OPEC has twiddled its thumbs as oil prices dropped by half since June, and one of its members isn’t hiding its dissatisfaction. Iran is set to boost its own oil production pending the passage of a nuclear agreement and the cessation of sanctions, rocking the OPEC boat. Reuters reports:
“It seems (OPEC’s strategy of not cutting output) does not work well, because prices are coming down,” [Iranian oil minister Bijan Zanganeh] told Reuters on Thursday during a visit to Beijing. “We haven’t witnessed stable situations on the market.”
In other words, Iran doesn’t think the cartel is accomplishing its stated purpose: bringing stability to the crude oil market (read: fixing prices). And that’s true; at the Saudis’ insistence, OPEC has let prices fall in order to compete with new producers like American shale operators. In this respect, Iran isn’t unlike many of OPEC’s poorer members (Venezuela, Algeria, and Nigeria come to mind). These petrostates require high prices to maintain balanced budgets, and likewise are none too happy with the way OPEC has approached the price plunge over the past ten months.
But while Iran would like to see OPEC curtail output, it has no intention of cutting back itself. In fact, just the opposite: If the nuclear deal goes through it expects to boost output by 300,000–800,000 barrels per day. For that to happen along with an overall OPEC cut, the rest of the cartel’s members will need to scale back even more. Saudi Arabia is the OPEC member most capable of cutting back output, but will surely chafe at any strategy that assists its regional rival.
Whatever happens, the world’s petrostates will have plenty to discuss at OPEC’s next meeting in June.