JOE KLAMAR | AFP | Getty Images
Iran’s Minister of Petroleum Bijan Namdar Zangeneh (bottom L) speaks to journalists at the 168th Ordinary meeting of the Conference of the Organization of the Petroleum Exporting Countries OPEC at the OPEC headquarters in Vienna, on December 4, 2015.
It’s no secret that Iran and Saudi Arabia are not the best of friends on the global geopolitical stage, but the arch-rivals have to share a space when the influential oil producing group OPEC meets Thursday.
REUTERS | Heinz-Peter Bader
Saudi Arabia’s Oil Minister Khalid al-Falih talks to journalists at the beginning of an OPEC meeting in Vienna, Austria, June 22, 2018.
Despite a persistent power struggle for most of the 20th century, however, Saudi-Iranian relations haven’t always been as bad as they are now. In fact, oil was something that brought them together.
OPEC was founded by Iran and Saudi Arabia in 1960 (along with Iraq, Kuwait and Venezuela) during a period of decolonization and economic transformation in the Middle East. The oil producing group was seen as a way to challenge the dominance of western oil companies that controlled the majority of global oil supply.
Today, Iran and Saudi Arabia are two of the largest producers within the now 15-member OPEC. Saudi Arabia is the largest OPEC producer, supplying 10.6 million barrels per day (bpd) in October, according to the latest output figures supplied by OPEC, compared to the Islamic Republic’s 3.3 million bpd, which makes it the third largest supplier within the group; Iraq is in second place producing around 4.6 million bpd.
Against this backdrop of tense relations between Saudi Arabia and Iran and their various allies and neighbors, OPEC is actually a way to keep diplomatic channels open for the two countries, according to Paul Hickin, associate director at S&P Global Platts.
“OPEC is actually a key strength for them and they can almost park their political issues and put them aside and use this as a forum to discuss things,” he told CNBC Wednesday.
“But you’ve got to remember that they’re all competitors in OPEC, they’re all competing for market share and to maximize their revenues. At the same time, they also have a shared goal which is to get the best possible price for their product,” he said.
Another oil market expert from S&P Global Platts told CNBC Saudi Arabia and Iran’s relationship in OPEC “has traditionally been a marriage of convenience.”
“Achieving sustainably higher oil prices has been their mutual goal despite deep political differences being enough to tear them apart,” Andy Critchlow, S&P Global Platts’ head of Energy News, EMEA, told CNBC Wednesday.
“Russia’s alliance with Riyadh and President Trump’s oil sanctions on Tehran have changed these dynamics. Qatar’s exit from OPEC changes the game even further and exposes wider divisions, which could make cooperation on oil impossible.”
Geopolitics at play
The degree of cooperation and consent within OPEC nowadays is a bone of contention for some members. Iran feels aggrieved at Saudi Arabia’s alliance with the U.S. and its willingness to replace lost Iranian barrels. Iran’s Oil Minister Bijan Zanganeh said in October that “Iran’s oil cannot be replaced by Saudi Arabia nor any other country.”
OPEC’s late 2016 deal with Russia and fellow non-OPEC producers worked; perhaps too much, as it turned out. Prices rose so much that this summer both Saudi Arabia and Russia agreed to increase output in a bid to calm price rises, particularly in light of renewed U.S. sanctions on Iran from November.
Raheb Homavandi | Reuters
A gas flare on an oil production platform is seen alongside an Iranian flag in the Gulf.
But then fears of a glut set in again and oil prices began to fall and they have declined 30 percent since October. Brent crude futures are currently trading at $61.07 a barrel and U.S. West Texas Intermediate futures at $52.5 a barrel ahead of the OPEC meeting.
Amid the latest slump in prices, OPEC and Russia are looking at whether to
cut supply again – the most likely scenario being a cut of between 1 million to 1.4 million bpd. This decision is one of the biggest uncertainties from the December meeting.