As the Organization of Petroleum Exporting Countries (OPEC) prepares to meet later this week in Vienna, tension is rising among some of the cartel’s biggest members on what is said to be one of OPEC’s biggest decisions since its establishment.
On June 22, OPEC members along with Russia are going to gather once again to decide whether it is time to end a deal which has held their oil production at a certain level for near 18 months and pushed the oil prices to significant highs.
Although in making the historical deal in 2016, all members came to gather as a unanimous voice to save the market from clashing, this time the situation is far from what it was in the past.
On one side, under the U.S. influence [either in the form of alliance or sanctions] Saudi Arabia and non-OPEC-member Russia, which had a significant role in reaching the deal, are said to be willing to ease the production cap and use some of their spare capacities.
On the other side, less privileged OPEC members like Iran, Venezuela, Iraq, Angola, Libya and Nigeria whose production levels have been under pressure by different geopolitical and economic factors like U.S. sanctions and budget deficit need the prices to stay at current levels.
Since the beginning, all sides of the deal stuck with the pact and fully complied with what was decided for their production levels. Shortly after, since the U.S. shale production wasn’t able to offset the production cuts that OPEC and non-OPEC nations made, oil prices rose significantly through 2017 up to 2018 and that made the Trump administration worried about the effect of higher prices on Trump’s political stance.
The U.S. president repeatedly voiced his dissatisfaction with OPEC through social media accusing the cartel of driving up the oil prices, this consequently caused some turbulence in the market and resulted in Saudi Arabia’s reaction. As U.S. ally, they raised their production levels slightly to appease Trump and keep the prices from further rising.
It is said, though, that U.S. and Saudi Arabia have been discussing ending the OPEC/non-OPEC pact long before this week’s meeting and Saudi is going to propose what is in fact a U.S.-induced decision in Vienna.
In accordance with Saudi Arabia, Russians whose economy has been under pressure by the U.S. sanctions also seem to be intrigued by the idea of taking some of the market share that the supply losses from Venezuela and Iran is going to present.
However, Iran as one of the OPEC founders, believes that the organization should not sacrifice its members’ interests for the sake of U.S. agendas.
After writing to OPEC and calling for the organization’s support for members targeted by sanctions, Iran, along with Venezuela and Iraq, is going to veto Saudi Arabia and Russia’s proposal at the June 22 meeting.
Iran’s representative to OPEC, Hossein Kazempour Ardebili, told Bloomberg on Sunday that “Three OPEC founders are going to stop it.”
“If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that’s a breach of the cooperation agreement,” the official said.
Iran believes that OPEC and Russia not only do not need to appease Trump, who sanctions two OPEC founders and also Russia, but they should stand against such arrogant attitudes.
All and all, considering the current global oil market which is almost balanced and well-supplied and the global economy which is stepping toward a stronger and more resilient position, hurting the oil supply and demand circle is not going to be a good idea.
It will be wiser for OPEC to abide by its basic values for protecting its members and make the right choice which is keeping the deal at least up to the end of 2018.
First published in our partner MNA