Analysis

Iran will consider joining production freeze talks once output increases

Iran oilBy Connor Kilgore, CIB Americas Desk*

Iran has said that they will consider joining talks and participating in an oil production freeze once their output reaches 4 million barrels per day. This may lead the Organization of Petroleum Exporting Countries (OPEC) and Russia to freeze oil production, with the aim to raise and sustain the global price per barrel of oil.

In February, the Venezuelan Minister of Petroleum, Eulogio Del Pino, visited Saudi Arabia, Russia, Qatar and Iran with the intent to push for a freeze in oil output. Del Pino wanted this due to the price of oil reaching a 12 year low at $27.10 in January. Del Pino, along with Saudi Arabian Oil Minister, Ali Al Naimi, Russian Energy Minister, Alexander Novak, and Qatar Minister of Energy, Mohammed Saleh al Sada, came to an informal agreement that they would participate in an oil output freeze at January levels, as long as all of the rest of OPEC followed suit. Iranian Oil Minister, Bijan Namdar Zanganeh, called the proposal “ridiculous” because Iran’s oil output is not at an acceptable level for Iran after recently coming off of Western nuclear sanctions. Due to Iran repeatedly ignoring the UN Security Council’s requests, on July 1, 2010, US President Barack Obama signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 which, among other things, targeted Iran’s oil sector. Before the sanctions began, Iran was exporting close to 2.5 million barrels a day, which dropped to a little over 1 million due to the sanctions.

Zanganeh spoke on Sunday, March 13, in the Iranian capital, Tehran.  He said that Iran will not consider freezing their oil production until their output reaches 4 million barrels per day and that until then, “they should leave us alone” in reference to Venezuela, Saudi Arabia, Russia and Qatar. Zanganeh spoke on Iran’s current output which is supposed to reach 2 million barrels per day by March 19, the end of the Iranian month. He also said that the price of oil at $70 per barrel would be “suitable” for Iran, but that if it was lower they would be satisfied.

With Iran not involving themselves in freeze talks for the time being, there is no drastic rise in oil prices in sight. The Russian and OPEC freeze agreement relied heavily on all of the OPEC members participating.  Iran is presently outputting around 1.75 million barrels per day, and with the intention of increasing to 2 million and eventually 4 million, they will play a key role in whether a freeze happens at all. Along with being a potential key member in the freeze talks, Iran reaching 4 million barrels per day will more than likely drive the price of oil down in an already oversupplied market.

With the price of oil rising above $40, Iran has an incentive to boost their production and output. It can be stated with high confidence that Iran will not join talks or consider an agreement until they reach 4 million barrels per day. However, while they increase their output, they will be directly contributing to the surplus of oil and the destabilization of the market. It can be stated with high confidence that a freeze will happen in the near future, in order to stabilize the oil market.

* Analytical Question: Will the per-barrel price of oil continue to fall in 2016?

Bibliography

Christy, Patrick, and Robert Zarate. “FPI Fact Sheet: Timeline on Diplomacy and Pressure on Iran’s Nuclear ProgramThe Foreign Policy Initiative. July 7, 2014. Accessed March 23, 2016.

Hudson, Dale. “Venezuela Proposes OPEC, Non-OPEC Producers Freeze Oil SupplyReuters UK. February 11, 2016. Accessed March 23, 2016.

Gamal, Rania El, and Alex Lawler. “Oil Meeting on Output Freeze Unlikely without Iran Progress: SourcesReuters. March 10, 2016. Accessed March 14, 2016.

Anonymous. “Iran Set to Join Oil Freeze Talks after Output at 4 Mbpd: ISNAEuronews.com. March 13, 2016. Accessed March 14, 2016.

Anonymous. “Iran to Join Oil Talks When Output Higher: ReportCNBC. March 13, 2016. Accessed March 14, 2016.

Nasseri, Ladane. “Iran on Oil Freeze: ‘Leave Us Alone’ Until Production Higher”  Bloomberg.com. March 13, 2016. Accessed March 14, 2016.

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