Saudi oil output freeze sees economics trump enmity
The growing pain of plunging oil prices has galvanised Saudi Arabia to look beyond its rivalry with Russia and Iran over regional conflicts and pursue cooperation on production, analysts say. But there are doubts about whether it will last because mutual suspicions remain deep and the Sunni-ruled Gulf kingdoms are loath to cede market share to Shiite Iran as it emerges from years of sanctions.
The determination of Saudi Arabia, the world's top oil exporter and de facto leader of the OPEC oil cartel, to protect its market share has contributed to a slump in oil prices to 13-year lows. However, in the first sign of OPEC and non-cartel producers working together since the rout began, Saudi Arabia and Russia said Tuesday they would freeze output -- if other major producers do the same.
The move may be a signal from Riyadh that the fall in oil prices has gone too far, said Jason Tuvey, an analyst at research firm Capital Economics. "They are obviously feeling the pain, particular- ly with a fiscal squeeze now well under way," Tuvey told AFP. Qatar, Venezuela and Kuwait also agreed to the output freeze. Iraq, OPEC's second-largest producer, said it was prepared to cooperate while the UAE gave its backing.
Iran, which is returning to world markets as sanctions are lifted under a nuclear deal, said after talks in Tehran that it too supported the move, but stopped short of committing itself to any production curbs.
Even so, the rare show of cooperation between the Middle East's foremost Sunni and Shiite powers, which back opposing sides in Syria and other conflicts, sent oil prices soaring on world markets.
Russia, like Iran, is backing Syrian President Bashar al-Assad against rebels supported by Saudi Arabia. But political and military rivalries will not kill the output deal since both sides need money, said oil expert Jean-Francois Seznec of Georgetown University.
They "can cut production, increase income and still fight each other," he said. "A valid (oil) deal would make it easier to talk about a settlement in Syria."
Saudi Arabia said Thursday that the freeze plan did not mean it was considering reducing output. "If other producers want to limit or agree to a freeze in terms of additional production that may have an impact on the market but Saudi Arabia is not prepared to cut production," Foreign Minister Adel al-Jubeir told AFP in an interview.
"The oil issue will be determined by supply and demand and by market forces. The kingdom of Saudi Arabia will protect its market share and we have said so," he added. Saudi Arabia, which is also leading a costly military campaign against Iranbacked rebels in Yemen, posted a record $98 billion budget deficit last year. Riyadh expects a deficit of $87 billion in 2016, forcing it to introduce a series of austerity measures including cuts to subsidies on fuels, electricity and others. The International Monetary Fund has cut its forecast for Saudi economic growth to just 1.2 percent in 2016, the lowest in seven years. On Wednesday, Standard and Poor's downgraded Saudi Arabia's credit rating for the second time since October.