Doha aftermath – uncertainties and ambitions

The talks in Doha on April 17 have failed to reach an agreement on freezing the output at January level until October. It seems a last minute demand from the Saudis has turned the negotiations upside down and the expected deal, without Iran, collapsed. Riyadh had insisted Tehran becomes part of the comprehensive agreement - an unachievable task. Concerns have gone higher regarding an opposite decision of oil exporting countries - to boost output. Saudi sources claimed it could increase output by 2 million barrels per day to 12 million, in its turn Moscow retorting that it could do the same up to 12 or even 13 million barrels per day, according to Energy Minister Alexander Novak. Brent oil fell immediately the next day by 2.5%, but days later the oil price recovered to peak USD 46 per barrel, the highest level since November 2015.

The week after the failed deal looked rather agitated for the world energy market, with a visit paid by US President Barrack Obama to Riyadh in the attempt to mend troubled relations with the long-time ally and attended the summit of Gulf Cooperation Council. A sign of troubled waters was the fact that Saudi King Salman did not greet Obama at the airport, sending to play the host the governor of Mecca. Was that a response to the fact that, upon his last visit to the US, the King had been greeted by Secretary of State John Kerry, some wonder. Others point to the strained relations due to Obama’s enthusiasm on the nuclear deal with Iran, Saudi Arabia’s rival in the region, or to the criticism coming from Washington in regard to Riyadh’s involvement in the conflicts in Syria, Iraq and Yemen. Even more tension was brought by a recent interview in which the US President said Riyadh is not doing enough to control terror.

During the same week, the US Senate approved the first energy bill since 2007 to improve energy efficiency and permitting LNG export terminals, after a similar version in late 2015 by the House of Representatives.

Last but not least, with hard to tell influence on world oil prices, is that right after the talks in Doha, on Tuesday, the oil workers in Kuwait ended strike. The workers feared salary cuts and staff layoffs as part of a planned government overhaul of the payroll system in the public sector.


In its ‘war’ with regional arch-rival Iran, Saudi Arabia still wants to hold the cards. The deal in Doha had aimed to freeze the output of oil exporting countries, but Riyadh’s main stake is the world market share. As Iran refused to join the talks and thus to sign any deal, a deal would have meant Saudi Arabia’s market share would have been affected. Sources at the talks in Doha say the Saudi oil minister Ali al-Naimi, on office for almost twenty years, no longer has the voice of authority. At a certain point during the talks, the Saudis submitted new papers and told the participants “you approve them or we don’t agree”. The same sources point to Prince Mohammad bin Salman, one of the king’s sons, who became last year the Saudi top official, and that the change forwarded during the talks was not familiar to Naimi but it came from Prince Salman. “Ali al-Naimi flew to Doha with an intention to close a deal and when he arrived in Doha, he got another instruction not to do it,” the sources said.

The turn in stand came as a surprise to Kuwait, the UAE and Qatar, usually consulted by Saudi Arabia in such issues. Russia was surprised as well, as it was ready to seal the freeze. Instead of calming the market, the failure in Doha seems to have set the scene for inflaming the tensions on the market.
However, the Saudi threat that it would increase output up to 12 million barrels per day is questionable, some say. Saudi Arabia has increased its output in 2015 by half a million barrels per day and some analysts say it is operating at full capacity, so their new increase claim might be deceiving. On the other hand, other oil exporters face infrastructure problems (such as Iraq, Iran) or political turmoil affects the domestic climate (such as in Libya, Venezuela and Nigeria). Hence, out of the list of countries claiming tough fight on the oil market, only Russia seems able to meet the threat, various commentators say.


