Another Doha merry-go-round
QATAR’S capital is an inauspicious place for dealmaking. The Doha round of world-trade talks meandered on for almost 15 years. An agreement there on February 16th between Saudi Arabia and Russia, two of the world’s biggest oil producers, to freeze production at January levels if others join in, may presage a similarly never-ending saga to shore up oil prices.
That seemed the likely outcome when, on February 17th, Iran’s petroleum minister, Bijan Zanganeh, emerged from a meeting with his Iraqi, Qatari and Venezuelan counterparts in Tehran saying that Iran supported the freeze, but without indicating whether it would take part. Oil prices climbed afterwards, but unless Iran participates fully, a production freeze is likely to be a non-starter. After years of sanctions it, more than anyone, has an incentive to wrest back market share from countries that cap their output.
Oil-market bulls say that any sort of discussion about a freeze is a positive surprise. It comes despite tensions between Saudi Arabia and Russia over Russian military intervention in Syria. It coincides with production cuts in America’s shale-oil industry; as one analyst puts it, like central-bank currency intervention, it helps that market forces are heading in the same direction. It could also lead to broader co-operation. Ali al-Naimi, Saudi’s oil minister, called it “simply the beginning of a process”.
Yet there are plenty of caveats. Saudi Arabia, Russia and Iraq were all pumping at or close to record levels in January. A freeze would do little to curb the oversupply that has pushed up oil inventories around the world—one of the biggest headwinds for prices. Iran has just loaded its first oil shipment to Europe since the lifting of nuclear-related UN sanctions last month, and has insisted it wants oil exports to increase by 500,000 barrels a day before the end of March.
One Middle East oil expert suspects that the Doha meeting may have taken place only because of a negotiating trick by Qatar. He says both Russia and Saudi Arabia thought the other had agreed to a cut. Once in the room they realised there was no such agreement, but knew the consequences of admitting as much would be so damaging for oil prices that it was better to use a freeze as a figleaf. They also knew that, if the freeze failed, it could be blamed on Iran.
Even if the big producers do one day decide that prices are so weak that a co-ordinated cut makes sense, it may provide only a temporary respite. Scenting higher prices, American shale producers could quickly try to pick up the slack.