Energy
Crude Oil Markets and Geopolitics

May, 2016 - Iran Digs In Its Heels Ahead Of OPEC Meeting, Which Means Saudi Will Too.

Burgess COMMENTARY

Peter Burgess

Iran Digs In Its Heels Ahead Of OPEC Meeting, Which Means Saudi Will Too.

OPEC's upcoming meeting on June 2 in Vienna will likely be another instance of 'steady as she goes' in terms of the Saudi-led group's market share defense strategy. Two meetings earlier this year in Doha between OPEC members and other major producers aimed at reaching a production freeze agreement ultimately yielded nothing. The insistence of the new and powerful Saudi deputy crown prince Mohammed bin Salman that the Kingdom wouldn't cut output unless Iran did was reportedly the death blow to a deal.

And Iran is digging in its heels ahead of next month's meeting, showing no interest in cooperating with its OPEC peers in cutting production. In all likelihood, this means Saudi will dig in its heels as well, and continue producing at near record high levels as it maintains its market share defense strategy. This position has been strengthened by the growing anti-Iran sway of the crown prince, who is also Saudi's defense minister. The replacement of long-time oil minister Ali Naimi with bin Salman loyalist Khalid al-Falih further lends support to the Saudi market share position, now aimed chiefly at Iran rather than U.S. producers. Regional geopolitics, specifically the Saudi vs. Iran dynamism, is now the fundamental context of the 'oil struggle' in the region.

Over the weekend, Iran's Deputy Oil Minister Rokneddin Javadi was quoted by Iran's Mehr news agency as saying that Iran has no intention on freezing production and exports. Instead, it will continue to make up for lost time following the lifting of sanctions in January.

Javadi said, 'Under the present circumstances, the government and the Oil Ministry have not issued any policy or plan to the National Iranian Oil Company (NIOC) towards halting the increase in the production and exports of oil,' Reuters quoted him as saying, citing the Mehr report.

Further, 'Currently, Iran's crude oil exports, excluding gas condensates, have reached 2 million barrels per day (bpd)...Iran's crude oil export capacity will reach 2.2 million barrels by the middle of summer.'