The market’s inability to stabilize this situation is largely a consequence of the failure of multiple meetings of the Organization of Petroleum Exporting Countries, of which Iran is a member. Saudi Arabia has attempted to lead the way in negotiating output reductions by the 14-member cartel, but rivalries between the Saudi and Iranian governments have made a unanimous agreement virtually impossible.
Prior to an early output-freeze meeting in April, Saudi Arabia had insisted that Iran and all other OPEC members participate in any agreement. At the same time, Iran indicated that it had no intention of so doing, at least until such time as the Iranian oil economy reached output levels in line with Tehran’s calculation of pre-sanctions levels.
The Joint Comprehensive Plan of Action was implemented in January, bringing large-scale relief from those sanctions and allowing Iran to increase output at a rate that has been surprising to many analysts. By some accounts even among Iranian officials, Iran has already achieved its desired pre-sanctions output. In fact, on Monday EA WorldView even quoted Iranian President Hassan Rouhani as saying “the oil industry’s rapid return to pre-sanctions conditions has amazed the world” and has led the way in “tapping post-JCPOA nuclear deal opportunities and potentials.”
But these claims have had little to no impact on Iran’s response to OPEC requests for cooperation. As such, the recent decline in prices has been partly attributed to skepticism about the prospect for any significant new developments in the next OPEC meeting, scheduled for November 30.
There were greater levels of optimism ahead of previous meetings, as Iran had seemingly indicated willingness to freeze its output figures at a time when its OPEC partners would be reducing theirs. But now even this seems to be off the table, and it is doubtful that Saudi Arabia will proceed with price stabilization plans while its regional adversary remains unconstrained in its efforts to increase Iranian market share.
Indeed, the Saudi reaction to Iranian intransigence may be even further motivated by the apparent fact that Tehran intends to exploit this situation to attract newfound infrastructural investments from the foreign partners with which Iran is expanding its oil trade. EA WorldView notes that Rouhani, after praising the recovery of the Iranian oil economy, said that his government would continue to pursue 18 billion dollars’ worth of investment for plans to modernize and expand the country’s oil extraction operations.
Ironically, though, the same article suggests that one of the most hardline influences on Iranian foreign policy may also interfere with Rouhani’s plans to keep expanding the oil trade in defiance of OPEC. That is to say, EA WorldView points out that the Iranian Revolutionary Guard Corps is fearful that “their extensive holdings in the oil and gas sector will be affected” by the growth of foreign partnerships. To whatever extent this interferes with the ongoing growth of Iran’s export prospects, it may also diminish the risk that Saudi Arabia perceives in charging ahead with an output reduction agreement.
On the other hand, an ascendant IRGC can be expected to find other ways to confront and antagonize Iran’s traditional adversaries, including Saudi Arabia. But it may also be inclined to return to business as usual for the Iranian oil economy. This is one potential consequence of the forthcoming Iranian presidential elections, in which Rouhani will be competing against hardline critics in a bid to extend his presidency into a second term.
On Monday, the BBC reported that hardline media outlets had already intensified pressure on Rouhani and would continue to do so in the run-up to the elections, scheduled for May 2017. Even if this does not oust his administration in the long term, it will encourage it to continue defying Saudi Arabia over the short term while also working against the trade policies that make that have characterized that defiance in recent months.