The Big Freeze Fail
Much A-Doha About Nothing

After two months of talk, a group of petrostates met in Qatar on Sunday to actually agree on a plan to freeze oil output at January levels. In a wholly unsurprising but considerably embarrassing turn of events, the Doha summit failed to produce any sort of deal after the Saudis pulled out.

Back in February, Saudi Arabia was one of the first four petrostates to agree to this tentative strategy, along with Venezuela, Qatar, and Russia. Since then, though, Riyadh hinted that the freeze would only go through if it also included Iran, an unlikely proposition given Tehran’s repeated insistence on ramping up its own production to pre-sanctions levels. It’s no great shock, then, that this central tension between the two Middle East rivals ultimately sank the Doha deal, but it does raise the question: if this seemingly insurmountable hurdle was known about for weeks if not months, why even set a meeting? The FT reports:

Even Saudi Arabia’s Gulf Arab allies were annoyed. Some questioned why they had allowed Opec and non-Opec countries to convene if their position was so concrete and Iran’s stance was so well-known.

“My understanding is that this was purely political,” one non-Gulf delegate said. “How can they go from agreeing to everything on Saturday and turning everything upside down on Sunday?”

By all accounts, this hardline stance by the Saudis was pushed forward not by the country’s long-time oil minister Ali al-Naimi, who seemed to be more open to the plan even without Iranian cooperation, but instead by the country’s deputy crown prince Mohammed bin Salman who said earlier this month that Tehran joining the freeze would be a necessary condition.

This is a sharp reminder to traders and investors that geopolitics counts. There are people in financial markets who discount political factors, assuming in the end that humans are both rational and responsive to economic factors above all else. Both are often but not always true.

To those taking these factors into account, the results of this meeting should not have come as much of a surprise at all. There have been no signs from either Russia or Iran that they were moderating their behavior in the Middle East. Russia’s ‘withdrawal’ from Syria did not represent any downgrading of Russian ambitions or goals, and both Iran and Russia have continued to back Assad as he readies a murderous new offensive against Aleppo. The extreme hard line by two powers Saudis see as out to tip the balance of the region against them gave Riyadh every incentive to cause Iran and Russia as much pain as possible. This pointed to no freeze in the offing.

One of two things have to happen for the Saudis to cooperate with Russia and Iran to help drive the price of oil back up. Either Russia and Iran cut the Sunnis some slack in the Middle East, easing their stance on Syria and (in Iran’s case) Yemen, or the Saudis have to throw in the towel, accept Iran’s regional primacy, and try to make as much money as possible under the new conditions. The Saudis are nowhere near accepting defeat, and it’s likely that the Iranian and Russian aggressiveness on display is a factor in Prince Salman’s continuing rise.

In the meantime, Iraq seems to think the freeze deal will be back on the table at OPEC’s June summit. By then Iran hopes to have its own production back up to those pre-sanctions levels, which might make it more amenable to signing on to output limits but which would simultaneously make the effects of such an agreement on cutting away at the global oversupply borderline negligible.

The Doha meeting was never going to accomplish much, but by failing to produce anything it only served to flaunt the increasing irrelevance of OPEC.

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