According to the news report by Bloomberg, Iran said that it was planning to oppose the proposal put forward by Saudi Arabia and Russia to increase oil production during the OPEC meeting in Vienna this week. Iran said that it was being backed by Iraq as well as Venezuela in this endeavor.
According to the Iranian representative in OPEC, Hossein Kazempour Ardebili, the three founders of OPEC are going to oppose this proposal. He also stated that if Saudi Arabia and Russia insist on acting alone, then that would be a breach of the cooperation agreement. Ardebili said that this kind of a proposal required a unanimous vote.
These comments by the Iranian representative shows that the OPEC meeting is going to be a stormy one. The proposal being tabled is whether the cap global production should be lifted or not.
The agreement between 24 nations, which included countries that were not members of the OPEC, which put a cap on global oil production to reduce the glut of crude oil, achieved its target two months ago. This agreement brought the oil markets back in balance and also helped lift the crude oil prices that had been languishing since 2014.
Despite the global issue of oversupply being resolved, the OPEC has not yet lifted the cap on oil production. However, the two biggest producers of oil in the world – Saudi Arabia and Russia – are pushing to have these caps relaxed as soon as next month.
The problem is that while Saudi Arabia’s and Russia’s oil production is currently below capacity, other OPEC members such as Iran and Venezuela would struggle to step up production even if their quota was increased.
The OPEC alliance is facing outside pressure in the form of American President Donald Trump. Trump has been attacking the OPEC via Tweets. The government is worried about the rising gasoline prices, especially since mid-term elections are around the corner. Therefore, the Trump administration is lobbying for increased oil production to bring oil prices down.
Not just that, the Trump administration has also placed sanctions on Venezuela and Iran due to the political turmoil in the two major oil producing countries. Thus, the International Energy Agency forecast production losses from these two countries. US sanctions against both these countries could lead to them losing up to 30% of their oil production next year, which would mean that other countries would need to ramp up production to make up for the deficit.
Thus, according to the Russian Energy Minister, Alexander Novak, OPEC should look at increasing oil production by up to1.5 million barrels per day, so that the lack of supply from Venezuela and Iran could be covered up.
OPEC members are now looking at a compromise of increasing oil production of about 300,000 to 600,000 barrels per day over the next few months. While Iran is looking at keeping the status quo, other member countries are optimistic that this week’s OPEC meeting will result in at least a relatively moderate hike in oil production.
The global benchmark for oil prices, the Brent crude, rose by as much as $0.85 to trade at $74.29 per barrel.
Besides the production hike issue, OPEC officials are also working on taking the current cooperation agreement between the cartel, Russia as well as the other non-member oil producers, on a more permanent footing. If they are successful in creating a permanent OPEC+ group, as it is being called at the moment, then it would be a massive diplomatic breakthrough for the organization.
Additionally, the hope is that if the relationship between the OPEC and Russia is more permanent, then it may help convince Iran to soften its current stance.