Oil prices are reeling in the wake of the bombshell assertions reportedly made by Saudi Deputy Crown Prince Mohammed bin Salman that the Kingdom will not continue to participate in the oil output freeze without Iran’s participation.
*** We suspect in fact the young Prince ‘s remarks will be “clarified” and walked back in some fashion later today or tomorrow at the latest, with the Russians taking the lead as they have invested a good deal of political capital in getting countries to agree to come to Doha. Importantly, Mohammed bin Salman did not say the Saudis are no longer planning to attend the April 17 oil producers meeting in Doha, and unless there is an official statement from either Riyadh or Doha saying otherwise, the Saudis will be in Doha. ***
*** Though clumsily handled, it is our understanding Prince Mohammed’s remarks were meant to maximize the Kingdom’s negotiating leverage in the run-up to Doha. We understand the Saudis will be seeking a commitment from the Iranians in Doha to at minimum agree to explicitly stagger their increased output during the period of the oil output freeze by the other oil producers until OPEC meets later this year to set new quotas. ***
An MbS “Disconnect”
Deputy Crown Prince Mohammed does have a habit of making bold proclamations to reporters, as he did with the Economist magazine several months ago about an impending privatization of Saudi Aramco, which may happen in time, but which came as a surprise to the oil giant’s senior executives.
Indeed, following the surprise statement to the Economist about privatizing Saudi Aramco, the company’s Chairman Khaled Al Falih later clarified that any IPO would be in the “operating units,” and not the “sovereign” upstream part of the company. So there is something of a precedent in a disconnect between Crown Prince Mohammed’s high profile interviews with the Western press and the actual implementation of policy.
There is also a fierce anti-Iranian faction within the Royal Family as well as in the popular sentiment that Prince Mohammed may have been pandering to. And those sentiments have without a doubt been further fueled by comments from Iranian officials, including Oil Minister Bijan Zanganeh, loudly touting the “Iran exemption” to an output freeze, rather than allowing for some much needed political ambiguity around Iran’s status. But again, our sense is that the Prince’s remarks were a serious over-step and will be clarified soon, especially if the Saudi stock market opens sharply lower tomorrow morning.
The Saudis are hardly alone in trying to bolster their positions going into the April 17 meeting. The blocs among the oil producing countries, whether within or outside OPEC, the Latins, the Africans, the Gulf countries, or the Russians, have been scrambling to mark out their positions on how far they are willing to take the output freeze.
For the most part, they have all agreed to the Iranian “temporary” exemption to the oil output freeze — save the Saudis who for domestic political reasons, have never publicly confirmed the Iranian exemption. The Iranians, for their part, have said they will be attending but not “participating” in the Doha meeting.
There are several oil producers, Kuwait among them, which are chafing under the notion of freezing their output, even though most if not all are already at or very near their maximum output capacity. That discomfort with a commitment to an output freeze may have been what was behind the recent chatter out of Kuwait about new output coming from the Khafji oil field in the neutral zone shared with Saudi Arabia.