Saudi-Iranian Relations and OPEC

Platts has a new post on its blog (The Barrel) that reveals Saudi Arabia’s nominee for OPEC’s next secretary general. Riyadh’s choice is Majid Moneef, and his resume is impressive. “US-educated Moneef knows OPEC well. He has been a member of Saudi Arabia’s ministerial delegation to OPEC since 1988. He has served as Saudi Arabia’s OPEC governor and as the kingdom’s national representative on OPEC’s Economic Commission Board. He has also served as an adviser to the minister,” Margaret McQuaile and Kate Dourian wrote on February 1.

After introducing Moneef, the authors conclude that there’s little chance he’ll be accepted by Iran, since the appointment of secretary generals can be complicated by politics. Saudi-Iranian relations are probably as tense today as they were thirty years ago when the Islamic Revolution ousted the Shah and threatened Saudi Arabia.

But this year could be different. Not because tensions will prevent Moneef from becoming the next secretary general, but because Iran has recently signaled a willingness to accommodate Saudi Arabia in surprising ways. Indeed, Tehran’s outreach has been linked to oil matters especially. Take for example OPEC’s last meeting in December 2011. It was there that Iran sent its new oil minister, Rostam Qasemi. As I wrote on December 15, Qasemi–a Revolutionary Guardsman more associated with the Ayatollah’s wishes than the finer points of oil production–arrived with a “very different tone, approach, and result.” He ultimately signed off on OPEC’s first output agreement in three years. The Saudis were very happy with it.

The agreement increased OPEC’s production ceiling to 30 million barrels per day just as the Saudis had wanted. Only months before–at OPEC’s June meeting–Iran rallied price hawks in an effort to prevent the organization from expanding production. At the time, I wrote that the OPEC agreement was an interesting development, one made even more noteworthy by a visit to Saudi Arabia made by Iran’s Intelligence Minister. No doubt he visited Saudi in order to address the alleged assassination plot targeting the Saudi ambassador to Washington. I also speculated then that Moslehi’s visit probably included a conciliatory message from the Supreme Leader. Together these moves showed Iran was trying to dial back tensions.

But it’s unclear how far Iran is willing to reach out across the Gulf now. The OPEC agreement and Moslehi’s visit took place in the same week in December, thus hinting that Iran had tried to find an off-ramp before tensions reaching a tipping point. Comments made by Iran’s Oil Minister at the December OPEC meeting, however, suggest that Iranian good will was conditional. Worried about the upcoming EU ban on Iranian crude, made official on January 23, Qasemi told reporters that Naimi, his Saudi counterpart, had promised to refrain from replacing Iran’s share of the market. Saudi Arabia would not produce more oil to make up for Iranian crude, he said.

To my knowledge Naimi never confirmed Qasemi’s statement. And it’s hard to imagine Saudi Arabia refusing to increase production when the market is at risk and they have spare capacity ready; the Saudis, to their credit, often prove willing to pump more oil and preserve the market, for fear that high prices could drive consumers toward alternate energies. Naimi directly contradicted Iran’s oil minister on January 16, telling CNN, “I believe we can easily get up to 11.4, 11.8 (million barrels a day) almost immediately, in a few days, because all we need is to turn valves,” if Iranian production is curbed.

Naimi’s promise and Iran’s economic turmoil may have hardened Tehran’s stance since December. But we can’t be sure yet. I for one think it would be premature to dismiss the Saudi nominee for the OPEC post, based simply on a presumption of animosity, considering last month’s reconciliation efforts made by Tehran. Moneef might actually be a weather vane in this case: any drama surrounding his nomination should reveal the dominant mindset in Iran. We’ll know soon if Tehran wants to pick a fight with Riyadh–or reconcile.

Saudi Arabia tends to get what it wants at OPEC meetings because it is the biggest producer. When OPEC doesn’t fall in line, it still acts on what it thinks is best for the market. We saw this in June when the country expanded oil production after an OPEC meeting collapsed. This predominance best explains why Saudi has not held the the secretary general post since 1967. That said, this nomination might be important not for the organization–but because it will tell us more about Saudi-Iranian relations.

Note: I know plenty of people read this blog and don’t know much about oil. So what does the OPEC secretary general do? He’s an administrator, appointed by OPEC member states and tasked with executing OPEC’s agreed upon policies. Those policies are decided at annual conferences often hosted by the country which holds the OPEC presidency at the time. OPEC presidents assume the post according to alphabetical rotation. The individual who serves as president tends to be the oil minister of whichever country enjoys the title: Iran held the OPEC presidency last year; this year’s OPEC president is Iraqi. Ideally, OPEC presidents help set the agenda and seek consensus.

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