Deadlock in Doha over freeze on oil output

doha // Talks among oil-producing countries on a deal to freeze ouput ended without agreement last night amid growing political tension between Saudi Arabia and Iran.

“We need more time to consult among ourselves in Opec and non-Opec producers,” said Mohammed bin Saleh Al Sada, Qatar’s energy minister and president of the Organisation of the Petroleum Exporting Countries.

The 18 countries at the meeting in Doha believed “the fundamentals of the market are generally improving”, Mr Al Sada said.

However, he declined to say whether another special summit would be called before Opec’s next meeting in June.

On Iran’s role in the deadlock, Mr Al Sada said: “We of course respect their position and … we still don’t know how the future will unroll but it was a sovereign decision by Iran.

“The freeze could be more effective if major producers, be it Opec members like Iran and others, as well as non-Opec members, were included.”

The background to the talks is severe economic strain suffered by oil-dependent countries, even those with vast accumulated wealth, including Saudi Arabia.

“The revenues of these countries that export oil has really collapsed,” said Daniel Yergin, vice chairman of IHS, an energy research company.

Two years ago, Opec revenues were US$1 trillion, last year they were half that and this year they are expected to be 20 per cent lower still. “This creates inordinate pressure on governments,” Mr Yergin said.

Saudi Arabia surprised many with its aggressive line before yesterday’s meeting, particularly as Iran had made it clear for weeks that it would not be joining any collective effort until it boosted production back to the level it was before nuclear-related sanctions were put in place in 2012.

Iranian officials have boasted they can get production back up to four million barrels per day quickly, but few industry experts expect that level to be achieved soon.

Even the Iranian oil minister Bijan Zangeneh said on Friday he didn’t expect it to be achieved until March of next year.

Neverthless, Saudi Arabia refused to shift its position that it would agree to freeze its output only if Iran followed suit.

Saudi Arabia began the “freeze” initiative immediately after Iranian sanctions were lifted with a meeting of oil ministers from Russia, Qatar and Venezuela in February in Doha.

Oil prices at the time were still hovering just above US$30 a barrel, their lowest level in more than a decade and down 74 per cent from summer 2014, before oil prices crashed.

But prices have since risen by more than 40 per cent to end on Friday just above $43 a barrel, driven mainly by signs that the lower supply in the US and elsewhere is moving the world market back toward balance.

The Saudi-led effort faltered in March when a follow-up meeting with a broader group of producers was cancelled after it became clear that Iran had no intention of joining.

Russia’s energy minister, Alexander Novak, eventually elicited a pledge from Iran last month that it would at least consider joining a freeze deal after it reached its target production.

By agreeing to go ahead with yesterday’s meeting it was assumed that Saudi Arabia had accepted this position, but comments on Wednesday by the deputy crown prince, Mohammed bin Salman, noting Saudi’s ability to boost production immediately by another million barrels per day, came as a surprise and foreshadowed yesterday’s stalemate.

“With these meetings usually the result is already known going in,” said Cyril Widdershoven, a partner at energy risk consultancy Verocy. The last minute drama on the Doha deal was surprising “especially because Iran is not able to deliver much more than they are doing now and won’t be for some time.”

Saudi Arabia and its allies in the Arabian Gulf are opposing Iran on a number of fronts, including Syria where they back different factions in the civil war.

“If it was not for the tension between Saudi Arabia and Iran they might well have been able to work something out, but the destabilising factor is Iran’s determination to get back to pre-sanctions levels and their domestic politics don’t give them much flexibility,” Mr Widdershoven said.

*Additional reporting by AP

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