Iran won’t freeze its oil output even when crude production cut is needed


A senior Iranian Oil Ministry official says his country won’t freeze its oil output but will keep increasing crude exports until it reaches levels attained before international sanctions were imposed on Tehran. Such strategy makes sense on the path of strengthening for Iran’s economy after years of stagnation due to international sanctions.

The remarks by Mahdi Asali, Iran’s OPEC envoy, are a direct refusal to a proposed cap to crude oil production that was agreed to by four oil-producing countries during a meeting the day before in Qatar. Although freezing oil production at current levels could be taken as a good sign about the intentions of a few OPEC members, it is still “a baby step” for the resolution of the economic crisis that spreads across crude exporting producers due to low oil prices.

Asali says the fall in oil prices should be blamed on oversupply and that it’s up to Saudi Arabia and others to cut down production to boost oil prices. Iran has already announced plans to increase its oil production by 500,000 barrels per day after sanctions were lifted last month under a landmark nuclear deal with world powers.

The effect of low oil prices on oil producing and exporting countries is drastic by now. Most of the measures taken by their governments to restructure fiscal policies cause direct hardship to the population of these countries. A removal of fuel subsidies, for example, results in higher spending for fuel at the petrol pump. More expensive transportation means higher prices for a broad range of consumer products not only on supermarkets’ shelves. In addition, increased fines and administration fees across the service sector dig further into average consumers budgets. Some countries, like UAE, even started preparing to implement value added taxes in order to help balancing their budgets. In Saudi Arabia, nearly 200,000 foreign students will be affected by the halt of scholarships to study abroad. The availability of well-paid jobs in the region is dramatically reduced as many directly and indirectly related to the oil industry businesses resize operations or completely withdraw from the region.

Even if Iran and the rest of all oil producers agreed to a global production freeze at January levels, the world would still have about 300 million more barrels a year than needed. In January, Russian production averaged a post-Soviet record of 10.88 million barrels a day, while Saudi Arabia averaged 10.23 million barrels in the same month.

A production freeze is very different from a cut. Keeping crude production at January levels actually implies higher-than-expected annual output from the four participants and so can hardly tackle the current market oversupply.

Market analysts are expecting new data due today to reveal an increase in crude oil inventories in a further sign of the continuing oversupply of crude.


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