OPEC Should Consider Return To Oil Quotas-Delegate
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OPEC Should Consider Return To Oil Quotas-Delegate

OPEC Should Consider Return To Oil Quotas-Delegate

A proposal to reintroduce quotas would spark a fierce debate in OPEC as national prestige and market share are at stake.

Gulf Business

OPEC should consider re-introducing individual output quotas, shuffled quietly to one side in 2008, to prevent oversupply hitting prices should Iran increase its oil exports following a deal over its nuclear work, an OPEC delegate said.

A proposal to reintroduce quotas would spark a fierce debate in the Organization of the Petroleum Exporting Countries as national prestige and market share are at stake.

After refusing to cut output last year, OPEC is pumping much more than its overall output target of 30 million barrels per day (bpd) because of record Saudi Arabian output, higher Iraqi exports and a partial return of Libyan crude.

“Iraq is increasing each month and if that is so and if Iran is back, then either the price has to go down or there has to be some sort of arrangements,” said a senior OPEC delegate from a non-Gulf OPEC member who declined to be identified.

“If the potential production of all member-countries exceeds the 30 million barrels, first there is a need to divide it among the members. That means to return to a quota.”

On the one hand, quotas are the credible way to split and monitor production between members should the group decide to reduce output to support prices.

On the other, OPEC would have to decide what to base the quotas on – oil reserves, production, capacity growth or other metrics – and negotiate various countries’ claims to be treated as an exception.

Iran has argued its output was artificially restricted by sanctions and Iraq has said it needs a larger share after years of war and sanctions.

Top exporter Saudi Arabia, which used to shoulder the bulk of OPEC cuts, says OPEC cannot cut output alone and, in a move seen by some analysts as a staking out of market share before a potential Iranian output increase, raised output in March.

Still, the delegate’s comments show that OPEC’s hawks – its less wealthy members outside the Gulf – have not given up on lobbying for an OPEC cut. They are suffering from the halving of oil prices since last June and in many cases lack the capacity to raise output.

OPEC meets on June 5. Libya’s OPEC governor has called for an OPEC cut of at least 800,000 bpd, and Iran has called for an least 5 percent reduction – or 1.5 million bpd using the output ceiling as a baseline.

A rise in Iranian exports moved a step closer with the framework deal with world powers over its nuclear programme, the International Energy Agency said this week.

Other officials in OPEC countries that would like to see a production cut are worried a potential lifting of sanctions on Iran could hit prices further, and open to the idea of action.

“It might well get worse when and if the sanctions on Iran are lifted,” said a delegate from one of OPEC’s producers outside the Gulf. “We are suffering with low prices, and if we can do anything to push the prices up we will do it.”

The group’s output ceiling of 30 million bpd, in place since 2012, does not specify quotas for the individual members.


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