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Oil politics: Saudi and Iran take opposite position on OPEC oil output targets

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Saudi and Iran, even while fighting each other in order for dominating the West Asia region, seem to have decided to take their fight forward regarding effecting changes in oil output targets.

The Organization of the Petroleum Exporting Countries (OPEC) is one of the forums where both could coordinate their action to stabilize West Asia. But unfortunately they continue to orchestrate their enmity even there. Tensions between the Sunni-led kingdom and the Shi’a Islamic Republic have been the highlights of several previous OPEC meetings, including in December 2015 when the group failed to agree on a formal output target for the first time in years. This time around, strains were less acute, however, as new Saudi Energy Minister Khalid al-Falih showed Riyadh wanted to be more conciliatory and his Iranian peer Bijan Zanganeh kept his criticism of Riyadh to an unusual minimum.

OPEC is pumping 32.5 million barrels per day (bpd), which would give Iran a quota of 4.7 million bpd – well above its current output of 3.8 million, according to Tehran’s estimates, and 3.5 million, based on market estimates.

OPEC set for another showdown between rivals Saudi Arabia and Iran when it met on June 02 in Vienna with Riyadh trying to revive coordinated action and set formal oil output target but Tehran rejecting the idea. The Gulf Cooperation Council sought coordinated action at the meeting, a senior OPEC source said, referring to a group combining OPEC’s biggest producer Saudi Arabia and its Gulf allies Qatar, Kuwait and the United Arab Emirates. In a rare compromise, OPEC also decided unanimously to appoint Nigeria’s

Saudi Arabia and its Gulf allies had tried to propose OPEC set a new collective ceiling in an attempt to repair the group’s waning importance. But Thursday’s meeting ended with no new policy or ceiling amid resistance from Iran.

Since Saudi is eager to maintain the conflict with Iran for some obscure reasons, any agreement between Riyadh and Tehran would be seen as a big surprise by the market, which in the past two years has grown increasingly used to clashes between the political foes as they fight proxy wars in Syria and Yemen. Saudi Arabia effectively scuppered plans for a global production freeze – aimed at stabilizing oil markets – in April. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.

Several OPEC sources said Saudi Arabia and its Gulf allies would propose to set a new collective ceiling in an attempt to repair OPEC’s waning importance and end a market-share battle that has sapped prices and cut investment. New Saudi Energy Minister Khalid al-Falih was the first OPEC minister to arrive in Vienna this week, signaling he takes the organisation seriously despite fears among fellow members that Riyadh is no longer keen to have OPEC set output. “There could be shorter-term situations in which, in our view, OPEC might intervene and yet other situations — such as long-term growth of marginal barrels — in which case it should not,” Falih told Argus Media ahead of the meeting.

At its previous meeting in December 2015, OPEC failed to set any production policy including a formal output ceiling, effectively allowing its 13 members to pump at will in an already oversupplied market. As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages. Those include declining output from U.S. shale producers badly hit by low prices but also forest fires in Canada, militant attacks on pipelines in OPEC member Nigeria and declining output in Venezuela, also a member of the group.

Until December 2015, OPEC had a ceiling of 30 million barrels per day (bpd) – in place since December 2011, although it effectively abandoned individual production quotas years ago. OPEC currently produces around 32.5 million bpd. Any ceiling below that number would represent an effective cut. “One of our main ideas (is) to have a country quota. But I don’t believe at this meeting we can reach agreement for this,” Zanganeh said, adding that Iran was producing 3.8 million bpd and would soon reach pre-sanctions levels of 4 million bpd.

Tehran has been the main stumbling block for the OPEC (Organization of the Petroleum Exporting Countries) to agree on output policy over the past year as the country boosted supplies despite calls from other members for a production freeze. Tehran argues it should be allowed to raise production to levels seen before the imposition of now-ended Western sanctions over Iran’s nuclear program. Iranian Oil Minister Bijan Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on the more radical idea of individual country production quotas. “An output ceiling has no benefit to us,” Zanganeh told reporters upon arriving in Vienna and before seeing any fellow OPEC ministers.

The market has grown increasingly used to OPEC clashes over the past two years as political foes Riyadh and Tehran fight proxy wars in Syria and Yemen. Saudi Arabia effectively scuppered plans for a global production freeze – aimed at stabilizing oil markets – in April in the Qatari capital of Doha. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.

