Cod and trousers in Riyadh

Venezuelan oil minister Eulogio del Pino’s whistle-stop tour of oil producers ran into the sand in Riyadh yesterday. Saudi oil minister Ali Naimi’s verdict was that “it was a successful meeting that was held in a positive atmosphere”. This is diplomatic speak for “we had a coffee and I sent him on his way”. And the bland official Venezuelan comment that “they also discussed the need for continued co-ordination between Opec and non-Opec producers”, was an admission of defeat over calls for an emergency meeting to talk about cutting supply.

Del Pino was dispatched by Venezuelan president Nicolas Maduro on 27 January to Moscow, Tehran, Doha, Muscat and Riyadh with “specific instructions… to build consensus among the oil-producing countries” to work together “to achieve a balance and fair price for oil”. There was no “should you choose to accept it” option but it was always Mission Impossible.

One obstacle was getting agreement among Opec members to hold an emergency meeting. A second was getting convincing commitments from significant non-Opec producers to participate in an export cut. A third was convincing supporters of the current Opec strategy of securing and defending market share that enough pain had been inflicted on non-Opec producers to keep them from challenging the Old Guard.

Del Pino was never going to clear any of these hurdles.

Notionally, it only requires a majority of Opec members to call for an emergency meeting for one to be convened. With 13 members, that means seven requests were needed and del Pino claimed support from Iran, Iraq, Algeria, Nigeria and Ecuador for Venezuela’s letter to current Opec president Qatar. Leave aside the fact that Iraq and Iran’s comments have been considerably more equivocal than del Pino suggested, even if a seventh supporter could be found, without a committed participation from Saudi Arabia (and its allies), any meeting would be a dead rubber.

Del Pino did provoke a harmonisation of the public position of the Russian government. Previously, some government figures suggested it would be up to oil firms to decide whether to cut output, while others hinted there could be ministerial involvement in talks with Opec. And nobody retracted the standing position that, for geological reasons, Russia cannot turn the tap down. By the time he left, there seemed to be agreement that energy minister Alexander  Novak would attend any meeting with Opec, if such a meeting existed.

But that matters little for two reasons. First, having been deceived in the past, Riyadh has no faith in Russian promises. Second, the Saudis maintain the fig leaf that if major non-Opec producers agreed to cut exports, it would work with them. (Indeed, they went through the motions of discussions in late 2014.) But they do so secure in the belief that there is little chance of Moscow, Mexico City, Brasilia and others volunteering credible and verifiable export cuts.

Venezuela could not clear the hurdle of convincing supporters of Opec’s market-share policy to change tack because there is a greater incentive for Riyadh to keep the pressure on non-Opec producers now that they are beginning to hurt. The more that Russian prime minister Dmitry Medvedev sounds like an Iranian politician extolling the Resistance Economy, the better. And the further the US onshore rig count falls, the better.

So, del Pino may land in Caracas with two aphorisms in mind. In Spanish, they ask rhetorically, “quien corta el bacalao?” — “who cuts the cod?” The equivalent in English is “who wears the trousers?” In both cases, the answer is Saudi Arabia.

One thought on “Cod and trousers in Riyadh

  1. Saudis may engineer mere 5% cut across the board from large producers for 25% escalation in prices. Do not go for the market share alone; a small cut can yield a bigger price increase. Manage it, optimize it, and demonstrate active leadership.It is practical.

Leave a Reply

Your email address will not be published. Required fields are marked *