From The Wall Street Journal

Saudi Arabia and its Persian Gulf allies are backing a formal partnership with a 10-nation group led by Russia to try to manage the global oil market, according to OPEC officials, in an alliance that would transform the cartel.

The move, which some OPEC officials say would help put a floor on oil prices, comes as the cartel faces pressure from President Trump to keep prices low and as increased output from American shale producers reduces the influence that cartel members have over the market.

The proposal by the Organization of the Petroleum Exporting Countries would formalize the loose union between OPEC members and the group led by Moscow, which includes some former Soviet republics and other countries. The two groups have increasingly worked together in recent years, including in December when they agreed on a deal to curb production.

Iran and other producers have opposed a tighter partnership, fearing it could be dominated by Saudi Arabia and Russia, according to officials in the cartel. Riyadh and Moscow are the world’s top two oil exporters. A Russian energy ministry spokeswoman didn’t respond to a request for comment.

OPEC members and the Russia-led group are set to debate the proposal during the week of Feb. 18 in Vienna, the officials said.

Ministers hope to agree on a final deal when representatives of both groups meet in April.

Any formalization of the Saudi-Russia cooperation would be in the interest of lifting oil prices from their current roughly $60-a-barrel levels. A balanced Saudi national budget, for instance, requires oil prices above $80 a barrel. The U.S. has raised concerns in the past about attempts by producers to boost prices.

In December, the 14-strong OPEC and the 10 allies led by Russia reached a new agreement to tackle an oversupplied global crude market by cutting production by a combined 1.2 million barrels a day.

At the time, the groups put off a final decision on the nature of their future cooperation. The groups first collaborated in late 2016 to help oil prices to rebound after a two-year crash. It was Russia’s first solid alliance with the cartel in decades.

Under the proposal, OPEC would continue regular meetings to agree on production and monitor implementation with the Russia-led group, according to OPEC officials. Under the current draft document, the alliance could last up to three years and wouldn’t be legally binding, one of the OPEC officials said.

Participants still need to iron out differences, said another OPEC official. The first cartel official said all sides were likely to end up agreeing on some arrangement as oil prices could fall without a deal. Traders believe OPEC needs to coordinate with Russia to efficiently balance supplies, the official said.

Suhail Al Mazrouei, the United Arab Emirates’ energy minister who has played a key role in shaping the proposal, has said that a long-term pact still faces hurdles.

“Some countries need approval from their Ministry of Foreign Affairs while others need to take it to parliament,” he told an Abu Dhabi energy conference last month.

Iran, which is under sanctions from the U.S., wants the relationship with non-OPEC members to remain as loose as possible, according to OPEC officials. The Islamic Republic fears any deepening partnership would pave the way for a domineering alliance between Russia and Saudi Arabia, Tehran’s regional foe and a key ally of the Trump administration. Iran has been calling for an end to tightknit meetings that gather five producers led by Saudi Arabia and Russia every two months.

Instead, Tehran wants the coalition comprised of 14 OPEC members and the 10 nations led by Russia to meet all at once and only when a crisis in the market warrants it, according to officials in Iran and others in OPEC. Oman, a non-OPEC member of the coalition, would also like to reduce the number of meetings that involve the Russia-led group, according to an oil official in that country.

The latest proposal is a compromise of earlier plans floated by the Saudis and Emiratis. Saudi Arabia, under its previous proposal, advocated the creation of a completely new organization integrating Russia as a full member. Under that now-defunct proposal, Crown Prince Mohammed Bin Salman, through his oil minister Khalid al-Falih, proposed in June a new Vienna-based cartel, according to OPEC officials.

The structure would have ended OPEC’s current United Nations-style, egalitarian system, in which each member has the same power to vote on decisions regardless of the size of its production. Instead, the new organization would have bestowed outsize power on Saudi Arabia and Russia.

The Saudi proposal irked OPEC members Iran, Iraq, Nigeria, Angola and Algeria. At the meeting in December, Iraq’s oil minister, Thamir Ghadhban, reminded Mr. Falih that OPEC had been founded in Baghdad—a pointed criticism of the plan. At the gathering, the Saudi minister renounced any plan to create a new organization.

After receiving the Saudi proposal, Russia’s energy minister, Alexander Novak, told OPEC the decision is outside his control and escalated its study to foreign minister Sergei Lavrov and the Kremlin, the OPEC officials said. In late December, Moscow officially rejected the Saudi proposal.

“There will be no formal organization like OPEC,” Russian state TV RT quoted Mr. Novak as saying on Dec. 29. He cited the prospect of additional bureaucracy and antitrust risks for the decision.


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