Iran hails historic diplomacy at work in Opec deal
While Iran is
celebrating its historic deal, Opec may still need to cut oil production further to
adequately tackle low
oil prices
Majid Rafizadeh
Opec has agreed to its first official cut in oil production since 2008. This agreement was forged despite significant political obstacles among several members including Iran, Saudi Arabia and Russia. Crucial compromises had to be made.
But it is questionable whether the agreement will address low prices in the long-term. The deal is meant to cut production, not oil exports. Furthermore, implementing the deal and monitoring the parties involved is going to be a challenging task.
The accord is also a significant political victory for Iran, particularly the moderates, when it comes to foreign policy.
The domestic hardliners criticisms of Hassan Rouhani and Mohammad Javad Zarifs foreign policy, their concessions to the West and their soft stance towards other nations have been mounting.
As the Iranian presidential election approaches, the moderates can claim this deal is a political and economic victory.
The moderates can also make the case to Ali Khamenei, the supreme leader, that they stood their ground and paved the way for more revenues to pour into the Islamic republic.
Increasing revenues assists Tehran in achieving its regional ambitions. Iran has risen to become the third largest producer of oil in Opec.
Iran also needs the additional dollars to continue supporting its staunchest ally in the region, Bashar Al Assad, and the Shiite militias in Syria. Tehran is spending billions of dollars every year in military, advisory, intelligence, financial and credit lines to Mr Al Assad. In addition, Iran is involved in the Iraqi conflict, assists the Houthis, and other Shia proxies across the region.
In comparison with prior Opec gatherings, Iranian officials kept a low profile at this meeting. Irans oil minister, Bijan Zanganeh, toned down his rhetoric and did not boast about scoring political points against regional rivals.
This can be seen as an effort to prevent the escalation of tensions and political posturing between Saudi Arabia and Iran.
From the moderates perspective, heightened tensions between Iran and Saudi Arabia empowers the hardliners. Increasing tensions buttresses the arguments offered by the Revolutionary Guard generals that they need an increased budget to safeguard Irans national interests and provide security against regional rivals. In addition, the moderates were aware that the media would hail any deal.
Press TV Tehrans English-language news network focused mostly on the fact that the deal allowed Iran to increase production.
Arman-e Emrooz newspaper called the deal a triumph of Irans oil diplomacy and critical to reviving Tehrans position in the global oil market. This was the biggest achievement of the 171st ministerial meeting of Opec for Iran and a result of the powerful diplomacy, it added.
Throughout the years that Iran was under the sanctions, most of Irans share of oil markets was seized by Saudi Arabia ... If any attempt should be taken to remove the oil market glut, it is Riyadh that needs to reduce its production instead of raising the oil freeze plan to portray Iran as responsible for the falling oil prices.
Another newspaper, Hamshahri, called the deal historic: Only two days before the meeting, the Saudi energy minister had warned that he would leave the negotiations and said he would not see Iran exempted from the output freeze plan.
The worlds largest oil exchanges have also won. Combined volumes of trading of Brent crude on ICE futures Europe and WTI on the New York Mercantile Exchange surged past previous records. The total amount of crude traded last week on both exchanges was the equivalent of about 45 days of global supply, or more than 4 billion barrels traded. Investors flooded into exchange-traded funds that could offer them exposure to US-listed production and exploration companies. Saudi Arabia and its Gulf Arab allies, including Kuwait, the UAE and Qatar, have agreed to shoulder the bulk of the cuts. On the face of it, Saudi Arabia, which will have to reduce output by 486,000 bpd, looks set to lose. If we assume, which is not as clear, that Saudi Arabia cuts its exports by about the equivalent amount, its oil revenues will increase rather than decrease. If we take Fridays closing price for Brent crude of $54.46, Saudi oil revenues will increase by $45 million. If the Brent price rises to $60 per barrel, oil revenues will double from its current levels. Oil revenues are also set to increase for the rest of the Gulf Arab producers.
Iran and Iraq appear to have adjusted to new realities. Iraq agreed to production cuts of 210,000 bpd, using third party numbers to calculate its production. The Iraqi authorities believe its own data is showing production to be much higher. There is uncertainty where exactly it will make the cuts, as lots of production is partly run by international companies.
For Iran, Opec agreed to award it an output baseline of 3.975 million bpd contrary to what most others agreed to, which is that they pumped about 3.7 million bpd in October. Bottom line, Iran has about 90,000 barrels room to pump more oil before reaching the Opec ceiling.
Nigeria and Libya are exempt from the deal. Both are marred by conflict and supply outages are common. If their respective conflicts ease and produce fewer outages, and these countries are able to increase production, they could be significant beneficiaries of the Opec agreement. Libyas October production was 528,000 bpd, according to Opecs secondary sources. It is expected to be close to 600,000 bpd for November and the National Oil Company hopes to lift it to 900,000 by the end of the year and 1.1 million barrels next year. Nigerias output was reported at 1.628 million bpd in October, following attacks on pipelines. The countrys oil minister says production is already back at 1.95 million bpd, however, this may include as much as 150,000 bpd of light oil called condensate that Opec excludes from quotas. Nigeria hopes to restore output to about 2.2 million bpd.
There is considerable uncertainty about Nigerias and Libyas ability to reach those lofty output targets next year. If reached, Nigerias targets will be close to the entire output cuts of the non-Opec members (600,000 bpd). And Libyas output targets will total those of Saudi Arabia and Qatar combined. Every extra barrel of oil Nigeria and Libya produce will eat away from last weeks agreement.
Russia, too, is set to win from the agreement. Making cuts of 300,000 bpd is significant but many observers expect these to happen through natural rates of decline. The road will not be smooth for Opec and non-Opec producers. Opec may have to do more than what it agreed to last week for the coming months: another round of cuts might be called for to rebalance the market more deeply. Compliance is central to all winners. And Ali Al Naimi, Saudi Arabias former oil minister, said it well and reminded all that: The only tool they have is to constraint production, at an event in Washington last week. The unfortunate part is we tend to cheat.
But he said just before the meeting that he has no objections to Irans plans to increase its production ... This showed that the only opponent to exempting Iran from the oil freeze plan had accepted Irans conditions, which eventually paved the way for the big oil agreement.
The politicisation of oil exports is deeply rooted in Irans foreign policy. Tehran was cognisant of the fact that reducing its oil output could be a political victory for Riyadh. Iranian officials also felt that Saudi Arabia needed a deal more than Iran. Tehran also believes in its right to increase its oil production after the nuclear deal.
While Iran is celebrating its historic deal, Opec may still need to cut oil production further to adequately tackle low oil prices.
The writer is an Iranian-Americanpolitical scientist, Harvard University scholar and president of theInternational American Council
