholders. The Saudis may demand to have Saudis in the Board of Directors of these corporations they invest in. A 20 to 30% investment in key corporations will open the door for the Saudis to have an impact on the world economy. The Saudis are looking at the after oil, OPEC had its time but the future is not with OPEC any longer. Economically speaking any investment by publicly traded majors O&G corporations in ex-OPEC state own corporation does not have the benefices of the past. Government controlled Majors O&G corporations may invest in ex-OPEC Corporation for political reasons. All government control O&G Corporation will have their loan guaranty by their government. This is not the case with publicly traded corporation. The political instability present in the ex-OPEC government must be taken into account.


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