: 'Russia's only gain from oil is shame'

18:49 Apr. 19, 2016

'Russia's only gain from oil is shame'

A boy walks by an oil pump at sunset Monday, Jan. 18, 2016, in the desert oil fields of Sakhir, Bahrain (AP Photo)

Failed talks in Qatar to freeze oil production bring nothing but disappointment for the Russians

Russia's only gain from oil is shame, by Taras Kolisnyk, journalist

Yet another dramatic failure of the "oil talks" in Qatar's capital Doha. The April 17 discussion was supposed to be triumphant for Russia but it produced a lot fewer fireworks than expected.

Russia's Energy Minister Aleksandr Novak had to swallow a bit of his own medicine this passing Sunday. All that thanks to Saudi Arabia.

Failed talks happen all over the world. But at some level, they are either expected or fickle. Here, everything happened as if in a tragic wedding tale. Saturday the girl was engaged but come Sunday morning - she canceled the wedding.

So, on April 16 the meeting of representatives of 17 countries began - producers of oil among OPEC members (except Iran and Libya) as well as Russia, Kazakhstan, Azerbaijan, Mexico, Oman, and Bahrain. The main objective - enter into a joint agreement to freeze oil drilling starting from January for six months - until October 2016 - without the participation of Iran. The meeting in Doha was supposed to only take two hours, and the parties had to only clarify the details of the agreement. On Saturday evening, a draft document was completely agreed upon by all parties, including Saudi Arabia. The real goal - to stabilize oil prices, which relatively could satisfy everyone.

Negotiations continued through to Sunday and lasted into the late hours of the evening. However, the parties failed to sign this agreement!

Representatives of Saudi Arabia decided to demand that the document was signed by all the countries of OPEC, including Iran and Libya. These conditions were obviously impossible. Iran initially said it was ready to record oil drilling only after it reached pre-sanctions production level - four million barrels per day (currently Iran produces 3.2 million), and Iranian Oil Minister officially refused to go to Doha.

Read also Iran says it hopes to boost oil output by 700,000 barrels per day

Oddly Saudi Arabia itself insisted that Tehran was absent at the meeting. But when it came to the signing, the Saudis wanted to see the signatures of Iran and Libya.

Russia's Energy Minister Aleksandr Novak had no choice but put a smile on his face while facing a shameful situation. After the meeting, he said that Russia advocated freezing oil production and is open to further discussion of this issue, although no agreement itself "does not really create any problems."

In fact, it is not the case. Since the end of February, based on just rumours of freezing production, the cost "black gold" added to the price per barrel. This price increase brought at least 350 billion Russian roubles to the country's budget from the oil tax revenue. Now, after Doha, the oil market is starting to collapse. On April 18, in the first minutes of trading on the London Stock Exchange, the price of Brent has fallen by nearly 7% - to USD 40.16 a barrel. Many analysts believe that this is only the beginning, and expect it to fall to $ 30 a barrel - the level of February when four countries (Russia, Qatar, Venezuela, Saudi Arabia) took the initiative to freeze.

Read also Russia promises to lower price of gas for Ukraine

Russian experts are baffled looking for an explanation of the events. Some claim, Saudi Arabia's war with the neighbouring Yemen is to blame for the stalled talks. According to the report of the Stockholm International Peace Research Institute (SIPRI), Saudi Arabia ranked third in the world for its military spending, after the USA and China. The estimates are around USD 87.2 billion ahead of Russia, which traditionally locked the three world leaders in this field.

Prior to this meeting, the main question was: who out of the oil-exporting countries will freeze production? Now the main question is which one of them will step up and grow production? Today the two countries are looking to take the lead, they are Iraq and Iran. Iraq has become a leader in the growth of production in 2015, Iran is recovering from the sanctions, and also promises to increase production rapidly. But no one knows how the two countries can really ramp up production, and this factor is steadily pushing oil prices down.

Read also Bloomberg: Saudi-Russia oil deal can't stop biggest bull exodus in seven months

As for Russia, based on only rumours that it is starting to create "OPEC-2" with Saudi Arabia received the increase of the oil price from USD 30 to USD 45 a barrel. Now, that the idea suddenly failed, it is logical to assume that the price could slide back to USD 30 USD per barrel.

Recently, the Head of Economic Department of the Russian Institute of Energy and Finance said he is inclined to think that the more important reason for the failure of negotiations, "oddly enough, is the sharp rise in oil prices in the recent years."

"As soon as the rumors about freezing production increased prices, incentives to negotiate proportion declined, - he says in the article published in the Russian version of Forbes. - If Saudi Arabia was ready to make some political compromises for the sake of economic stability when the price of oil was USD 28 a barrel, then USD 40 - that's another story. Obviously that the next round of talks will need a sharp collapse in prices for the parties to review their ideas about the possibility of coordinated action. "

In his opinion, even if the agreement to freeze production was signed, to implement it in Russia would be difficult.

A lot of key market players would hinder the process , the collapse of investment plans of companies, availability of long-term contracts for the supply of oil and other aspects. It is quite possible that Russia would have faced many organizational and technical difficulties.

Read also some other stories by Taras Kolisnyk: Russia's space industry hit by Western sanctions and Good-bye Russia. India's aerospace industry chooses Ukraine


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