Iran and Iraq Push Back on Saudi Oil Production Pressure

November 29, 2016, 10:03 AM UTC
Oil And Steel Installations In Iran
MAHSHAHR, IRAN - SEPTEMBER 28: View of Iran's oil industry installations on September 28, 2011 in Mahshahr, Khuzestan province, southern Iran. Iran is seeking foreign investment for its projects in oil and petrochemical industry as well as its Special Free Zone in Imam Khomeini Port. (Photo by Kaveh Kazemi/Getty Images)
Kaveh Kazemi/ Getty Images

Iran and Iraq are resisting pressure from Saudi Arabia to curtail oil production, making it hard for the Organization of the Petroleum Exporting Countries to reach a global output-limiting deal when it meets on Wednesday.

OPEC sources told Reuters a meeting of experts in Vienna on Monday failed to bridge differences between OPEC‘s de facto leader, Saudi Arabia, and the group’s second- and third-largest producers over the mechanics of output cuts.

“The revival of Iran‘s lost share in the oil market is the national will and demand of Iranian people,”Iranian news agency Shana quoted the country’s oil minister Bijan Zanganeh, who was due to arrive in Vienna later on Tuesday, as saying.

OPEC, which accounts for a third of global oil production, agreed in September to cap output at around 32.5-33.0 million barrels per day versus the current 33.64 million bpd to prop up oil prices, which have halved since mid-2014.

Iran has argued it wants to raise production to regain market share lost under Western sanctions, when its political arch-rival Saudi Arabia increased output.

In recent weeks, Riyadh offered to cut its own output by 0.5 million bpd, according to OPECsources, and suggested Iran limit production at below 4 million bpd. Tehran has sent mixed signals including that it wanted to produce 4.2 million bpd.

Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State.

The argument between Iraq and Saudi Arabia mainly focuses on whether Baghdad should use its own output estimates to limit production or rely on lower figures from OPEC‘s experts.

As tensions within OPEC mounted, Saudi Energy Minister Khalid al-Falih said at the weekend that oil markets would rebalance even without an output-limiting pact. He had previously said Riyadh was keen for a deal.

Falih was not expected to land in Vienna before Tuesday evening, leaving little time for traditional pre-meeting discussions with other ministers.


Some analysts including Morgan Stanley and Macquarie have said oil prices will correct sharply if OPEC fails to reach a deal, potentially going as low as $35 per barrel. Brent crude edged down on Tuesday to trade near $48.

Goldman Sachs, one of the most active banks in oil trading, said on Tuesday it saw prices averaging $45 a barrel until mid-2017 even without any OPEC deal and added the market was likely to move into a deficit in the second half of 2017.

A year ago, Goldman was saying a global glut would push oil prices to around $20. Prices fell to multi-year lows of $27 per barrel in January 2016.

For more on oil markets, watch Fortune’s video:

Besides disagreements with Iran and Iraq, Saudi Arabia has also signaled it was unhappy with Russia’s position.

Oil ministers from OPEC members Algeria and Venezuela were due in Moscow on Tuesday in a final attempt to persuade non-OPEC Russia to take part in cuts instead of merely freezing output, which has reached new highs in the past year.

The Kremlin said President Vladimir Putin spoke to Iranian President Hassan Rouhani and both highlighted “the importance of OPEC‘s efforts to cap production as a key measure to stabilize global oil markets.” It did not say what Russia could contribute to the effort.