Shana — Iran’s OPEC Governor Hossein Kazempour Ardebili said not much is left of OPEC’s international credibility as an organization thanks to the measures taken by such members as Saudi Arabia and the UAE against other founding members like Iran.
The following is the English translation of the interview.
Saudi Arabia’s crude oil output is purportedly more than what is claimed. What is the crude oil output of this country now?
OPEC’s August report, based on secondary sources, shows that Saudi Arabia’s oil production reached 10.401 mbd, which is 343,000 bd above its commitment based on the decision made at the OPEC 171st Meeting in November 2016. Statistics, however, indicate a surge in this figure. Platts and the Petroleum Intelligence Weekly, two secondary sources, reported Saudi Arabia’s oil production in June and July at 10.630 mbd and 10.860 mbd, respectively. However, at the request of Saudi Arabia, and manipulation of these two sources, the country’s output was announced at 10.320 mbd and 10.290 mbd for the two months. These two sources lost their credibility by such doing. The reason why Saudi Arabia has done so is clear; because it did not want to be accused of distorting the market and lowering oil prices and also increasing oil inventories of OECD countries.
Can Saudi Arabia produce 12 million barrels of oil a day?
We have to wait, because Saudi consumption in summer for such sectors as refining and power generation is high. However, Saudi oil production records have never been registered at 11 million barrels per day. Saudi Arabia has tapped its stockpiles of about 240 million barrels based on the latest estimates to bring its oil production to 12 mbd, a record the kingdom had previously registered during occupation of Kuwait by Iraq, as well as the overthrow of Iraqi dictator Saddam Hussein. Again, Riyadh will need to tap its oil inventories to strike such production levels. According to Joint Organisations Data Initiative (JODI), Saudi Arabia’s crude oil stockpiles stood at 325 mb by the end of 2015, but reversed in 2016 and 2017 when part of the country’s crude oil supply of respectively 10.460 mbd and 9.954 mbd was provided by tapping the stockpiles. The stockpiles dropped by 80 million barrels in 2016 and 2017 to reach 245 mb in 2017. Such level of inventories would suffice for eight months if 1 mbd of crude is withdrawn from them. Saudi Arabia can use its surplus capacity to scale up its production to 11 mbd in fewer than 90 days, which means it will harm its surplus production capacity, agitating the prices.
Of course, I should note that a delegation from the Department of Energy of the United States made a hero’s return home from a visit to Saudi Arabia in June as it was decided that Saudi Arabia’s oil production was set for a raise from October. But the country’s maximum production capacity is the same as that in June and July.
The Joint Ministerial Monitoring Committee (JMMC) of the Organization of the Petroleum Exporting Countries (OPEC) in July approved of Russia’s 150,000 b/d production increase and 100,000 b/d production raise by UAE and 85,000 b/d by Kuwait. Was it all?
This is a clear misconduct by the JMMC because the JMMC is not allowed to re-distribute over-compliance or production increases of the member countries; it’s just a monitoring institution. Even now, countries are almost free to ramp up their output, as Libyan production has increased by 926,000 bd and Nigeria over 1.726 mbd, and Iraq is constantly increasing production, regardless of its commitment. In August, Iraq’s crude oil production stood at 4.649 million barrels per day, up by 88,000 b/d from October. Given the fact that Iran’s oil production is still continuing, the increase in oil production in these countries could be translated as an increase in the global reserves of the OECD countries and their preparedness for replacing the reduction in Iran’s crude oil export Whereas reducing the inventories of OECD countries was one of the goals of the OPEC-Non OPEC agreement in 2016. According to the OPEC report for September, OECD countries’ oil stocks are now at 2.830 billion barrels, which is 194 million barrels fewer than last year levels and 43 million barrels lower than the average levels for the past five years. With the continuation of this production trend, undoubtedly, the commercial stocks of these countries would soar up again, leading to the drawing down of oil prices, even though there is currently an uptrend in the market over fears and concerns about the removal of Iranian oil from the market.
As you said, Iraq’s oil production is increasing, regardless of its commitments. How would OPEC members respond to Iraq? And will the Iraqi oil production continue to grow?
Iraq’s oil production continues to grow thanks to the presence of international and American energy majors in the country. The latest report by Wood Mackenzie (Energy Research & Consultancy) suggests that the country’s oil production will stabilize at 4.48 mbd in 2019. But as regards dealing with Iraq, OPEC is also an organization whose decision-making mechanism relies on the political will of the member countries and there is no punitive mechanisms for members.
How have your warnings to Saudi Arabia, and sometimes to Russia, affected the production of these countries?
What I have been saying in my warnings was diverse. On the one hand, Russia and Saudi Arabia, under the pretext of balancing the supply and demand of the world, are seeking a part of Iran’s market share; on the other hand, some OPEC members are hands in hands with the United States to strike some OPEC founding members. Indeed, Mr. Trump’s attempt to prevent Iran from appearing on the global crude oil markets has allowed Russia and Saudi Arabia, which would not favor low prices, to pursue hostage-taking policies in the market.
Our occasional warnings may not have changed the behavior of countries in the short-term, since each country is trying to sell its oil at high prices to boost its revenues, but certainly such warnings and the treatment of Saudi Arabia and Russia with Iran will be recorded in history, and the future generations will understand how these countries welcomed oil embargoes on Iran. The American bullish behavior will certainly not end with Iran becoming another Venezuela, as it was not the case with Iraq and Kuwait.
