Opec scrambling as Iran says it will veto any production agreement

Output curbs

Oil prices surged nearly 75%, touching $80 a barrel, after Opec and allies, such as Russia, Kazakhstan and Mexico, agreed to cut production by 1.8-million barrels per day (bpd) in late 2016. Benchmark Brent crude has slipped back, trading near $75 on Wednesday, as those countries discussed easing their curbs.

Saudi Arabia, under pressure from US President Donald Trump, wants to unwind some of the cuts by engineering a “moderate” supply boost in the second half of the year. Russia is pushing for a larger quota increase of 1.5-million bpd, although the details of its proposal suggest a smaller volume of extra oil would actually flow into the market.

Yet Iran has so far rejected any increase, including one compromise mooted in private by some Opec officials for a 300,000 to 600,000 bpd hike in the second half of the year. “There’s no need,” Zanganeh said on Tuesday, surrounded by dozens of reporters and television crews.

Trump’s tweets

Trump’s involvement makes it difficult for Tehran to accept compromise. The US president has tweeted twice in the past two months complaining about high oil prices and accusing Opec of being “at it again”. The tweets have irritated several Opec countries, notably Iran.

“Opec is an independent organisation, not an organisation to receive instruction from President Trump,” Zanganeh said. “Opec is not part of the department of energy of the US.”

Opec only effects unanimous decisions, so an Iranian veto would leave Saudi Arabia with only the option of assembling a coalition of willing countries to bypass Tehran’s opposition. Riyadh could also act unilaterally boosting output, as it did in 2011 after a meeting ended in acrimony without a deal.

“Saudi Arabia will try to reach consensus, but if that fails, I think Riyadh won’t be constrained and they will put the barrels in the market that they deem appropriate,” said Helima Croft, chief commodities strategist at RBC Capital Markets.

With assistance from Salma el-Wardany, Nayla Razzouk, Grant Smith, Javier Blas, Annmarie Hordern and Manus Cranny

Bloomberg