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Iran rejects compromise as Opec heads for battle in Vienna
IRAN put itself on a collision course with Saudi Arabia at this week's Organization of the Petroleum Exporting Countries (Opec) meeting, rejecting a potential compromise that would see a small increase in oil production to appease energy consumers.
"I don't believe in this meeting we can reach an agreement," Bijan Namdar Zanganeh, the Iranian oil minister, told reporters upon his arrival to Vienna, suggesting that the gathering on Friday may end without a deal for the first time since 2011.
The Opec battle will reverberate through the oil market, where prices have gyrated in recent days, and affect energy stocks and the currencies of major petroleum exporters from Brazil to Nigeria.
Oil prices have surged nearly 75 per cent to almost US$80 a barrel since Opec and allies such as Russia, Kazakhstan and Mexico agreed to cut production by 1.8 million barrels a day in late 2016. Benchmark Brent crude, which fell 0.4 per cent on Tuesday, gained as much as 42 US cents on Wednesday and was trading at US$75.45 a barrel at 7.24 am in London.
Saudi Arabia, under pressure from US President Donald Trump, wants to unwind some of the cuts by engineering a "moderate" supply boost in the second half of the year. Russia, which aligned with Opec to cut output nearly two years ago, is pushing for an even larger production hike of 1.5 million barrels a day.
Yet Iran has so far rejected any increase, including one compromise mooted in private by some Opec officials for a 300,000 to 600,000 barrel a day hike in the second half of the year. "There's no need," Mr Zanganeh said, surrounded by dozens of reporters and television crews.
Iran faces constraints on its oil exports after Mr Trump reimposed sanctions on the country on May 8. Estimates of the curbs' potential impact vary, but an earlier round of US sanctions on Iran's oil exports from 2012 to 2016 slashed output by about one million barrels a day.
The Saudi-Iran clash is the toughest diplomatic problem that the kingdom's oil chief, Khalid Al-Falih, has faced since he was appointed two years ago. Mr Al-Falih, who was initially expected in Vienna early on Tuesday, delayed his arrival until Wednesday.
Unconstrained Opec takes its decision by unanimity, so the veto threat may leave Saudi Arabia with only the option of assembling a coalition of willing countries to bypass Teheran's negative stance. Riyadh may also act unilaterally to boost output, as it did in 2011 after a meeting ended without a deal.
"Saudi Arabia will try to reach consensus but if that fails, I think that Riyadh won't be constrained and they will put the barrels in the market that they deem appropriate," said Helima Croft, chief commodities strategist at RBC Capital Market LLC.
Mr Zanganeh said that he planned to leave Vienna on Friday immediately after the Opec meeting, without waiting for a second gathering that will include ministers from outside the cartel on Saturday. Russian Energy Minister Alexander Novak will participate in the Saturday meeting.
Still, Opec has a tradition for last-minute deals that keep the often fractious group together. Iran, in particular, has made U-turns in the past, such as when Russian President Vladimir Putin phoned his Iranian counterpart Hassan Rouhani. BLOOMBERG