A central question being asked after the
collapse of oil producers’ talks in Doha over the
weekend is what was driving Saudi Arabia’s shift
to a harder line that ultimately scuppered a
deal?
While the broader regional tensions between
Saudi Arabia and Iran played a part it may be
that the status quo suits Saudi policy goals.
“The Saudis are taking the long view of the oil
markets and recognise that they will no longer
be playing the role they have in the world
economy 50 years from now," said Jason
Tuvey, a Middle East economist at Capital
Economics.
“If oil prices stay where they are it forces more
investment from high-cost oil production off
the market and allows time to force through
the internal economic transformation policies
that [Prince Mohammed bin Salman, the
deputy crown prince] has been pushing for," he
says. “If it hurts Iran in the meantime, then
‘well and good’, they may feel."
The key development in the past year has been
the US$300 billion-to-$400bn of investment
that has been cancelled, particularly in the US
shale oil sector as well as expensive projects in
older provinces such as the North Sea.
US output has fallen by 600,000 bpd from a 40-
year peak last year to about 9 million bpd.
The prolonged oil recession has led to bond
defaults and bankruptcies in the US shale
sector, changing perception about its ability to
bounce back quickly when prices rise, Daniel
Yergin, the vice chairman of the oil consultancy
IHS, has said.
Even with higher oil prices, “companies are
going to be more cautious, their boards are
going to be more cautious, and their banks are
going to be more cautious", he said.
That would put the burden of “swing producer"
on the high-cost producers, which has been
Saudi Arabia’s goal since it precipitated the oil
price collapse nearly two years ago.
There is a growing sense that the unexpected
failure of the deal also reflected Saudi Arabia’s
internal policy machinations. “There seem to
be underlying tensions between [the Saudi oil
minister Ali] Al Naimi and [Prince] Mohammed
bin Salman, given that Mr Al Naimi had
previously agreed to sign up to some
agreement to freeze output," said Mr Tuvey.
The Saudi delegation had agreed to Sunday’s
meeting knowing for weeks that Iran would not
accept a cap until after it had raised its output
back to 4 million barrels per day, the level
before nuclear-related sanctions were imposed
in 2012.
Russia’s energy minister, Alexander Novak, who
had acted as a go-between last month when he
elicited a pledge from Iran that it would at
least consider joining a freeze after it returned
to full production, said Saudi Arabia appeared
to abruptly change course over the weekend.
“We expected an agreement would be reached
and I thought the countries that have come
here did it in a bid to reach an agreement but
not to discuss … countries that did not take
part," he told Russia’s Tass news agency,
referring to Saudi Arabia ’s renewed insistence
that Iran also commit to a freeze.
On Wednesday, Prince Mohammed had said
that the country would agree to freeze only “if
all major producers agree to freeze".
There have been signs at least since the start of
the year that the reformist-minded 30-year-old
deputy crown prince has been meeting
resistance within Saudi Arabia’s oil
establishment, who are wary of his plan to
“privatise" Aramco as a central plank of his goal
to transform the economy and reduce
dependence on oil.
Prince Mohammed “seems to have been
winning in this internal power struggle, and if
that is the case then he probably also was loath
to go back to old strategies to shore up prices,
which reflect back to the disasters of the 1980s
and ’90s", Mr Tuvey said.
According to Mr Yergin, the failure of price
strategies in those decades led to the de facto
end of Opec’s role as a cartel, leaving it more
of a Saudi-led talking shop.
One of the puzzling aspects of the Doha freeze
talks is that they were widely seen as a
symbolic gesture.
Most of the countries that turned up to Doha
already had been struggling to maintain output
levels, or they have shown little inclination to
adhere to any such deals in the past.
The collective output of the Latin American
contingent – Venezuela, Columbia, Ecuador,
Mexico and Bolivia – had fallen to below 8
million bpd in February and last month for the
first time in two years.
Iraq, which has potentially much more capacity
than Iran, has struggled just to maintain
current output because of its internal strife.
The government recently had to issue bonds to
unpaid foreign oil contractors in lieu of the
billions of dollars they are owed.
Meanwhile, Russia, which is one of the few non-
Opec countries that have been increasing
production, was fluid in its interpretation of the
previous Opec/non-Opec output deal at the
start of the century. Mr Novak last month said
any deal would apply to Russia’s production “but
not exports", which have been rising sharply.
“It was only ever going to be symbolic, but
symbolic matters for the market," said Cyril
Widdershoven, a partner in the energy risk
consultancy Verocy.
http://thenational.ae/business/energy/saudi-arabia-policy-in-focus-after-oil-talks-collapse