03 September 2016, Moscow — Vladimir Putin said he’d like OPEC and Russia, producers of half of the world’s oil, to reach a deal to freeze supply and expects the dispute over Iran’s participation can be resolved.
“From the viewpoint of economic sense and logic, then it would be correct to find some sort of compromise,” Putin said in an interview in Vladivostok. “I am confident that everyone understands that. We believe that this is the right decision for world energy.”
While talks collapsed in April over whether Iran should join in, countries now recognize the nation—freed just months ago from international sanctions—should be allowed to continue raising production, Putin said. The Russian president said he may recommend completing the plan when he meets with Saudi Deputy Crown Prince Mohammed bin Salman at the Group of 20 Summit in China next week.
Oil rallied more than 10% last month on speculation the Organization of Petroleum Exporting Countries will reach an accord with non-members at an informal meeting in Algiers this month. The prolonged slump in crude prices—stuck at half the levels seen two years ago—is battering the economies of producer nations, giving oil-market rivals cause to cooperate.
“I would very much like to hope that every participant of this market that’s interested in maintaining stable and fair global energy prices will, in the end, make the necessary decision,” said Putin. Prince bin Salman “is a very reliable partner with whom you can reach agreements, and can be certain that those agreements will be honored,” he said.
Russian Energy Minister Alexander Novak had been a lead player in secret talks with OPEC producers at the beginning of the year, which culminated in a meeting in Doha in mid-April. The agreement collapsed just hours before it was due to be signed when Prince bin Salman insisted on Iran’s participation, leaving Novak diplomatically exposed.
“Our Saudi partners at the last moment changed their view,” said Putin. “We didn’t reject the idea of freezing output. Our position hasn’t changed.”
Until now, Russia had sounded wary of giving the proposal another chance. Novak said yesterday that no accord is necessary given current price levels, according to a report by RIA Novosti. Brent futures traded at $45.60/bbl in London at 8:44 a.m. local time.
The world’s biggest energy exporter, Russia is reliant on oil and natural gas for about 40% of its budget revenues and battling the longest recession in two decades as crude prices remain below $50/bbl. Burdened by social spending and military commitments, the government is seeking ways to ease the budgetary pain before parliamentary elections later this year and a presidential vote in 2018.
OPEC nations are scheduled to hold informal talks on Sept. 27 in Algiers, on the sidelines of an industry conference, the International Energy Forum. Novak is due to attend the conference.
Putin said that oil producers recognize that Iran, which has mostly restored the output halted during three years of trade restrictions, deserves to complete its return to world markets.
“Iran is starting from a very low position, connected with the well-known sanctions in relation to this country,” Putin said. “It would be unfair to leave it on this sanctioned level.”
Saudi Arabia, whose rivalry with Iran in regional conflicts from Syria to Yemen remains unabated, has given only cautious support to renewed negotiations. Energy Minister Khalid Al-Falih said Aug. 26 that while a freeze would be “positive” for market sentiment, no “intervention of significance” is required as global markets are rebalancing by themselves.
Even if a deal is concluded, analysts from Commerzbank AG to Citigroup Inc. warn that simply capping output at current levels—rather than cutting production—would do little to tackle the persisting surplus in global markets. Besides, most of the countries involved are already producing as much as they can, making a pledge to keep output flat irrelevant, they say.
Other OPEC members, from Iran and Iraq to Libya and Nigeria, may still press on with plans to restore lost output or add new capacity, undermining the point of a “freeze,” the banks said. While supportive of a limit, Putin’s remarks indicated that Russian production has the potential to increase.
“The oil companies, they are continuing to invest,” he said. “Our oil output is increasing.”