It looks as if a cease-fire might be on tap for the Oil Wars, as Russia has reached a tentative agreement with Saudi Arabia, Qatar, and Venezuela to freeze oil production at current levels, to shore up falling prices.
The New York Times describes the plan as “hardly concrete,” but oil nations are desperate enough to try calming the markets just by talking about it. Unfortunately for Russia and its partners, the calming effect was limited, because the market wanted production cuts, and the tentative agreement has too many escape clauses.
One area of particular concern is that Russia, Saudi Arabia, Qatar, and Venezuela said their freeze depended on getting other oil-producing nations to follow suit, and neither Iran nor Iraq seems inclined to do so. Iran is eager to dramatically increase production now that sanctions are lifted, and to put it mildly, the Iranians do not care if that causes problems for Saudi Arabia.
The NYT notes the proposal for a freeze has symbolic value because “Saudi Arabia and Russia are now presenting a united front on oil,” while they remain bitterly opposed on most geopolitical issues, most prominently the Syrian civil war. Until now, the two countries have also been vigorously competing on oil sales, trying to grab each other’s market share in Eastern Europe and China.
Cooperation on oil prices might offer a glimmer of hope that the Saudis and Turkey will not get into a shooting war with Russia and Iran over the fate of the Assad regime and its adversaries in Syria.
“The plan represents a reversal for Saudi Arabia,” the Times reports. “As oil prices have slumped, the country, the de facto leader of OPEC, has avoided trying to manage the market through cuts, or even talking of them. Instead, it has continued to ramp up production, even as prices dropped sharply.”
In other words, the Saudi effort to wipe out America’s oil industry by flooding the market, driving prices down, and bankrupting American companies is not going very well.
The Saudis cannot call off the oil war on their own. Bloomberg News notes they have “resisted making any cuts in output to boost prices from a 12-year low, arguing that it would simply be losing market share unless its rivals also agreed to reduce supplies.”
The bitterest of Saudi Arabia’s “rivals” will entertain no such suggestion. “Iran will not forgo its share of the market,” declared the Iranian oil ministry, continuing with a plan to ramp up exports by a million barrels a day.
Meanwhile, Bloomberg reports Iraq, which just passed a record 4.35 million barrels of production per day in January, might be willing to cap that production at current levels, but only if other producers commit to the Saudi-Russian proposal. It seems unlikely that all of these nations would make an exception for oil-happy resurgent Iran, although Bloomberg News notes there is precedent for such an exception, dating back to 1999’s oil price slump.
Relations between the Saudis and Iran are extremely tense these days, making Saudi Arabia less willing to hand a chunk of the oil market over to Tehran, but analysts seem in universal agreement that panic is setting in, as oil prices drop below $30 per barrel. An Iran toughened by sanctions, emboldened by diplomatic victory over the Obama Administration, and winning proxy conflicts across the Middle East might be able to win a staring contest with the Saudis.