Tehran argues it should be allowed to raise production to levels seen before the imposition of now-ended Western sanctions over Iran’s nuclear program. Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on individual-country production quotas, effectively abandoned by OPEC years ago. “Without country quotas, OPEC cannot control anything,” Zanganeh told reporters. He insisted Tehran deserved a quota – based on historic output levels – of 14.5 percent of OPEC’s overall production.

Understandably, OPEC failed to agree a clear oil-output strategy as Iran insisted on steeply raising its own production, though Tehran’s arch-rival Saudi Arabia promised not to flood the market and sought to mend fences within the organization.

Since OPEC failed to agree any policy, it would again convince the market that its main members could try to raise supplies further to gain market share despite low prices. UAE Oil Minister Suhail bin Mohammed al-Mazroui said oil markets were still not close to rebalancing due to a severe glut and a further price correction was possible. The Venezuelan energy minister Eulogio Del Pino also warned that supply outages have propped up prices in recent months but a global oil glut might build up again when missing barrels return. “More than 3 million barrels are out of the market. When those circumstances are removed from the market, what’s going to happen?” he asked reporters in Vienna.

Despite the setback, Saudi Arabia moved to soothe market fears that failure to reach any deal would prompt OPEC’s largest producer, already pumping near record highs, to raise production further to punish rivals and gain additional market share. “We will be very gentle in our approach and make sure we don’t shock the market in any way,” Falih told reporters. “There is no reason to expect that Saudi Arabia is going to go on a flooding campaign,” Falih said when asked whether Saudi Arabia could accelerate production.

That OPEC could not agree on a benign deal is a sign that political differences are undermining the organization, said Gary Ross, founder of US-based PIRA consultancy. “It is bearish short-term for oil prices. But what is also important is that Saudis are not planning to flood the market,” Ross added.

Zanganeh made a few conciliatory remarks, saying he was happy with the meeting and received no signals from other producers that they planned to increase output. Sources say, after the Doha debacle, it actually restores market confidence that Saudi Arabia is committed to OPEC. This is a success compared to three days ago when people had been expecting Falih to walk out of the OPEC room.

The flow of drilling mud is seen in a container while an oilfield worker works on a drilling rig at an oil well operated by Venezuela’s state oil company PDVSA, in the oil rich Orinoco belt, near Cabrutica at the state of Anzoategui April 16, 2015.

At its previous meeting in December 2015, OPEC effectively allowed its 13 members to pump at will. As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages. Last week, Brent prices were down 1.5 percent at $49 per barrel after the OPEC meeting but later rallied on data showing a weekly drawdown in U.S. crude stockpiles.

Traditional rivals, Saudi Arabia and Iran, continue to fight to prove their supremacy in OPEC. Neither gives up an opportunity to hurt the other, whenever and wherever they can, and oil seems to be their favorite playground. With Saudi Arabia scuttling any chances of a production freeze in Doha in April, Iran has followed suit by thwarting attempts by Saudi Arabia to introduce a production ceiling on OPEC production in last week’s meeting held in Vienna.

Iran, which is close to its pre-sanction levels of production, had earlier agreed to discuss being part of any production freeze after it reached its desired output. However, Iran refused to adhere to any production ceiling, which led to OPEC abandoning the idea.

Iran has been a dark horse since the lifting of sanctions, increasing its market share quickly to the surprise of many investors. Iran has resorted to offering large discounts to its Asian customers, undercutting the Saudi and Iraqi prices to levels not seen since 2007-2008 in order to regain their market share. Iran shipped 2.3 million barrels per day in April 2016, the highest level since 2012. These figures are 15 percent higher than the International Energy Agency (IEA) forecast. Iran has been successful in its strategy until now, but increasing its market share further might prove difficult.

Meanwhile, Saudi Arabia is attempting to cement its market share in the wake of this increased production from Iran and Iraq. Though Saudi Arabia is attempting to transition away from being an oil-dependent economy, its transformation depends on the successful listing of Saudi Aramco. As part of its preparation for the listing, Aramco is gaining market share and improving its efficiency, according to its chief executive, Amin Nasser. “We are preserving our market share, which continues to increase year-on-year,” he said in the interview. “This year, as last year, it is increasing. Our market share is picking up,” he added, without giving figures, reports Reuters.

Ian Bremmer, the president of political risk consultancy Eurasia Group, said that the Saudi’s looked set to increase production after speaking with executives and a member of the Saudi ruling family.

Iran is better equipped to cope with the long-term upheaval because it is less dependent on oil than Saudi Arabia, having raised more through general taxation than through oil duties last year.

