The Fuse

Perry Meets with Russian and Saudi Energy Ministers to Blunt Impact of Iran Sanctions on Oil Markets

by Leslie Hayward | September 12, 2018

This week, Energy Secretary Rick Perry has meetings with the leading energy officials of the two largest oil producing countries other than the United States—Saudi Arabia and Russia. On Monday, Perry met with Saudi Energy Minister Khalid al-Falih, and on Thursday he will meet with Russia’s Minister of Energy, Alexander Novak.

Initial reports state Perry and al-Falih discussed U.S.–Saudi civil nuclear cooperation and “the state of world oil markets.” Secretary Perry’s trip to Moscow is expected to cover topics including the Nord Stream Pipeline, activities of Russian and U.S. energy companies, and the existing U.S. sanctions on Russia. Perry will be the most-senior U.S. official to visit Russia since the summit between President Donald Trump and Russia’s Vladimir Putin in Helsinki in July.

Sanctions will renew on November 4th, coinciding with midterm elections that threaten the Republican majority in the House of Representatives.

In addition to the range of bilateral energy issues, both meetings are understood to focus primarily on U.S. requests that the countries maintain high production volumes through November, which is when renewed sanctions will impact Iran’s oil exports, drawing barrels from the market and presumably boosting oil prices as a result. Sanctions will renew on November 4th, coinciding with midterm elections that threaten the Republican majority in the House of Representatives.

Market watchers see “turbulence” heading into the autumn, with oil prices roughly 40 percent higher now than this time last year, and gasoline prices at a 4-year-high, impacting household budgets. Russia and Saudi Arabia have both been amenable to keeping oil prices in the $70-per barrel range, rather than restraining production and pushing prices higher in the immediate term.

During the OPEC/non-OPEC meeting in June, the cartel agreed to raise production volumes to return to the original 1.2 million barrels per day (Mbd) cut established in late 2016, with 10 non-OPEC countries reducing another 600,000 barrels per day (b/d). In other words, OPEC and its allies, including Russia, committed to increasing oil production through the end of the year by winding down the “overcompliance” that helped them overshoot the original target—the result of intentional cuts from Saudi Arabia and Russia, as well as unintended disruptions from Venezuela and others.

During that meeting, OPEC watchers were quick to see the agreement as a response to President Trump’s various tweets specifically calling out OPEC as responsible for rising oil prices. Compounding the threat from Washington, renewed interest in NOPEC legislation was unquestionably impacting the mood in Vienna, where OPEC ministers publicly denied the legal viability of the bill while quietly hiring legal counsel to discuss the matter.

Compounding the threat from Washington, renewed interest in NOPEC legislation was unquestionably impacting the mood in Vienna, where OPEC ministers publicly denied the legal viability of the bill while quietly hiring legal counsel to discuss the matter.

It is unclear what the United States may offer big oil producers in return for higher oil production. Saudi Arabia has been seeking a civilian nuclear agreement with the United States that could allow the kingdom to enrich uranium and reprocess plutonium, and Russia wants the United States to drop sanctions on Moscow. It’s hard to say how much the Trump administration is willing to concede in exchange for an agreement by the world’s largest oil producers to keep the spigots open, but concern over rising fuel prices is certainly granting them leverage heading into election season.

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