At least Tehran has kept its stand from the very beginning, refusing to join the talks in Doha. As it is looking to ‘recapture’ its market share after the lifting of international sanctions in January, Iran claimed it was not going to sign an output freezing agreement under no circumstances. As Iranians are looking forward for improvements in their lives and the summit came at a time when the Iranian government is trying to get hold of anything that would seem as good economic news. Analysts point to the issues that prevented Iran in joining the talks in Doha. On one hand, they see Saudi Arabia as a non-benevolent regional rival, that can hardly be seen as willing to reach a deal with Tehran. Secondly, an output freezing deal would have eliminated any chance to regain a larger market share and thirdly, maybe the most important, is that the moderate government is under pressure from hardliners to present the benefits of such an agreement. As the benefits are uncertain, the risks were considered too high.
Iran said even before the Doha summit that Saudi Arabia and Russia are wrong in claiming the output freeze, as they both produce more than 10 million barrels per day.

Nevertheless, the output is still by 17 to 40% lower than the daily production and exports in 2011, before the sanctions. Why risk a new embarrassing moment after the recent summit in Turkey? At the summit of the Organisation of Islamic Conference, the Saudis gained support in order to get a resolution calling Iran a “supporter of terrorism” while interfering in other countries’ affairs. A second defeat in front of Riyadh was not acceptable.


A deal on April 17 would have been the first collaboration between OPEC and Russia in 15 years. It wasn’t meant to be. As seen above, the war of words started right after Doha. Saudis and Russians threaten with flooding the market with oil, by increasing the output by 1-2 million barrels per day. Three days after the summit Russia said it was prepared to push oil production to historic highs. “The Saudis have the ability to raise output significantly. But so do we,” Russian Energy Minister Alexander Novak said during an international energy conference in Moscow.

Russia’s output has increased in the past ten years from 6 million barrels per day to more than 10 million barrels per day.

Other Russian officials have confirmed the capabilities to rapidly increase the output at an oil price of USD 45-50 per barrel or even as low as USD 35 per barrel. Russian crude exports to countries outside the former Soviet republics could grow to as much as 255 million metric tons this year, or 5.11 million barrels a day, First Deputy Energy Minister Alexey Teksler said.

However, other voices, such as Lukoil Chief Executive Vagit Alekperov, say Russia needs to improve the legal framework to ease the tax burden on mature fields in Western Siberia in order to encourage exploitations in other regions. Increasing output would be impossible otherwise, he said, adding that, except for Northern Caspian, no new oil province has been launched since the end of the Soviet Union.


The US was not present in Doha at the negotiations. However, as a large player on the world oil market, is influenced and reacts to the decisions in this field. The ‘shale oil revolution’ has had its part in influencing the global oil price. A fresh flooding of the market would certainly affect US producers and the US oil industry and economy on short term, analysts say. They point to the fact that, since mid 2014, some 60 oil companies in North America have filed for bankruptcy. Referring to 2016, some say the US shale oil output has fallen by some 800,000 barrels per day. On the other hand, without an output freezing agreement the US economy might be affected as the benefits of low oil prices may not counter the loss posted by the US oil industry on billions of investment reduction and laying off tens of thousands of workers – about 100,000 workers. The US economy could be influenced downward by 0.5%.

After all, the falling oil prices have led to important cuts in investments and the number of operational rigs has fallen against the peak level by 75%. According to Deloitte, a third of US energy producers are facing bankruptcy and, as said before, thousands of workers have been made redundant. Furthermore, according to sources, the drilled and uncompleted wells are down by one third. Only in April the shale oil output has fallen by more than 100,000 barrels per day.


Several officials, including a Saudi representative, say negotiations would be resumed on the issue of output freezing during the OPEC summit in Vienna, on June 2. But no one seems very confident an agreement could be reached. Iran says it wouldn’t freeze output until it reaches 4.2 million barrels per day (up from the current level of 3.5 million). However, there’s no guarantee that by June Tehran’s approach will remain the same.

Besides, it seems to have appeared a shadow of distrust in OPEC, right after the Doha summit. Some say OPEC is becoming less relevant. Investors’ hopes in a stabilized market have gone and now, their representatives say, it might take some time until people start trusting OPEC again.

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