The struggle for supremacy between the two West Asian nations doesn’t show any signs of abating, and there is no clear winner in this showdown. Though Saudi Arabia has large reserves, it is burning them at a fast rate. On the other hand, experts believe that the Iranian economy is better equipped to withstand lower oil prices because its economy is more diversified and has an educated and hardworking population. The fight between the two for supremacy in the Middle East region is unlikely to end anytime soon. Currently, supply outages to the tune of 3.5 million b/d are supporting the oil prices by creating a balance between demand and supply.

Once Nigeria, Libya, and Canada resume pumping at their normal levels, the effects of the struggle between Iran and Saudi Arabia will be felt. If both increase production, the world will be awash with oil, pulling prices back to the mid $30/barrel levels.

But then the new oil exporters could also play oil politics along with OPEC.

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Iraq: Three Years of Drastic Changes (2019-2022)

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When the wave of the protests broke out at the beginning of October 2019 in Iraq, the Iraqi politicians did not realize the size of the gap between the demands of the protesters which were accumulated more than seventeen years, and the isolation of the politicians from the needs of the people. The waves of the protests began in a small range of different areas in Iraq. Rapidly, it expanded as if it were a rolling snowball in many regions of Iraqi governorates. Moreover, the platforms of social media and the influencers had a great impact on unifying the people against the government and enhancing the protest movement.

Al Tarir Square was the region where most protesters and demonstrators were based there. At that time, they stayed all day in this region and set up their tents to protest and demonstrate against the public situation of their life.

The protesters demanded their looted rights and asked for making economic reforms, finding job opportunities, changing the authority, and toppling the government presided by Prime Minister Adil Abdul-Mahdi. The protest stayed between ebb and tide, pressuring the political authority in Iraq.

A new period began in the history of Iraq where clashes between the protesters and the riot forces broke out in Al Tahrir Square and many governorates in the south of Iraq. Tear gas and ductile bullets were used against the protesters to compel them to retreat and disperse them. But the protesters insisted on continuing their demands. Many protesters were killed and wounded due to the intensive violence against them. The strong pressure with falling many martyrs gave its fruit when the Iraqi representatives of the Parliament endeavored to achieve the protesters’ demands by changing the election law into a new one. On 24 December 2019, the Iraqi Parliament approved of changing the unfair Saint Leigo election law into the open districts. The new law divided Iraq into 83 electoral districts.

Moreover, this violent protest led to the collapse of the Iraqi government presided by Prime Minister Adil Abdul Mahdi. He was compelled to resign by the end of 2019. Many political names were nominated by the Iraqi politicians but the protesters refused them all because they were connected with different political parties.

Finally, Mustafa Al-Kadhimi, who worked in the Iraqi Intelligence Service and had no party, was nominated by the politicians to be the new Prime Minister. He was well-known for ambiguity and far from the lights of media.

Mustafa Al-Kadhimi has become the Prime Minister in March 2020. The protests were over at the beginning of April 2020. With the taking of responsibility of helping Iraq, Mustafa Al-Kadhimi promised the protesters, who were called “Octoberians”, to hold a premature election, and the election was fixed on 10 June 2020.

Many politicians tried to postpone or cancel the premature election. Under their pressure, the premature election was postponed and fixed on 10 October 2020. During Mustafa Al-Kadhimi’s period as a Prime Minister, he opened new channels with the Arab states to enhance the cooperation and held many summits to support Iraq in the next stage.

Attempts to postpone the premature election by the Iraqi politicians were on equal foot, but all these attempts failed and the election occurred on the due time.

Before the election, many Octoberians and influencers encouraged the people not to participate in the election. On the day of the election, it witnessed low participation, and people were convinced of not happening any change. These calls gave their fruits in the process of elections in Iraq where the election witnessed very low participation, and most Iraqis refused to participate and vote to the nominees even though there was a new election law. When the elections were over, the Independent High Electoral Commission (IHEC) in Iraq announced that the results would be within two days. After announcing the results of the election partially and defeating many political factions in the Iraqi arena, many convictions were directed to the commission, and it was convicted by fraud and manipulation with the results. This aspect affected the activity of the Commission and led to put great pressure on it. After two weeks of pressure and convictions, the final results of the elections were announced and many political elite Iraqi leaders were defeated gravely.

The results of the election gave a new start through new leaders who were supporting the October revolution that happened in 2019. And most names of these winning movements and alliances were inspired by the October Movement. Those, who represented October Revolution, were also convicted by other Octoberians that Octoberian winners in the election deviated from the aims of the October Revolution.

