At the recent OPEC Meeting on 25th May, there was no real surprise in that all parties agreed to extend the output cuts for another period, this time nine months instead of six.
Reaching an agreement to do something different has always been an issue for OPEC and indeed, for many of its members. One can therefore assume that they are only now waking up to the fact that demand for oil will not continue forever as they had originally assumed. Many producers are today looking to restructure their economies to lessen their dependence on oil revenues. For some, like Venezuela, it’s probably too late while others may stand a chance. Yet, the significant aspect of the OPEC scene today is not so much what OPEC does but who it does it with. The 172nd Meeting Press Conference was shared jointly by Khalid Al-Falih, the Saudi Arabian Minister, and Alexander Valentinovich, the Russian Energy Minister. Although Mr Al-Falih opened the proceedings by apologising for the delay and thanking us for waiting patiently, one felt that he was genuinely sharing his views and thoughts with us. Mr. Valentinovich then took over through an interpreter and one did not detect the same level of sincerity from him as from Mr Al-Falih, but this is where cultural differences are so very evident. He at least shared the platform, something Russia is never too keen to do. The message was quite straightforward, the relationship is working well and each party sees it remaining in place long term. Certainly on oil for now. Then, as part of the ongoing process, the next meeting between OPEC and non-OPEC was held in Moscow a few days later, on 30th May, to formalise the agreements. At this point, Russian President Vladimir Putin and Crown Prince Mohammed Bin Salman applauded the agreement in the hope that it would contribute towards the balancing of the oil market. However, they must also realise that it must increase the threat of increased production from the US. Nevertheless, there is a deal in place between two countries, which has not been seen before and that is the significance of this deal, but is it the start of a new development between traditionally opposing nations? That we don’t know. At the OPEC Meeting, twenty-four nations were represented. All seemed friendly amongst themselves, yet back home several were in conflict with each other, the critical nations being Saudi, Russia, and Iran.
Saudi is seemingly close to America, particularly following the visit of President Trump to Saudi. President Trump made a great play of his hatred for Iran and has on numerous occasions stated that he will tear up the nuclear deal that President Obama was a party to, but, as yet, no such action has taken place. Saudi wants Assad out of Syria, as America does, while Russia and Iran are supporting him. Closer to home, Saudi is supporting the current regime in Yemen and attacking the Houti rebels funded by Iran, which like Russia wants Assad to remain in power in Syria. Meanwhile, as President Trump, who is trying to lean towards friendship with Putin and Russia, the US is warning Syria not to let its forces, backed by Russia and Iran, approach Al-Tanf, a town in which US and Coalition forces are based together with groups of fighters supported by the US. Two weeks on, Saudi Arabia, Bahrain, UAE, and Egypt broke off diplomatic relations with Qatar over Qatar’s supposed support for terrorist groups. Qatar happens to be close to both the US and Russia. So, inside the OPEC-Russia camp, there is a level of harmony while outside the warring factions are moving closer towards each other for a different reason. What is so frustrating, yet compulsive in terms of this situation, is the opportunity for discussions to move beyond oil. The hope being that such nations can strike a level of dialogue which is not purely commercially based. My guess is that something like this is already happening. Perhaps the Saudis and the Russians can make some progress which at the same time could rein in the Iranian aspirations which could be softer, now that President Rouhani of Iran, a moderate, has secured a second term of office. Conversely, reining in President Trump could be more difficult. He will need to understand the deep-rooted cultural differences of the Middle East, something that Putin must have an awareness off. Looking ahead, the oil deal will probably not turn the market as they hope it will, but it could lead to one of the more wide-ranging agreements ever made between nations in conflict with each other.