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Iran: Return of a powerful oil producer?
June 5, 2015, 6:08 am

Zanganeh has said that there is an "oversupply" of oil in the market and also called for OPEC to make room for increased Iranian production [XINHUA]

Zanganeh has said that there is an “oversupply” of oil in the market and also called for OPEC to make room for increased Iranian production [XINHUA]

When 11 of the 12 oil producing members of OPEC meet in Vienna to discuss quotas and market shares for the coming year, they’re likely hoping they can avoid discussing the elephant in the barrel.

Member Iran, which has in the past decade gained influence both in the Persian Gulf and greater Middle East, and managed to bring the West to the negotiating table to discuss its nuclear energy program, is now hoping to capitalize on some of that momentum to sway OPEC members in its favor.

On Friday, Iran will try to push for a change of production quotas to reflect current market conditions and prepare the ground for the eventual lifting of an oil embargo – a pivotal tenet of the nuclear agreement it reached with the permanent members of the UN Security Council and Germany in Switzerland in April.

If Iran and the P5+1 – as the Western negotiating partners are known – reach an agreement by the June 30 deadline, Tehran oil officials say they can add an additional 1 million barrels to their national output within six months.

Iranian Oil Minister Bijan Namdar Zanganeh said earlier this week that OPEC “needs to open space” for his country’s anticipated boost in output.

Cash-strapped due to economic sanctions, Iran’s oil strategy has been both a pivotal aspect of the Switzerland negotiations and is seen domestically as a means to revitalize its role as a major global oil producer.

But Iran isn’t alone in looking for advantage within the powerful oil cartel. Iraq’s oil industry, which reeled from debilitating sanctions in the 1990s, is slowly beginning to regain a footing in the market. It will likely share a common goal with Iran in winning concessions to be able to pump and sell as much oil as it can, but both countries may be thwarted by Saudi Arabia – seen as OPEC leader by many – and its Arab allies.

Throwing a monkey wrench into all this is Libya, which has seen its oil output waver due to instability and a growing civil war over the past year.

Officially, the current quota for the 12-member OPEC oil cartel was set at a sum of 30 million barrels a day in 2011. OPEC production in April 2015 was just short of 31 million barrels a day, and some industry experts believe that the actual output for the cartel is over 31 million barrels a day.

“It’s very clear that we have oversupply in the market and this oversupply puts pressure on prices,” Zangeneh told Iranian media earlier this week.

He urged fellow OPEC members to review current quotas and work toward balancing the market. But he appeared to realize that the vote on policy would go Saudi Arabia’s way.

While the camera’s may show a cohesive OPEC, the reality is a bit different. Many of the Arab members of the cartel are allied with Saudi Arabia in its current military operations against the Shia Houthis in Yemen.

Iran has traditionally backed – and supplied – the Houthis in Yemen; it is a fait accompli that the Saudis and Iranians are engaged in proxy conflicts in Yemen and Syria.

Iran says it can weather low oil prices – down some 50 per cent in the past year – because its economy is only a third reliant on oil exports.

It says Saudi Arabia and its Arab allies will suffer in the long-term because more than 95 per cent of their economies rely on oil exports alone.

Oil prices have slowly recovered from the $45-a-barrel level in January but have failed to break upward of the $65-mark.

In early Asian trading on Friday, US crude futures traded at $58 a barrel, while Brent futures came in at $62.18.

The BRICS Post with inputs from Agencies

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