A new struggle has begun between the losers in the election and the new winners who will have the right to be in the next term of the Iraqi Council Parliament of Representatives. Moreover, many independent individuals won in the election, and the conflict would deepen the scope of dissidence between the losers and winners. Finally, all raised claims of election fraud have not changed the political situation.

The final results of the election had been announced, and the date of holding the first session of the Iraqi Parliament of Representatives was fixed to nominate and elect the spokesman of the Iraqi Parliament of Representatives.  The Shiite Sadrist movement, which represents 73 seats, has wiped out its competitors. This aspect has compelled the losing Shiite competitors to establish an alliance called “Coordination Framework” to face the Sadrist movement, represented by the cleric Sayyed Muqtada al-Sader. On the other hand, Al-Takadum Movement (Progress Party), represented by the spokesman of the Iraqi Parliament of Representatives, Mohamed Al-Halbousi, has taken the second rank with 37 seats.

The final results of the election had been announced, and the date of holding the first session of the Iraqi Parliament of Representatives was fixed to nominate and elect the spokesman of the Iraqi Parliament of Representatives.

Finally, the first session of the Iraqi Council Parliament of Council was held. Mohamed Al-Halbousi has been elected as the spokesman of the Iraqi Council Parliament of Council. During the next fifteen days, the president of the republic will be elected.

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China-US and the Iran nuclear deal

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Chinese Foreign Minister Wang Yi told his Iranian counterpart Hossein Amirabdollahian that Beijing would firmly support a resumption of negotiations on a nuclear pact [China Media Group-CCTV via Reuters]

Iranian Foreign Minister Hossein Amir Abdollahian met with  Chinese Foreign Minister, Wang Yi on Friday, January 14, 2022 in the city of Wuxi, in China’s Jiangsu province.  Both of them discussed a gamut of issues pertaining to the Iran-China relationship, as well as the security situation in the Middle East.

A summary of the meeting published by the Chinese Foreign Ministry underscored the point, that Foreign Ministers of Iran and China agreed on the need for  strengthening bilateral cooperation in a number of areas under the umbrella of the 25 year Agreement known as ‘Comprehensive Cooperation between the Islamic Republic of Iran and the People’s Republic of China’. This agreement had been signed between both countries in March 2021 during the Presidency of Hassan Rouhani, but the Iranian Foreign Minister announced the launch of the agreement on January 14, 2022.

During the meeting between Wang Yi and Hossein Amir Abdollahian there was a realization of the fact, that cooperation between both countries needed to be enhanced not only in areas like energy and infrastructure (the focus of the 25 year comprehensive cooperation was on infrastructure and energy), but also in other spheres like education, people to people contacts, medicine and agriculture. Iran also praised the Belt and Road Initiative (BRI) and said that it firmly supported the One China policy.

The timing of this visit is interesting, Iran is in talks with other signatories (including China) to the JCPOA/Iran nuclear deal 2015 for the revival of the 2015 agreement. While Iran has asked for removal of economic sanctions which were imposed by the US after it withdrew from the JCPOA in 2018, the US has said that time is running out, and it is important for Iran to return to full compliance to the 2015 agreement.  US Secretary of State Antony Blinken in an interview said

‘Iran is getting closer and closer to the point where they could produce on very, very short order enough fissile material for a nuclear weapon’

The US Secretary of State also indicated, that if the negotiations were not successful, then US would explore other options along with other allies.

During the course of the meeting on January 14, 2022 Wang Yi is supposed to have told his Chinese counterpart, that while China supported negotiations for the revival of the Iran nuclear deal 2015, the onus for revival was on the US since it had withdrawn in 2018.

The visit of the Iranian Foreign Minister to China was also significant, because Foreign Ministers of four Gulf Cooperation Council (GCC) countries – Saudi Arabia, Kuwait, Oman and Bahrain — and Secretary General of GCC,  Nayef Falah Mubarak Al-Hajraf were in China from January 10-14, 2022 with the aim of expanding bilateral ties – especially with regard to energy cooperation and trade. According to many analysts, the visit of GCC officials to China was driven not just by economic factors, but also the growing proximity between Iran and Beijing.

In conclusion, China is important for Iran from an economic perspective. Iran has repeatedly stated, that if US does not remove the economic sanctions it had imposed in 2018, it will focus on strengthening economic links with China (significantly, China has been purchasing oil from Iran over the past three years in spite of the sanctions imposed by the US. The Ebrahim Raisi administration has repeatedly referred to an ‘Asia centric’ policy which prioritises ties with China.

