Meet The Man Who Made The OPEC Deal Possible

Tyler Durden's picture

Going into the Algiers OPEC meeting in late September, the prevailing sentiment among the analyst community was that there is no way any deal will get done: after all there was no secret that the recent animosity between Iran and Saudi Arabia had recent reached unprecedented levels, with both side directly involved across from each other in the Syrian proxy war.

However, the deal did happened, surprising virtually everyone, and based on a new Reuters report, it was thanks to one man.

Russian President Vladimir Putin was the mediator who played a crucial role in helping OPEC rivals Iran and Saudi Arabia set aside differences to forge the cartel's first deal with non-OPEC Russia in 15 years.

The interventions ahead of Wednesday's OPEC meeting came at key moments from Putin, Saudi Deputy Crown Prince Mohammed bin Salman and Iran's Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani, OPEC and non-OPEC sources said. According to Reuters, Putin’s role as intermediary between Riyadh and Tehran was pivotal, and is a "testament to the rising influence of Russia in the Middle East since its military intervention in the Syrian civil war just over a year ago."

It started when Putin met Saudi Prince Mohammed in September on the sidelines of a G20 gathering in China. The two leaders, who realized they stand to benefit more from cooperating in order to push prices higher, agreed to work together to help world oil markets clear a glut that had more than halved oil prices since 2014, pummeling Russian and Saudi government revenues. 

The financial pain made a deal possible despite the huge political differences between Russia and Saudi over the civil war in Syria.  

"Putin wants the deal. Full stop. Russian companies will have to cut production," said a Russian energy source briefed on the discussions. Of course, Russia's energy minister Novak has already said that it will take a long time before Russia's fulfills its production cut quota of cutting 0.3tb/d from its current production level of 11.2tb/d due to "technical complications" suggesting that Russia is perfectly happy to sit back and watch how the world reacts to the OPEC cut first before engaging following through on its promises. After all, there is potential Saudi market share to be gained.

But first, prices had to go up.

The back story is familiar to all who have followed the endless OPEC melodrama of 2016: in September, OPEC agreed in principle at a meeting in Algiers to reduce output for the first time since the 2008 financial crisis. But the individual country commitments required to finalize a deal at Wednesday's Vienna meeting still required much diplomacy.

Recent OPEC meetings have failed because of arguments between de facto leader Saudi Arabia and third-largest producer Iran. Tehran has long argued OPEC should not prevent it restoring output lost during years of Western sanctions. Then there is raging animosity between the two nations: proxy wars in Syria and Yemen have exacerbated decades of tensions between the Saudi Sunni kingdom and the Iranian Shi'ite Islamic republic.

Threatening a repeat of the April OPEC meeting which achieved nothing, heading into the Vienna summit, the signs were not good. Oil markets went into reverse. Saudi Prince Mohammed had repeatedly demanded Iran participate in supply cuts. Saudi and Iranian OPEC negotiators had argued in circles in the run-up to the meeting.

And, then, just a few days beforehand, Riyadh appeared back away from a deal, threatening to boost production if Iran failed to contribute cuts.

That's when the Russian leader stepped in.

Putin established that the Saudis would shoulder the lion's share of cuts, as long as Riyadh wasn't seen to be making too large a concession to Iran. A deal was possible if Iran didn't celebrate victory over the Saudis. A phone call between Putin and Iranian President Rouhani smoothed the way, Reuters reports. After the call, Rouhani and oil minister Bijan Zanganeh went to their supreme leader for approval, a source close to the Ayatollah said.

"During the meeting, the leader Khamenei underlined the importance of sticking to Iran's red line, which was not yielding to political pressures and not to accept any cut in Vienna," the source said.

"Zanganeh thoroughly explained his strategy ... and got the leader's approval. Also it was agreed that political lobbying was important, especially with Mr. Putin, and again the Leader approved it," said the source.

On Wednesday, the Saudis agreed to cut production heavily, taking "a big hit" in the words of energy minister Khalid al-Falih - while Iran was allowed to slightly boost output.

Iran's Zanganeh kept a low profile during the meeting, OPEC delegates said. Zanganeh had already agreed the deal the night before, with Algeria helping mediate, and he was careful not to make a fuss about it.

As we showed yesterday, the resolution culminated in an oil production table with a deliberate "error" in it" - while Iran's reference level was picked based on directly communicated data, at just under 4mmb/d, the adjustment was applied to the "secondary" reported data, some 400kb/d lower, allowing Iran to present the deal as a victory to the people as it was the only nation that had a "positive" adjustment, while Saudi Arabia would demonstrate that Iran's effective production level was 200kbpd lower than its reference point.

