Escape hatch

The conclusion from the Doha debacle on 17 April was that Riyadh has reversed two decades of separation of oil and politics. It blocked a production freeze agreement of 18 countries because its new rulers would rather do that than accept a rebuilding of Iranian output.

It is hard to see how this has been anything but a diplomatic blunder, whatever the perceived geopolitical gain. Responses from all but Saudi Arabia’s nearest and dearest ranged from bemusement to irritation to anger. The chances of Russia agreeing to co-operate with Opec in future are severely diminished — a major potential gain foregone. Venezuela’s government has been embarrassed at home and abroad. Qatar’s oil minister was left to explain the mess to the world’s press. The poorest producing countries saw the modest relief of a price floor that Doha had promised kicked away from under them.

More broadly, the debacle focused attention on Riyadh’s foreign policy days ahead of an already tricky visit from US president Barack Obama.

The questions now are whether Saudi Arabia’s rulers believe they have made their point and want to mend relations with other producers, and whether Iran is willing to present them with that option.

Ibrahim al-Muhanna, the senior adviser to Saudi oil minister Ali Naimi, yesterday said:  “The door for co-operation remains open, and the issue [of a freeze] will be discussed at the next Opec meeting.” That meeting is scheduled for the beginning of June.

Iran has been consistent and crystal clear that it will not countenance freezing its output until it has regained pre-sanctions levels. To do otherwise, it says, would be to bow to the “theft” of its “rightful” market share since 2012 by Saudi Arabia.

But the possibility of squaring the Saudi and Iranian positions exists and Tehran is signalling it loudly, both in the politics of public pronouncements and in the economics of preliminary trade data. On the day before the Doha meeting — which Iran decided at the last minute not to attend — a senior Iranian oil official said crude exports will hit 2mn b/d in the month starting 20 April.  And pre-sanctions production will be regained by 20 June, he added.

The data are provisional and tentative but they support the assertion that after a slow start in January-February, and still hampered by sanctions hangovers for financing and shipping, customers’ imports of Iranian crude rose to 1.8mn b/d in March, up from 1mn b/d in December.

Early indications are that Iran loaded almost 1.7mn b/d of crude on 1-12 April.  Around 1.25mn b/d went to China, India and Japan, with the rest going to France, Spain and Turkey. Hellenic Petroleum and Iplom were scheduled to lift their Iranian cargoes respectively on 18 April and 29-30 April.

In other words, Tehran could go to Vienna saying its conditions for a freeze have been met. And Riyadh could say its objective of securing an Iranian freeze has been met. Of course, the disgruntlement caused by Doha has left the Russians blowing cold over a freeze, so the longstanding Saudi condition that Moscow must partner any Opec production discipline may now not be met. But, if a semblance of Opec unity is wanted, it may be achievable.

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