OPEC Deal May Help Reconcile Tehran-Riyadh Ties

A historic deal OPEC struck on Wednesday to cut oil output and place production ceilings for each member was a major victory for both Iran and Saudi Arabia, says an economist. 

The long-awaited agreement can and should be "used as a framework to resolve the deepening differences between the two Middle East rivals," Saeed Leylaz was quoted as saying by IRNA.

“This agreement is clearly a historic victory for Iran. However, I strongly disagree with those who describe the deal as a setback for the Saudis." 

Members of the Organization of Petroleum Exporting Countries put together a deal in Vienna this week to cut their collective output by 1.2 million barrels per day in an effort to ease a global glut and lift low prices.

The agreement, which was the first of its kind by the oil organization in eight years, will be effective through the first half of the next year. Crude prices have lost more than half their value in two years creating deep holes in the national budgets of all producing countries. 

"The accord shows that Tehran and Riyadh can gain much from effective collaboration than from unfriendly relations. The (OPEC) pact should pave the way for strengthening economic and political ties," Leylaz said. 

Iran-Saudi relations came to an abrupt, but not unexpected, end last year after nearly 2,000 people, including hundreds of Iranians, died during hajj pilgrimage rituals outside the holy city of Mecca in Saudi Arabia. 

The house of Saud severed diplomatic relations in January after protesters stormed the kingdom's embassy in Tehran and its consulate in Mashhad in response to Riyadh's execution of prominent Saudi Shia cleric Sheik Nimr al-Nimr.

  Saudis to Gain From Cuts

Leylaz asserted that Saudi Arabia agreed to reduce its crude output by 5% but global oil prices jumped more than 10% since the Vienna announcement, an upturn which would benefit the 14-member organization's de facto leader.

"This means that Saudi Arabia's oil business will earn an additional 5% from the move, which translates into at least $25 million per day,” for that country, he added.  

Leylaz said Iran would make $1 billion to $1.2 billion in annual revenues from a $1 rise in crude prices, adding that the rise in revenues would be more than the total amount the government pays in cash subsidies to almost 70 million Iranians every month. 

"This is an indicator of how higher oil prices can help improve the welfare of Iranians." 

According to the OPEC deal, Saudi Arabia will shoulder more than 40% of all OPEC cuts, or 486,000 barrels a day. Second-place Iraq will slash output by 210,000 barrels while Iran is allowed to pump 90,000 barrels higher than its October production level which stood at 3.707 million barrels.