Last Friday’s OPEC meeting resulted in a historically anomalous outcome as the group failed to settle on an official production target, even as the previous target of 30 million barrels per day has been seen as increasingly irrelevant. Nigerian Oil Minister and current OPEC President Emmanuel Ibe Kachikwu expressed a belief at the post-meeting press conference that a review of market fundamentals would likely lead to a more active approach at the next meeting in June, as political crises facing governments of member nations complicated attempts to reach agreement last week. This dynamic is likely to continue in future meetings in the absence of truly game-changing increases in oil prices. Last week, statements from the oil ministers of Venezuela, Nigeria, and Iran reflected the significant impact of national politics on minister behavior, contributing to the group’s dysfunction.
Last week, statements from the oil ministers of Venezuela, Nigeria, and Iran reflected the significant impact of national politics on minister behavior, contributing to the group’s dysfunction.
Venezuela entered last week’s meeting pushing the most aggressive agenda, albeit a largely symbolic one. Calling for a five percent output cut below the official 30 million barrels per day (mbd) target—a ceiling that is already well exceeded by members—was never expected to have a chance of being approved by a Saudi delegation, which is just beginning to see production decreases in non-OPEC rivals. Still, with National Assembly elections looming and oil-funded social spending in tatters, the embattled leftist government of Nicholas Maduro had found it necessary to respond to criticism that he wasn’t doing enough to fight for higher oil prices. The president and heir to Hugo Chavez argued in November that he would insist on OPEC and non-OPEC nations alike managing the market with a long-term vision of setting stable prices, complaining that the market manipulation of “imperialist forces” was responsible for prices for Venezuela’s crude benchmark reaching record lows. His rhetoric during a summit in Riyadh last month blamed unnamed others for using “the infamous Mr. Market” to fix unfair low prices. Yet, despite these shows of defiance, Venezuela’s oil minister was forced to leave OPEC headquarters emptyhanded, and the reality of Venezuela’s economic challenge translated into a sweeping win for the opposition in Sunday’s legislative poll.
Even governments without imminent elections were given extra incentive to call for strong cuts by political pressures at home. Muhammadu Buhari shocked many around the world by becoming the first opposition candidate to defeat an incumbent Nigerian president in history last March, but his government is having trouble gaining the respect and allegiance of its citizens. He campaigned on an economic platform, targeting waste and corruption in government spending, but oil prices have not helped the budgetary hole he has aimed to fix. With little tangible progress in his six-month tenure, and the slump in oil revenue leading to a drying up of foreign exchange availability, both the Nigerian business community and the populace have been increasingly agitated, according to observers familiar with the matter. Thus, it was unsurprising that Kachikwu told reporters in advance of last week’s meeting that he would ask OPEC nations to pressure Iran to delay the return of its lost production to the market after sanctions against the Islamic Republic are lifted. However, it appeared he was quickly forced to abandon this aggressive policy push, telling reporters on the morning of the Vienna meeting that “Iran will come to the market sooner than later,” and that this “is the sovereign right of the Iranian people.”
With legislative elections to the Majlis coming in February, the pragmatists of Rouhani’s administration are under pressure to show tangible results in the quest to regain Iran’s past influence in the oil market.
Iran’s adamant insistence on a quick return to the market, which prevented any such deal from happening, is no doubt bolstered by the political conundrum facing the government of President Hassan Rouhani. While securing the nuclear deal that is set to allow for Tehran’s full return of lost production to the global oil trade is a monumental achievement for the government, it faces intense pressure from hardliner opponents at home who are ready to seize upon any evidence that the benefits of the deal will be less than the pro-negotiation government promised. With legislative elections to the Majlis coming in February, the pragmatists of Rouhani’s administration are under pressure to show tangible results in the quest to regain Iran’s past influence in the oil market. Thus, it’s no surprise that Oil Minister Bijan Zanganeh was among the most outspoken officials in Vienna, telling the Persian-language press pack upon his arrival, “We believe OPEC must return to national quotas and enforce those quotas.” He added that Iran wouldn’t “accept any discussion about the increase of Iran’s production after lifting sanctions,” and specifically called out Kachikwu as acting inappropriately for an OPEC president by asking for Iran to delay its return. While Zanganeh’s call for firm quotas were unsuccessful as expected, his adamant defense earned him positive remarks from politicians and news outlets at home, which may have been the best he could have hoped for.
In fact, Zanganeh may have been explaining the role domestic politics would play in complicating efforts for coordination at the meeting when he told the Persian-language press on Thursday, “In truth, decisions aren’t made at OPEC, but made politically in each country.” This pattern was clear for many countries at this meeting and will continue to be so as such in the future.