Given that Saudi and Russian oil production has increased, it would be fair to say your warnings have had no effect on the production of these countries.
Even though our warnings regarding the production rise of these countries were not inhibitive, remaining silent would certainly not be a proper response. The goal of these countries is to maximize oil production and exports in the price range of $75 to $80 per barrel of Brent crude benchmark. That means more income by less production increase. But rising oil prices would certainly not be in the interest of consumers, and countries like Japan, India, China, and even European countries should pay for US sales of arms to such countries as Saudi Arabia and planes to Russia with higher prices for energy. In fact, by raising oil prices, the United States can collect money from the sale of arms to Saudi Arabia or other countries sooner.
Is Russia approaching Saudi Arabia because of Riyadh’s closeness to the White House?
Undoubtedly, one reason for this is because US support for the Saudis is made with the price cover and tool, and the Russians are trying to make the most out of the current circumstances by approaching the Riyadh; which is to sell both oil and gas at higher prices. In this situation, it would not only weaken the economies of its main rivals, but also generate more revenue with less production.
Many domestic and international analysts maintain that reducing Iran’s oil exports to zero is impossible. What is your view about this?
I believe that bringing Iran’s oil exports to zero by November under the current situation, and even by maximizing production from countries such as Saudi Arabia and Russia, would not be practical unless Saudi Arabia, and even Europe tap their stockpiles. In practice, if the upward trend of oil prices maintains, production of countries such as Saudi Arabia and Russia does not increase, and the withdrawal of US Strategic Petroleum Reserves (SPR) continues, the United States will have to give some Iranian oil buyers a waiver which would not be in the interest of Iran because of banking restrictions, and would be mostly favored by Saudi Arabia and Russia to earn more revenues in the event that oil prices remain in the $80 range.
In your recent interview with Bloomberg, you stated that the price of oil would rise with the withdrawal of US strategic reserves, which, of course, was the case. How long do you think this price increase will last?
Before answering this question, I should say that the United States may use its strategic reserves for a number of reasons. First, a shortage in the event of Iran’s full boycott. Second, the rise in oil prices caused by the same boycott, and thirdly, the increase in other countries’ stockpiles. I do not predict the continued rise in oil prices. As I said, rising oil prices only help buyers for US weapons from the pockets of European or East Asian countries. The United States has already had such a deal with the Shah of Iran, and at a time, when it sought to raise money from the sale of weapons, its policies led to an increase in oil prices. Of course, Trump also seeks undermining the economy of his rivals by such policies.
International media outlets view US-backed efforts by Saudi Arabia and UAE to deal a blow to Iran. Will such moves against on the founding members of OPEC by other members undermine the organization’s international credit?
That Saudi Arabia and the UAE have turned OPEC a tool for the US is nothing new. Unfortunately, not much is left for OPEC credit with such measures. It is a fact that OPEC is losing its organizational character and is becoming a forum. Simply said, nobody is afraid of a toothless lion that growls from time to time, and it does not harm anyone.
OPEC is responsible for restoring the market balance, not imposing a boycott on one or two founding members. Article 2 of OPEC Statute emphasizes the protection of the interests of each or all of the member states, and it is imperative that the organization supports countries that are subject to illegitimate, one-sided, cross-border sanctions.
What is OPEC’s position about NOPEC?
Studies have been conducted at OPEC secretariat regarding the issue of NOPEC and political and diplomatic measures will be taken by countries that have relations with the United States. Of course, US blackmailing does not seem to come to an end in the world and the region. Washington may even boycott Saudi Arabia on the pretext of refusing to open its embassy in Jerusalem, and block the flow of US dollars to this country, or event ban Saudi visits to US, or ask them to account for the 9/11 incident. In fact, Mr. Trump aims at the military encounter of the regional countries, so that US can withdraw oil from the region for many years to come.
What should we have done to render oil boycotts ineffective?
This would be too general a questions with many different dimensions. But undoubtedly, preventing imposition of sanctions was the best thing we could have possibly done in this regard. The Joint Comprehensive Plan of Action (JCPOA) was a good step that, though late, was taken and led to the removal of UNSC nuclear sanctions on Iran. Of course, we had specially counted on Russia, China and Europe, but these countries are seeing their interests in disregarding their claims.
Bringing Iran’s oil production capacity to 6 million barrels a day could be another useful measure that could not be achieved without the support of top officials of the country. Enhanced production of oil would require capital, technology and market share, which is at the disposal of major consumers. As you know, the recovery rate of Iran’s oil fields is much lower than that in other countries.
U.S. Secretary of Energy Rick Perry recently met the Minister of Energy, Industry and Mineral Resources of Saudi Arabia in Riyadh on Iran. He also met his Russian counterpart later. How much do you think these developments can put pressure on Iran’s oil production?
We have to wait for the results of these meetings. But there is no doubt that all the parties are against Iran. As I said, Russia and Saudi Arabia are not currently able to increase the volume of their oil production, but they may be able to increase their total production by 800,000 to 1 million barrels per day in a matter of six months to one year. Iraq and Libya, in case of restoration of peace, are the only countries that can add respectively 150,000 and 200,000 barrels/day to their output. Therefore, Saudi Arabia and the United States will need to withdraw from their stockpiles to balance the market, even Europe will have to follow suit if the prices reach $90/b. But talks must be held with every OPEC members for every single barrels of increased oil output.
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