Beijing is seeking to enhance its clout in the Middle East as US ties with certain members of the GCC, especially UAE and Saudi Arabia have witnessed a clear downward spiral in recent months (US has been uncomfortable with the use of China’s 5G technology by UAE and the growing security linkages between Beijing and Saudi Arabia). One of the major economic reasons for the GCC gravitating towards China is Washington’s thrust on reducing its dependence upon GCC for fulfilling its oil needs. Beijing can utilize its good ties with Iran and GCC and play a role in improving links between both.

The geopolitical landscape of the Middle East is likely to become more complex, and while there is not an iota of doubt, that the US influence in the Middle East is likely to remain intact, China is fast catching up.

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Egypt vis-à-vis the UAE: Who is Driving Whom?

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Image source: atalayar.com

“Being a big fish in a small pond is better than being a little fish in a large pond” is a maxim that aptly summarizes Egyptian regional foreign policy over the past few decades. However, the blow dealt to the Egyptian State in the course of the 2011 uprising continues to distort its domestic and regional politics and it has also prompted the United Arab Emirates to become heavily engaged in Middle East politics, resulting in the waning of Egypt’s dominant role in the region!

The United Arab Emirates is truly an aspirational, entrepreneurial nation! In fact, the word “entrepreneurship” could have been invented to define the flourishing city of Dubai. The UAE has often declared that as a small nation, it needs to establish alliances to pursue its regional political agenda while Egypt is universally recognized for its regional leadership, has one of the best regional military forces, and has always charmed the Arab world with its soft power. Nonetheless, collaboration between the two nations would not necessarily give rise to an entrepreneurial supremacy force! 

Egypt and the UAE share a common enemy: political Islamists. Yet each nation has its own distinct dynamic and the size of the political Islamist element in each of the two countries is different. The UAE is a politically stable nation and an economic pioneer with a small population – a combination of factors that naturally immunize the nation against the spread of political Islamists across the region. In contrast, Egypt’s economic difficulties, overpopulation, intensifying political repression, along with its high illiteracy rate, constitute an accumulation of elements that serves to intensify the magnitude of the secreted, deep-rooted, Egyptian political Islamists.

The alliance formed between the two nations following the inauguration of Egypt’s President Al Sisi was based on UAE money and Egyptian power. It supported and helped expand the domestic political power of a number of unsubstantiated Arab politicians, such as Libya’s General Khalifa Haftar, Tunisia’s President Kais Saied and the Chairman of Sudan’s Transitional Sovereignty Council, Lieutenant-General Abdel-Fattah Al-Burhan. The common denominator among these politicians is that they are all fundamentally opposed to political Islamists.

Although distancing political Islamists from ruling their nations may constitute a temporary success, it certainly is not enough to strengthen the power of the alliance’s affiliates. The absence of true democracy, intensified repression by Arab rulers and the natural evolution of Arab citizens towards freedom will, for better or for worse, lead to the re-emergence of political Islamists. Meanwhile, Emirati wealth will always attract Arab hustlers ready to offer illusory political promises to cash in the money.   

The UAE has generously injected substantial amounts of money into the Egyptian economy and consequently the Egyptian State has exclusively privileged Emirati enterprises with numerous business opportunities, yet the UAE has not helped Egypt with the most critical regional threat it is confronting: the Grand Ethiopian Renaissance Dam. Meanwhile, Egyptian President Abdel Fatah El Sisi’s exaggerated fascination with UAE modernization has prompted him to duplicate many Emirati projects – building the tallest tower in Africa is one example.

The UAE’s regional foreign policy that hinges upon exploiting its wealth to confront the political Islamist threat is neither comprehensible nor viable. The Emirates, in essence, doesn’t have the capacity to be a regional political player, even given the overriding of Egypt’s waning power. Meanwhile, Al Sisi has been working to depoliticize Egypt completely, perceiving Egypt as an encumbrance rather than a resource-rich nation – a policy that has resulted in narrowing Egypt’s economic and political aspirations, limiting them to the constant seeking of financial aid from wealthy neighbors.

The regional mediating role that Egypt used to play prior to the Arab uprising has been taken over by European nations such France, Germany and Italy, in addition of course to the essential and ongoing role of the United States. Profound bureaucracy and rampant corruption will always keep Egypt from becoming a second UAE! Irrespective of which nation is in the driver’s seat, this partnership has proven to be unsuccessful. Egypt is definitely better off withdrawing from the alliance, even at the expense of forgoing Emirati financial support.

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