For critics of the Islamic Republic of Iran, this may turn out to be problematic because it is being described as a victory for Iran over its chief regional adversary. As the Daily Mail pointed out on Thursday, this was certainly the talking point adopted by the Iranians themselves, with Iranian newspapers putting forth such slogans as “failure of Riyadh’s oil diplomacy.”
Collectively, OPEC will be reducing its oil output by 1.2 million barrels per day, thereafter setting a ceiling of 32.5 million. However, in the coming six months, Iran will actually be allowed to marginally increase its production, in line with its longstanding demand that the Iranian oil industry be permitted to return to the self-reported levels from prior to the period of US-led sanctions on the Iranian nuclear program.
After those sanctions were suspended under the Iran nuclear agreement, or Joint Comprehensive Plan of Action, Iran’s oil output climbed at a rate that had not been anticipated by most analysts. However, in the midst of talks over OPEC production cuts, which began in earnest in April, the Iranian production figures began to level off just below the amount that Tehran declared to be its pre-sanctions output.
The most recent figures place Iran’s daily oil production approximately 80,000 barrels below the four million barrel figure it had been pushing. The Islamic Republic will now be allowed to continue expanding its operations until its apparent daily output averages have increased from approximately 3.2 million barrels to 3.975 million.
Before Wednesday’s meeting at OPEC headquarters in Vienna, the Saudi Energy Minister had declared his acquiescence to the essential Iranian demand, according to Reuters. This seemed to greatly increase the last-minute expectations for an agreement, although Khalid al-Falih also insisted that the oil market would begin to recover regardless, simply because progress had been made in recent months.
But the success of the Vienna talks led to a roughly 10 percent jump in prices, which collapsed from well over 100 dollars per barrel in 2014 to 13-year lows around 30 dollars in February of this year, before recovering to only about half of their prior value. The conflict between Saudi Arabia and Iran was one major factor in the persistently depressed prices, as the Saudis absorbed losses in order to continue competing against Iran’s quest to claim large shares of the market.
The new agreement will presumably allow Iran to continue that question, but only over the short term or in very small increments. Meanwhile, the Iranian claim of victory in this negotiations is somewhat undermined by Tehran’s failure to extract more serious concessions from Riyadh. In the days just before the Vienna meeting, the Iranians had begun to insist that Saudi Arabia cut its oil production by 1.5 million barrels per day, in order to bring it in line with the output figures that had been in place before Iran came under sanctions. But after Wednesday’s agreement, the Saudis had only maintained their initial offer of 500,000 barrels per day in cuts.
Ultimately, the agreement can perhaps most accurately be characterized as a stop-gap measure in the economic conflict between the two regional rivals. Claims of complete victory on either side would be short-sighted and rhetorical, and as such it is more than likely that the conflict, in both its economic and its political dimensions, will continue for the foreseeable future.