After the meeting, Reuters notes, the usually combative Zanganeh avoided any comment that might be read as claiming victory over Riyadh. "We were firm," he told state television. "The call between Rouhani and Putin played a major role ... After the call, Russia backed the cut."

There was one problem: a last-minute quarrel threatened to derail the deal when Iraq became a problem (just as we warned would happen in September).

As ministerial talks got underway, OPEC's second-largest producer insisted it could not afford to cut output, given the cost of its war against Islamic State.

But, facing pressure from the rest of OPEC to contribute a cut, Iraqi Oil Minister Jabar Ali al-Luaibi picked up the phone in front of his peers to call his prime minister, Haider al-Abadi. "Abadi said: 'Get the deal done'. And that was it," one OPEC source said.

* * *

Will the deal last? It is unclear - many say that due to the inherently unstable game theory involved in the deal, there is very little chance that some or all deal participants won't cheat, dooming the agreement to failure.  However, one thing is certain: with oil up over 4% today, following yesterday's 9% gain, the head of the world's largest oil exporter - having masterminded the Vienna deal at a time when both OPEC and Russia are pumping record amounts of oil - is smiling.

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BorisTheBlade's picture

New sheriff in town.

Shemp 4 Victory's picture

Lesson for the US State Department: genuine diplomacy works. Might want to take some lessons.

SWRichmond's picture

Say what you want, the man is effective.

Cynicles's picture

And he requires people moving to Russia to learn Russian - imagine that!

a leader that appreciates his nation

Canadian Dirtlump's picture

It seems painfully obvious outside of the increasingly hysterical nucleus of pinkos / globalists that Putin and Trump are ( God willing ) the new Sherrifs.

 

The both of them demonized, mocked, derided and marginalized at every turn - only to rise above it, and move the ball forward. It seems more and more people are waking from their slumber thankfully. Unfortunately with that said all this shit will undoubtedly trigger some cataclysm. Oh well. Lots of food and sundry goods at the dirtlump ranch. Not hedgeless horsemen, but OK nonetheless.

logicalman's picture

Not a fan of any form of government, but given the insane games played by the elites, old Vlad seems to be one of the better players.

 

jimmydranox's picture

This is a much bigger succes for Putin than Allepo, or even an all out victory in Syria. And a very sad day for John Kerry's and Obama's ''strategy'' of confrontation.

And the lesson is simple. Follow US ''diplomacy'', and you will lose a lot of money, or follow Putin's diplomacy and you will gain a lot. A 9% gain in the first day, a 4% in the second, means about 13% gain in prices, for only 5% lose in production.

I hope that this will be a lesson not only for US ''allies'', but more for US government. 

Volkodav's picture

well, fact that main plan is kill terrs outside, not inside Russian territory later

was and is exceptional important to do

while has so far been of very low budget expended

and was first, every accomplishment makes credibility

that world notice...

LawsofPhysics's picture

Petroruble? Now who could have seen that coming?

discuss...

quadraspleen's picture

Doesn't scan as well. It'll never catch on

logicalman's picture

Petrodollar works for THEM.

Petrorouble would be the same.

Think before you post, please.

Atomizer's picture

Hmmm, wonder if Iran is running off a surplus stash. 

coast's picture

Outin is certainly the lesser of the evils in this planet by a long shot, but now gas is gonna go up... grrrrr  :-)

off topic, but something about Carrier corp you may not know..

UTC Climate, Controls & Security reported unaudited earnings results for the first quarter ended March 31, 2016. For the period, the company reported net sales of $3,728 million against $3,852 million a year ago. Operating profit was $606 million against $729 million a year ago. Adjusted operating profit was $634 million against $627 million a year ago.

Rainman's picture

meh ..now they can all unload the glut in floating storage at higher prices while the quota cheating game continues uninterrupted.

Atomizer's picture

Good point. Tyler, can you update the tanker storage sitting on ocean. We can compare allocated surplus vs. output cuts. Math made easy. 

JustPrintMoreDuh's picture

See .. The Russians really were behind it!  

Justin Case's picture

If it is Russia that is behind everyting, it's just obviously better give up. Losing everytime isn't worth the effort.

thatthingcanfly's picture

This should, indirectly, positively affect US shale fracking activity - which has suffered as much as any other entity since the 2014 price collapse. Good news to out of work drillers all over the mid-west and mid-south.

