Zanganeh leaves JMMC, no agreement yet: Update

Adds analysis and background

Iranian oil minister Bijan Namdar Zanganeh said he does not think an agreement can be reached over changes to the current Opec, non-Opec output restraint deal.

"There are some proposals but I do not think we can reach agreement," he said after leaving the Joint Ministerial Monitoring Committee (JMMC) meeting prematurely.

The current deal breaker is the notion of redistributing quota barrels of countries that cannot meet their allocation to others, and not the proposal to lift actual output by around 1mn b/d. Iran's concern is that this would be a mechanism that would allow Saudi Arabia and others to mitigate the market impact of US sanctions on Iran.

Zanganeh said he had a good meeting with Russian energy minister Alexander Novak ahead of the JMMC but said the main issue should be discussed within the Opec organisation. "First we are an Opec member and an Opec decision is so important, after it we should co-ordinate everything with the Russian," he said. Although Russia would be a beneficiary of a quota redistribution, Tehran does not wish to fall out with Moscow and so is concentrating its ire on Opec peers.

Saudi Arabia and Russia wish to raise output, both saying the crude market has rebalanced. Saudi Arabia's oil minister Khalid al-Falih said just before the meeting that the supply deficit in the second half of the year could rise "to an unacceptably high figure of 1.7mn b/d", according to Opec analysis.

Iran opposes any increase above current quotas. "I want someone to explain to me why we need a production increase in a market that is already balanced? ... Where has this shortage in the market come from?" Zanganeh said just before the meeting. But it is a possible future shortage caused by Iran being squeezed out of the market that he has his eye on. Iran's concern is that Saudi and Russian talk of preventing higher prices is a lightly coded message that they will make up for a crude shortage brought about by US foreign policy.

In such circumstances, there is pressure in Tehran to prioritise Iranian interests over those of Opec. But Iran may not be isolated. Venezuela too does not want to see others benefit from its problems. And there may be sympathy from Algeria and others, in which case Opec may again face the full-scale rift that it earlier seemed possible to avert when Saudi Arabia, Iran and others coalesced around a 1mn b/d increase from actual production, Saudi Arabia because its customers said that much is required, and Iran because that volume roughly tallies with over-compliance levels. Zanganeh said yesterday that he would sanction production up to the sum of quotas.

Iran is not a member of the JMMC but had been invited to attend in a move to broker a compromise between Tehran and Saudi Arabia and Russia.

The JMMC is composed of three Opec members — Algeria, Kuwait and Venezuela — and two non-Opec countries — Russia and Oman.