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Iran Walks Out As Russia, Saudis Gain Support For Oil Output Increase

A worker attaches a poster of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Wednesday, Nov. 29, 2017.


Iran's oil minister has walked away from negotiations with other major oil producers over a significant increase in oil production advocated by Russia and Tehran's arch-rival Saudi Arabia.

Iranian OIl Minister Bijan Zanganeh's exit from a meeting in Vienna on June 21 threw into question whether Russia and the OPEC oil cartel will be able to reach agreement on their proposed 1 million barrel a day production increase, the first such rise since the group agreed to freeze production in 2016.

"I don't think we can reach agreement" on the proposal, Zanganeh said as he left the meeting.

The Iranian publication Seda quoted anonymous sources as saying Zanganeh told the other producers that the proposed increase would pave the way for cuts in Iranian oil output that are likely to result from a reimposition of U.S. sanctions against Iran in the fall.

OPEC sources said Zanganeh also demanded at the meeting that U.S. sanctions be mentioned in the group's post-meeting communique, as Tehran has blamed the U.S. measures for causing the recent sharp rise in oil prices.

Saudi Arabia and some other Persian Gulf producers have supported the United States in imposing sanctions on Iran.

After Zanganeh left, Saudi Energy Minister Khalid al-Falih said an overwhelming majority of oil producers agreed with the Russian-Saudi recommendation of jointly and gradually raising output by 1 million barrels a day.

Moscow and Riyadh have argued that OPEC should heed calls from major oil-consuming countries like China, India, and the United States to lift their 2016 production freeze to rein in rising oil prices.

"Our customers have spoken loudly and we must listen to them," Falih said.

But Iran has called on the group to resist pressure from U.S. President Donald Trump, who moved to reimpose sanctions on Tehran last month after announcing he would pull the United States out of Iran's nuclear agreement with world powers.

Reuters reported that the reinstitution of U.S. sanctions in November could cut Iran's oil output of nearly 4 million barrels a day by a third.

Unlike Iran, both Russia and Saudi Arabia currently have ample room to increase production, analysts say.

Falih said that recent production outages in Venezuela, Libya, and Angola have already reduced global supplies by about 1 million barrels a day.

He said that the world could face a supply deficit of up to 1.8 million barrels a day in the second half of the year, and maintained that it is OPEC's responsibility to address that imbalance.

"We want to prevent the shortage and the squeeze that we saw in 2007-2008," Falih said, referring to a time when shortages sent premium crude oil prices soaring to an unprecedented $150 per barrel and ushered in a major boom-bust cycle that devastated the oil sector for a decade.

Russian Energy Minister Aleksandr Novak, who attended the OPEC meeting on June 21, said it was "very important" not to allow the oil market to "overheat" again like it did in 2008.

Novak told the Russian state-run news agency TASS after the meeting that he would meet with Iran's delegation and seek to smooth over differences with the rest of the cartel.

Falih, in a nod to the problems with faultering production in Venezuela, Iran, and Libya, acknowledged that "not every country" will be able to join the production increase.

He said the exact mechanics of how the proposal should be carried out will be decided among OPEC members at their meeting on June 22.

With reporting by AFP, TASS, and Reuters