BigWillyStyle87's picture
BigWillyStyle87 (not verified) Dec 1, 2016 3:01 PM

Looks like Putin has read the Art of the Deal

Volkodav's picture

well, I have Russian language original, and is interesting 

but little match for complete Soviet education which was best of world

much less full KGB training

BritBob's picture

Russia is a member of the UN C24 decolonisation committee and gives support to Spain's Gibraltar claim. (Spain being the lesser evil) . So much for the human and democratic rights of the people of Gibraltar and so much for that so-called sovereignty claim: Falklands – Some Relevant International Law: Gibraltar – Some Relevant International Law:

 

https://www.academia.edu/10575180/Gibraltar_-_Some_Relevant_International_Law

Yep, just a fairy tale sovereignty claim.

Justin Case's picture

International Law is a foreign word to merica. It only applies to everyone else.

Justin Case's picture

It's not a first.

On February 17, 2008 the Kosovo Assembly unanimously (109 members present) voted to declare independence from Serbia. Serbia declared that the independence of Kosovo was illegal and Russia supported Serbia in that decision.

Krungle's picture

Literally no one gives two shits about Gibraltar or the Falklands except for you. 

Volkodav's picture

hay bob..enough peoples hate what brits done all over to world,

without you turn more against cos annoyed spammings

it's bored

better worry about inside UK itself, it not a pretty on Loundon streets nowday

WTFUD's picture

An ICBM into Ghawar and Riyadh would do the job.

QEpp's picture

Ok, maybe ZH is actually run by Russians...

hustler etiquette's picture

If true, then to quote HRC "What difference does it make?" If false, then see aforementioned quote.

me or you's picture

1st- you need to be a patriot and love your country. 

2nd- you need to know how political-world works.

3rd- you need to form a political team of patriots and homeland lovers.

4th- no one holding dual-citizeship can run for government positions.

5th- the worth of your country and the people is above of the Israel's interests.

 

adanata's picture

 

1st- understand the global central banking system.

2nd-create honest money 

3rd- establish/enforce rule of law.

The free market will take care of the rest.

Krungle's picture

3rd step is always the problem though, no? Assuming we could get back to #2, what is stop the same process that takes place every time central banks are thrown out? So long as the law can be bought, #1 comes back into being, #2 disappears, and we return to lawlessness. 

adanata's picture

 

The first step; understanding the global banking system thus eliminates all the rest. If you understand the system, it falls.

This allows for the second step; i.e. the People now understand banking/money and we generate honest money.

The People demand the rule of law and its maintenance... then get on with their lives.

It is only, ONLY our ignorance that enslaves us; nothing more.

Herdee's picture

Russia and China are currently helping to rebuild Iran's oil industry and they trade in Chinese Yuan outside the U.S. system. Trump can talk sanctions all he wants, now it doesn't matter. Iran is also rebuilding now by accumulating large amounts of gold bullion. They can use gold as security and if necessary come out with a gold backed national bond.

Omega_Man's picture

sad I have to pay more for gas to stimulate failing nations.... sick... what has the world come to

sinbad2's picture

Most of the gas you buy is mined in the USA, so the only failing nation you are stimulating is the USA.

Of course American oil companies are not forced to raise their prices, the US being the biggest oil producer on the planet could force prices down, quite easily.

Omega_Man's picture

sad I have to pay more for gas to stimulate failing nations.... sick... what has the world come to

mkkby's picture

Simple.  Don't EVER use a car/bus/train/plane again.  Don't ever buy a synthetic/plastic product.  Don't eat anything non organic.

No?  Then SHUT UP.

SidSays's picture

And where was President Oboma, SOS Kerry, and/or Ernest Moniz? (Ernest who?)

Or any of those stuffed shirts for that matter.

Oh yea, too exceptional to be bothered with those geo-political, macro-economic problems.  Problems are for the little people.

Let them eat cake?

Wahooo's picture

All that obama and team did for the last eight years was make Government and its friends fatter and wealthier. Obama's legacy.

jimymac's picture

Where was our might leader 0 and his brilliant fuller brush negoiating skills.

 

sinbad2's picture

Well it was Obama that crashed the oil price, to destroy the Russian economy, and even though it didn't work, you will never see an American President admit he made a mistake.

finametrics's picture

i wouldnt be surprised if he made Russia some money on this. any large accumulation b4 the news announcement? 

Justin Case's picture

There is no merican crony capitalism in his blood.

Justin Case's picture

The man is a professional statesman, who makes things happen without any deaths associated with it.

quadraspleen's picture

"...who makes things happen without any deaths associated with it."

Well, you say that...He's not without his dark side. He has plenty of deaths associated with his making things happen. Just fewer of the "wrong" people than we're used to, but he's no angel.

He's still my choice for Man of the Year

4 wheel drift's picture

President Trump and

President Putin will reverse the insidious BS under the Uni-Party in the USA

abd in the process put the middle East in its place....   i.e. if they want t o continue living in the 13th century

fine....   but we (the West plus Rusia & China) will NOT participate in your damned BULLSHIT