But that optimism was much reduced at the start of this week, and oil prices seemed to reflect that. On Tuesday, Reuters reported that Iran had formally rejected the Saudi proposal. Although talks over another alternative were set to continue on Wednesday, persons close to the negotiations indicated that those talks were not expected to result in an agreement. According to Business Insider, Iranian Oil Minister Bijan Zanganeh declared that Wednesday’s meeting would only serve as an exchange of views, thus pushing any hope for an actual agreement to the next OPEC meeting, scheduled to take place at the organization’s Vienna headquarters in November.
The Saudi Energy Ministry also struck a pessimistic tone about Wednesday’s talks and pinned hopes on the November meeting, although media commentary appeared to be divided about whether those hopes would ultimately be justified. For instance, Bloomberg reported that Iran and Saudi Arabia would still have to overcome a gap of 600,000 barrels per day in their individual expectations for production limits, but it also claimed that the acknowledgement of this specific figure is a sign that an agreement is closer than ever. On the other hand, Reuters quoted one OPEC expert as saying that the Saudi proposal had not been serious and that the latest talks were only aimed at assigning blame to the other party for the ultimate failure to reach a compromise.
In any event, the Wall Street Journal reports that with the issue of output levels outstanding even just for the time being, the global oil market will remain oversupplied at least until late next year. And Reuters indicated that the lack of progress toward controlling this oversupply had resulted in prices falling by three percent on Tuesday. Later on Tuesday, Business Insider specified that Brent crude had declined by 3.5 percent and West Texas Intermediate by 3.6 percent. And it appears that this is a reaction not only to Iran’s formal rejection of the Saudi proposal on Tuesday, but also earlier indicators that compromise between the two rivals might not be in the offing.
On Monday, Reuters had already reported that global oil prices had fallen about five percent in recent days, at which time Tehran was already “downplaying” the chances of an agreement during the Algeria talks. That report quoted Baader Bank executive Robert Halver as saying that OPEC was “cannibalizing itself” as a result of Iran and Saudi Arabia remaining in “combat mode.” And on Tuesday, the Wall Street Journal suggested that this situation was unlikely to change in the near future, even though the plan put on the table by Saudi Arabia would narrowly meet OPEC’s needs for output reduction.
The Journal specifically declared that there would “always be burning hot tensions” during negotiations that involved both Iran and Saudi Arabia. Such commentary reflects awareness of the ongoing anxiety that Saudi Arabia and its Arab allies face as Iran continues to extend its influence into the broader Middle East, particularly through intervention and direct participation in the internal conflicts of nations like Syria, Yemen, and Iraq. And although the OPEC oversupply and the supposed progress toward setting an output goal gives further incentive for reconciliation, it remains rather unlikely that the regional countries will be able to accomplish that reconciliation in absence of significant changes in foreign policy.
Meanwhile, the recent United Nations General Assembly has helped to give the impression that such changes are not forthcoming on either side. In the first place, Iranian President Hassan Rouhani, who is regarded by some Western policymakers as comparatively moderate, used his speech at the New York gathering to contribute to seemingly hardline rhetoric accusing the US of violating last year’s nuclear agreement and blaming Saudi Arabia for sectarian tensions throughout the Middle East.
Representing the Arab side of the regional divide, United Arab Emirates Foreign Minister Sheikh Abdullah Bin Zayed Al Nahyan called out the Iranian leadership for being a source of “tension and instability in the region.” A United Nations press release quoted Nahyan as criticizing the Islamic Republic of Iran for being the only country whose constitution specifically calls for the exportation of its own revolution. This, he said, explains why Iran is the main perpetrator of regional interference in Arab affairs.
Nevertheless, another Reuters report pointed out on Monday that the UAE was eager to accomplish an oil output freeze, even as Iran was downplaying that prospect. Iran’s recalcitrance has been explained in terms of its desire to restore pre-sanctions levels of output, in order to make up for ground it lost to its regional competitors in the time between the imposition of nuclear-related sanctions and the implementation of the Joint Comprehensive Plan of Action.
But Iran’s specific target output is considerably greater than its reported pre-sanctions levels. And some sources indicate that the Islamic Republic has already matched its pre-sanctions output. Reuters reports that current output has been stalled at 3.6 million barrels per day for approximately three months. It may or may not be coincidental that this is identical to what some Western sources identify as the country’s real pre-sanctions output. Iran News Update noted earlier that in its discussions with Saudi Arabia, Iran has insisted upon setting output levels on the basis of each national government’s domestic statistics instead of an independent assessment. INU further suggested that this could be indicative of a desire to manipulate domestic figures in order to diminish international expectations regarding the size of Iran’s cut.
But whatever Iran’s current production levels are, the country’s leadership has long insisted upon raising its self-reported figures to four million barrels per day before even considering an agreement with the rest of OPEC. Furthermore, recent reports have cited OPEC sources to indicate that Iran has either moved the goalposts regarding this increase or has been rounding down in its public commentary in the past. Reuters, for instance, reported on Monday that Iran was still insisting upon reaching between 4.1 and 4.2 million barrels per day, making the gap between Iranian and Saudi positions greater than it might have been only weeks before the Algeria meeting.