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Iran’s oil minister says his country supports calls for an emergency OPEC meeting to explore ways to shore up the price of oil, but even without such an effort, Tehran is willing to regain its market share “at any cost.”
Iran once was OPEC’s second-leading producer, after Saudi Arabia, but output has plunged since 2012, when international sanctions forbade any country or energy company to buy, ship, finance and insure its crude because of Tehran’s nuclear program. In 2011, Iran’s output was 3.7 million barrels per day. With the sanctions, production dropped to 1.2 million barrels per day.
Iran and six world powers – Britain, China, France, Germany, Russia and the United States – reached an agreement in July on controlling that program and lifting the sanctions, probably by early 2016. Oil Minister Bijan Zanganeh has said repeatedly that his country can quickly boost production by more than 1 million barrels per day within a month after the sanctions are lifted.
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This could further depress the price of oil, which has dropped precipitously since summer 2014. Already there is a glut of oil, and OPEC members lately have been producing at near-record levels. The group already is exceeding its output cap of 30 million barrels a day by at least 1.5 million barrels per day. Once Iran returns to the market, the price probably will fall further.
So be it, Zanganeh said in Tehran on Aug. 23. “We will be raising our oil production at any cost and we have no other alternative,” he was quoted by his ministry’s website, Shana. “If Iran’s oil production hike is not done promptly, we will be losing our market share permanently.”
But Zanganeh also said he was aware that his country’s return to the world oil market could further weaken prices, and declared Tehran's support of a call for OPEC to hold an extraordinary meeting to discuss ways to stabilize oil’s price. The cartel’s next scheduled meeting will be Dec. 4.
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“If [such a meeting meeting] is convened, it will have an impact on oil prices,” the minister said. “The urgent meeting must be held with all OPEC members in attendance. It is only through such consensus that one can say all members have decided to reach results.”
But Zanganeh said he has little hope that such a meeting will take place because of opposition by at least one member that is using low oil prices as a weapon in its own war to reclaim OPEC’s market share from non-OPEC producers, especially shale oil producers in North America.
“I find it unlikely that some countries with political agendas to reduce oil prices would agree to this meeting,” Zanganeh said. He didn’t specify the country, but clearly was referring to Iran’s arch-rival, Saudi Arabia.
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At OPEC’s meeting in Vienna last fall, Saudi Oil Minister Ali al-Naimi used his country’s influence to persuade its 11 fellow members to keep crude production at 30 million barrels a day, rather than limit production to bolster oil’s price.
Low prices put pressure on oil producers in America, who helped create the current oil glut by using hydraulic fracturing, or fracking, to produce crude from shale. Fracking, however, is more expensive than conventional oil production, and, under al-Naimi’s strategy, depressing the price eventually could make shale production unprofitable.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com