Saudi Arabia has signaled that it may accept an oil deal that does not require Iran to scale back production, which is taken by Bloomberg News as a sign that Iran “has the edge” in its oil price war against the Kingdom.
According to this analysis, Iran’s calculation that it could handle the pain of a supply glut and lowered prices better than its Saudi rivals was correct:
Saudi Arabia will suffer a fiscal deficit equal to 13.5 percent of gross domestic product this year, compared with one of less than 2.5 percent of GDP for Iran, the International Monetary Fund estimates. The IMF says the Saudis need oil close to $67 a barrel to square the books. For Iran, it’s lower, at $61.50. Brent crude, the global benchmark, fell below $46 a barrel in London on Tuesday.
As a result, Saudi Oil Minister Khalid al-Falih said an oil freeze deal in November might be possible, with the “special conditions” of Libya, Nigeria, and Iran taken into account.
On Tuesday, Iran rejected a deal that would have required Iran to limit its oil output while Saudi Arabia cut supply. Until now, the Saudis have resisted any such output cuts.
However, Iran’s oil minister, Bijan Zanganeh, said, “we will try to reach an agreement for November.”
“The predominant idea since early 2016 among producers has been to agree to freeze output levels, although market watchers have said such a move would fail to reduce unwanted barrels,” explains Reuters. “A deal has also been complicated by acute political rivalry between Iran and Saudi Arabia, which are fighting several proxy-wars in the Middle East, including in Syria and Yemen.”
Despite both the Saudis and Iranians talking about renewed negotiations in November, some OPEC delegates said the rivals remained too far apart to reach a compromise. Iran wants to ramp its production up even further, returning to at least pre-sanction levels.
Gary Ross of the PIRA think tank told Reuters he thought the Saudis made a “carefully calculated offer” they knew the Iranians would refuse, shifting blame for the ongoing price crisis to Tehran.