Saudi Arabia declared it will only cease or lower its oil production if its OPEC counterparts agree to do the same.
“If all countries including Iran, Russia, Venezuela, OPEC countries and all main producers decide to freeze production, we will be among them,” Mohammed bin Salman, a political icon in Saudi Arabia, said last week. Every nation is rightfully concerned that slowing oil production will only hurt their country if others decide to maintain production.
The topic of freezing oil production has been a touchy subject ever since OPEC made the decision in 2014 to oversupply the global oil market. The cartel had realized that they would be hurt by the consequential price drop, but the group had hoped to gain market share by ridding itself of competitors that relied on higher-priced oil in order to turn a profit.
OPEC’s plan was executed and was a considerable success in terms of dramatically bringing down the price of oil. However, bringing the price back up will prove to be difficult if all countries within OPEC cannot agree on a freeze.
Iran’s production had already been stifled by trade sanctions that were put into place to coerce Iran’s obedience regarding its nuclear programs. However, as these sanctions were recently retracted, Iran has boosted its oil production and, in February, it reached a four-year high production level of 3.22 million barrels per day, according to the International Energy Agency. Iran does not believe it should have to freeze its production because it was not allowed to fully participate in the market when it was under sanctioned restrictions.
Achieving a unanimous decision to freeze oil production seems unlikely. Certain countries might have to step forward and sacrifice their own production in order to normalize the market. However, bin Salman is not interested in any plans that attempt to control only his country’s oil production. “For us it’s a free market that is governed by supply and demand, and this is how we deal with the market,” he stated. Bin Salman goes on to add, “No one wants to be seen as the fool who lowered their production while the rest of the world maintained their production levels.
Article written by HEI contributor Timothy McNally.