Iran’s willingness to negotiate with Saudi Arabia and other OPEC members over the global oil glut reflects its desire to hike prices soon to revamp its oil sector, which was crippled for years by international sanctions over its nuclear programme, analysts say.
Iran will load four million barrels of crude oil on tankers destined for Europe in the coming 24 hours, a senior official was quoted as saying on Saturday.
list of 4 itemsThe oil was bought by companies in Russia, France and Spain.
“Iran must preserve its share of the global oil market,” Vice President Eshaq Jahangiri told the Shana news agency.
Oil Minister Bijan Zangeneh said this week his country was ready for dialogue with Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries (OPEC) on the oversupply of oil in the international market – and its debilitating price slump.
UpFront – Reality Check: Beyond the Saudi Arabia-Iran feud|
Patrick Clawson, director of research at the Washington Institute for Near East Policy, said Zangeneh’s comments indicate “how badly Iran is being hurt by the low oil price”.
Since the lifting of Western economic sanctions after Iran reached a nuclear deal with world powers, the country announced it was prepared to add an extra 500,000 barrels to its estimated 2.9 million barrels a day (bpd) output.
Saudi Arabia is the biggest OPEC oil producer with foreign reserves exceeding $600B at the end of 2015.
“Unlike the Saudis, the Iranians do not have ample reserves with which to ride out a prolonged period of low prices,” Clawson told Al Jazeera.
The international oil market has been suffering since the summer of 2014, losing more than two-thirds of its value. OPEC countries have flooded the market with a production ceiling of 30 million bpd – with no signs of cutbacks. Oil prices recently fell to $28 a barrel – a 13-year low.
On Thursday, Suhail bin Mohammed al-Mazroui, energy minister of the United Arab Emirates, was quoted in the Wall Street Journal saying OPEC members were ready to co-operate on a production cut.
The next day, oil prices surged in Asia by more than 5 percent.
Sara Bazoobandi, senior lecturer in international political economy at Regent’s University London, said if Tehran could initiate a “collaborative approach” with other oil producers it would have a positive ripple effect on its own industry.
She added it was hard to distinguish whether Iran’s comments on a dialogue with Saudi Arabia and others were out of desperation, or an attempt to claim more influence among OPEC players now that sanctions had been lifted.
UpFront – Saudi Arabia vs Iran: Is the cold war heating up?|
“What has happened within OPEC is that Saudi Arabia and all the GCC producers created a cartel within a cartel. It gives them more power and more influence in decision-making. If Iran could either join that cartel or create some sort of a balance of power with that cartel, of course it’d be a good idea for Iran,” Bazoobandi told Al Jazeera.
In 2014, Iran’s crude oil exports averaged 1.4 million bpd under the imposed economic sanctions. Before the sanctions, Iranian oil exports averaged 2.6 million bpd in 2011.
According to the latest OPEC oil market report, Iran’s oil production was 2.9 million bpd in January.
The United Arab Emirates said last month Iran’s pledge to increase production by 500,000 bpd would “harm the market”.
Bazoobandi described Tehran’s moves as a “tit-for-tat” strategy.
“They’re implying that if other producers continue not cutting back, we are going to do the same thing. So if they continue producing, we’re going to increase our production… Basically, they’re hurting the prices, we’re going to hurt the prices as well.”
Economist Mamdouh Salameh said Iran increasing oil production would not have a significant effect on the market when compared with other OPEC producers.
In January 2016, OPEC producers averaged output of 32.33 million bpd.
“They are already overproducing above the production ceiling agreed by OPEC members, which is 30 million barrels… So if you want to remove the glut, you cut your production by 2.2 [million bpd]. Iran bringing a few thousand barrels is neither here nor there,” Salameh told Al Jazeera.
Salameh added that Iran’s extra oil production might not be directly translated into exports as there is a “glowing demand” for oil inside the country.
Tensions between Iran and Saudi Arabia reached a new low last month after the Saudi kingdom severed relations after an attack on its embassy in Tehran.
The attack came in response to Saudi Arabia’s execution of Nimr al-Nimr, a Shia religious leader in Riyadh. The incident sparked an escalated war of words between the regional rivals.
“Political and strategic interests are a lot more complicated. It could be a great step towards normalising relations with Saudi Arabia,” she said.
Salameh, however, said he didn’t think tensions would be resolved any time soon, even through economic co-operation.
“Saudi Arabia is OPEC. It is the heart of OPEC… Iran doesn’t accept that. Iran is not in a position in terms of oil to confront Saudi Arabia. The tension will always remain there,” he said.
But Salameh added Saudi Arabia would eventually have to reach an agreement within OPEC “whether they like it or not” to cut back on production.
In December, the world’s leading oil producer announced a record $98B budget deficit, citing rock-bottom global petroleum prices.
“Saudi Arabia is on the verge of changing its policy under the pressure and pain it’s suffering now,” said Salameh.
A report by the Kuwait Financial Centre released on Tuesday said the oil-rich states of the Gulf Co-operation Council are expected to see their public debts double and their assets decline by one-third by 2020, amid dramatically plunging revenues because of the steep drop in oil prices.
Follow Mohamed Hashem on Twitter: @mhashem_
Counting the Cost – Crude reality: Winners and losers in the oil crisis|