Lamenting the days of oil trading at nearly $150 a barrel in 2008, oil exporters managed to get their act together back in 2016 to restrict supply and raise oil prices by a healthy 50 percent.
Last month, oil prices landed at a comfortable $80 a barrel, in part thanks to the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers containing their production in a time of modest but steady global economic growth.
Meeting again Friday through the weekend in Vienna, the global oil giants will try to strike another common tune on production levels, but geopolitical winds can prevent harmony.
Not a member of OPEC but a key oil exporter, officials from Russia are also in Vienna to negotiate with OPEC members on an optimal production strategy.
Russia had called for an ambitious increase in oil production of 1.5 million barrels per day (bpd) to offset what they see as a long-term oil supply deficit in the market, as Venezuela, Libya and soon Iran will be offline.
A key confidant of President Putin, Russia’s Rosneft CEO Igor Sechin sounded optimistic in his recent address to Rosneft shareholders about the prospects of increased profits thanks to its own increases in production coming from Russia’s newly developed oil fields.
Leading the 14-nation OPEC cartel is Saudi Arabia, which has historically played an important swing-producer role, willing to increase or decrease its supply to smooth over internal disputes over production levels.
The Saudis have agreed with Russia to increase production, but they have been calling for an increase of 500,000 bpd. The Saudis need higher prices and may prefer a decrease in production levels, but are mindful of how this is seen in Washington, D.C. Saudi Arabia’s preferred production levels are more about not tarnishing a budding relationship with the Trump administration.
President Trump has already signaled his preferences of having prices kept low and therefore production high. Tweeting twice on the matter, Trump blamed OPEC for high oil prices that his populist base has to pay for at the pump.
At the start of a high-demand season for fuel as Americans hit the road this summer, Trump will want to keep appeasing his constituents. Saudi Crown Prince Mohamed bin Salman (MBS) and President Trump have seen eye to eye on major geopolitical stances in the Middle East of late, and MBS is keen to not unravel the hard work put into this new and unlikely bond.
Trump and MBS particularly do not want to see Iran gain from rising oil prices in the remaining months before sanctions on Iranian oil come into effect in November of this year.
Both Trump and MBS believed the Joint Comprehensive Plan of Action, commonly known as the Iran nuclear deal, negotiated by the Obama administration and European powers was a flawed deal that reintegrated Iran back into global oil markets, earning it billions of dollars to be used in its ambitious regional geopolitical efforts in Syria, Iraq and Yemen.
Keen to shut out any potential for Iran to make a windfall in the next few months, this gives the Saudis another reason to support production increases.
Of course, Iran and Venezuela are calling for decreased production to keep prices as high as possible, particularly as both countries are increasingly being kept out of the global oil market and will be unable to export at previous output levels.
Iraq also wants cuts to production to keep prices as high as possible so it can service increased costs of repairing areas liberated from ISIS.
Iraq’s new populist coalition government of nationalist Moqtada al-Sadr and Iran-leaning Hadi al-Ameri will also want to dole out more benefits to its supporters and spend on badly needed infrastructural improvements in its support base of Baghdad and the impoverished south.
As oil accounts for the government’s sole real revenue stream, higher prices are favored. That said, Iraq is a perpetual cheater on meeting its oil quota, so its calls for decreased production tends to ring hollow in Vienna.
OPEC’s formal negotiations on oil production levels started, and reports of keeping 1 million bpd offline may materialize, but informal negotiations to who will produce what levels will continue to carry into early next week.
How this all affects prices will be determined more by the uncertainties facing the world today, from supply disruptions in Iran, Venezuela and Libya to trade wars, Trump tweets and Mideast conflict.
The geopolitical backdrop to the meetings in Vienna could not be more relevant.
Bessma Momani is a nonresident senior fellow at the Stimson Center and a professor at the University of Waterloo and Balsillie School of International Affairs.
