TORONTO: Efforts to engineer a coordinated crude output restraint regime is in full gear. Beginning last week, Gulf energy leaders were huddled together with the Russian energy minister Alexander Novak in Riyadh.

After the meetings in Riyadh, Vienna was Novak’s next stop. Besides attending the fifth annual Opec-Russia Energy Dialogue, he also held extensive deliberations with Opec Secretary General Mohammed Barkindo and Qatar Energy Minister Mohammed al-Sada there. In the meantime, the Venezuelan President Nicolas Maduro too dashed to Saudi Arabia for consultations with the kingdom’s leadership. He came over to Riyadh after visiting Baku, Azerbaijan where he met with President Ilham Aliyev. Maduro’s regional visit also took him to Iran and Qatar.

In the ongoing efforts to reach a broader consensus, the Venezuelan Energy Minister Del Pinto has also been to Moscow over the last few days and had discussions with his Russian counterpart.

And while these lines are being written, a crucially important Organisation of the Petroleum Exporting Countries (Opec) technical meeting is underway in Vienna.

This meeting is crucial, for it is expected to design the outlines and the specifics of the output restraint agreement, indeed if any. Russia and some other non-Opec major crude producers have also been invited to take part in the meeting.

Hard bargaining is in air. The general consensus within Opec to exempt Iran, Libya, and Venezuela from any output cut arrangement is now under threat. Now Iraq too is endeavouring to get into the same league. Baghdad underlined this week it would not cut output and should be exempted from any curbs as it needs funds to fight the Islamic State. Others are opposing it.

However, the single most factor determining the success or failure of the ongoing efforts remains the level of understanding and cooperation between Opec and Russia. Hence despite a history of mistrust between Russia and the Opec kingpin Saudi Arabia – as indicated by none else than Ali Al-Naimi in his ‘to be published’ memoirs, and the excerpts of which were made available by Bloomberg a couple of weeks earlier – Khalid Al-Faleh, the new czar of Saudi oil has been endeavoring hard to court Moscow.

“Russia is one of the world’s biggest oil producers ... and is one of the influential parties in the stability of the oil market,” Falih said at the opening session of the six-member Gulf Cooperation Council (GCC), where Russian energy minister was also invited.

“We have managed ... through a common meeting to reach a common notion to what we can reach in November,” Falih announced. Novak too appeared optimistic. “Cooperation between Russia and Saudi Arabia has huge potential, but [it] has not been sufficiently fulfilled to date. Most importantly, we are moving in this direction.”

Yet skepticism continues!

Saudi Arabia and its Gulf Opec allies are willing to cut four per cent from their peak oil output, energy ministers from the Gulf countries told their Russian counterpart at the meeting, sources familiar with the matter told Reuters.

But it needs to be reciprocated by Moscow too. Venezuelan Oil Minister Eulogio Del Pino last week proposed that non-Opec countries should remove 400,000-500,000 bpd from the market to help support prices. Del Pino said he had already discussed the idea with Russian Energy Minister in Moscow on Tuesday.

Russia however, has been non-committal – at least publicly. A short-term cap in oil output would reduce market volatility, Novak conceded after meeting the Opec Secretary-General.

Reuters quoting sources said, during the meeting with GCC energy ministers last Sunday, before going to Vienna, Novak offered to freeze output at current levels rather than cutting. Output cuts are not an option for Russia, the nation’s envoy to Opec emphasised on Tuesday too, Interfax reported.

Moscow is already producing at a post-Soviet record of 11.1 million barrel per day. Russia also seems endeavoring to increase output further. And though it could be a bargaining chip, yet at the 5th Eurasian forum in Italy, Igor Sechin, the powerful head of Rosneft underlined that Russia could raise its total output by 4.02 billion barrels next year, bringing to question, Russian sincerity towards any output restraint arrangement with Opec.

Indeed, all the cards are not out yet, one must concede. Bargaining is definitely on. Yet, the importance of Opec-Russian cooperation and coordination cannot be overemphasised. For markets to stabilise, this remains an absolute essential.

Is it forthcoming – still remains to be answered?

Published in Dawn, October 30th, 2016