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OPEC Deal, Paving Way for Regional Rapprochement?

Monday, December 12, 2016

In an interview with Iranian Diplomacy, Iran chamber of commerce member Hamid Hosseini, says OPEC agreement could serve as an introduction for regional convergence.

In Iran, the recent agreement between oil exporting countries, both OPEC and non-OPEC, to cut productions, has been met with relative optimism, particularly so because it exempts Iran, whose oil industry was marred by US-led sanctions, from cutting its production as substantially as other nations. Hamid Hosseini, a member of national chamber of commerce, believes we should move beyond the loser/winner dichotomy in the recent deal, and see it as an opportunity for rapprochement between Middle East countries. An abridged version of his interview with Iranian Diplomacy's Persian service comes in the following:

IRD: Kremlin recently confirmed reports that the Russian president has written a confidential letter to his Iranian counterpart. A day before the recent OPEC agreement, Rouhani and Putin had a telephone conversation too. What role do you think Russia played as the largest non-OPEC producer in this agreement?

HH: Russia has always been a rival for OPEC. When Saudi Arabia opposed OPEC rationing, it argued against two OPEC rivals: Russian oil and shale oil. Riyadh claimed that they would take control of the market as soon as production was capped. It was a good thing that non-OPEC states like Russia joined the OPEC agreement, because it was unfair that with 65 percent of the world’s oil resources, OPEC members held only 35 percent share of the market. Saudi Arabia argued that OPEC member should seek their own share, rather than focus on revenues. And it was logical to some extent, as no one could guarantee that oil will continue to have the same value in 20 years. From a political point of view, Russia is trying to approach our region and establish closer relations with regional countries. On the other hand, the region’s states are bent towards friendlier ties because Trump and his policies are still unknown. At the moment, these countries find it more expedient to put aside maverick measures.

IRD: Saudi Arabia had stated that it will not accede to production cuts as long as Iran remains out of reduction or freeze plans. However, after the recent agreement, Saudi Arabia will have to cut 500 thousand barrels. What concessions do you think Russia has offered to the Saudis in order to persuade them?

HH: I personally do not think Russia had a significant role. I guess the decline in prices has pressed Saudi Arabia economically. Saudi Arabia had to use $70 to $80 billion of their foreign currency reserves. Saudis are more dependent on oil compared to Iran. Certainly, political pressures are partly important too. These factors convinced Riyadh that it is no time to oppose other countries in the region. After what happened in Lebanon, where Iran and Saudi Arabia eventually agreed on a president close to Hezbollah and Iran working with a Prime Minister from forces associated with the Saudis, they figured that talks and dialogue would make better results. Additionally, the Saudis’ fear of the US president-elect and his policies fueled their inclination toward negotiation. Even though Donald Trump has taken anti-Iran positions, his stances against Saudi Arabia have been harsher. Crackdown on countries supporting ISIS, as well as expanding US military bases in the region are issues that the Saudis are not very much fond of. Furthermore, Saudi Arabia backed Hillary Clinton’s campaign. These have made the Saudis more cautious and that is why they are not after division in the region.

We should not forget that OPEC was founded 56 years ago with Saudi Arabia, Iran, Kuwait, Iraq and Venezuela as its founders. If OPEC failed to reach an agreement, it would seem that we could no longer have an organization called OPEC, as it was the case in the past three or four years. OPEC had turned into an oil forum whose members gathered to exchange information, but had no control over the market, production and price of oil. There was a sense of worry that OPEC could collapse. Besides, Saudi Arabia could see that Iran was not ready to compromise. Both in Doha and Algeria, they did their best to force Iran into withdrawal but saw that Petroleum Minister Bijan Zanganeh could not care less about remarks made inside or outside the country. He showed that he insisted on his words. It is an oft-quoted phrase in international oil circles that if Russian say they are going to cut production, no one will believe them, but when the Saudis say so, everyone knows they will. That is why what Saudi Arabia says matters for global markets.

Now, Zanganeh proved in OPEC that he would not withdraw from things he said. It seems that Iran’s insistence on refusing to join freeze plans was the reason behind the OPEC agreement. Last year, many involved in oil and energy sectors wished that OPEC would agree on a quota system. Then, the freeze plan was put forward. Today, however, all the sides have agreed on a 4.5 percent cut in production. Part of the agreement results from the situation in the region and the economic status of oil producers. Lobbying and talks have also been effective. Certainly, pressure from countries like Venezuela, Nigeria and Algeria has had its own impact. These countries were in real danger. When the economic status undergoes a change in an oil state, it will doubtlessly affect other oil states, too. The Saudis know they should not take measures that create unrest in other oil states.

IRD: What country is the winner of the reconciliation at the end of the day?

Every oil state is the winner of the deal. Every country, including Russia and Saudi Arabia, profited. Now that the prices have surged, even the United States that had no part in the deal could bring back to the market non-cost-effective and unconventional oil. Iran may have made more profits because it was exempted from cuts. On the other hand, bear in mind that Saudi Arabia is now exporting 7.5 million bpd, which will be reduced to 7 million bpd after the cuts. If oil prices go up 3 dollars, however, they will make a $20m daily profit. Nonetheless, I do not consider winner/loser labels as constructive. We should all do our utmost to maintain the recent ‘convergence’ between OPEC countries. If countries begin calling themselves winners, they will provoke the other sides to refuse compliance with the shares agreed upon. I think every side has secured a victory, even Russia which produces 11 million bpd and may cut for 300,000 bpd is a winner.

 Source: Iranian Diplomacy

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