The ongoing political and economic turbulence existing in the whole world today makes it difficult sometimes for me to concentrate solely on the subject of my interest – Europe.
There is certainly a lot going on here on my doorstep. So what is the problem?
The UK continues to struggle with their Brexit – is it to be….or not to be! That is the question on everyone’s lips (well, nearly everyone, at least here in Europe).
Spain eventually got a government. Of sorts. It looks like it’s going to be a bumpy ride ahead for Rajoy and his People’s Party. Not least of all since the EU have fired another austerity-demand rocket at the country. But since the Spanish are adept at side-stepping many previous EU directives, I guess that this one is in the bin already. Not to be put off, the EU have cleverly given the Spanish more time to comply with their demands. Good luck, I say. The Spanish might not be the brainiest politicians in the world, but they sure have a lot of endurance. And a recent track record to prove it!
France is looking for a new President. This looks like it’s going to be fun to watch….but only if you are not French. Sarkozy came a cropper with his comeback and now Hollande is making a run for the exit. Meanwhile, Marine le Pen is considering whether to make a start on her presidential acceptance speech. Who knows. Look what happened in the USA.
As usual, the Germans appear to be keeping a low profile. What with their elections in 2017 looming shortly, maybe something interesting will soon appear. Oh look. See what the new German edition of Charlie Hebdo (remember who they are?) has on their magazine cover.
The Italians will be voting in a referendum shortly on whether to approve changes to their constitution. I think that, either way, the outcome is going to shake things up a bit. The Italians, with their historical disdain for formal politics, are slowly coming to the conclusion that they have to be vigilant to ensure that the rug is not pulled from beneath their feet and they then end up being stuck with a system that keeps them in EU bondage forever.
The South Stream project to bring gas from Russia to Southern Europe was cancelled/shelved/postponed (depending on who you
believe listen to) in December 2014. However, neither the Russians nor most Europeans truly believed that the story ended there. Business is business and, in the end, it always trumps politics. And to prove this point, the Russians have now rekindled their relationship with Turkey, despite their many serious disagreements over the past year or so and the Turkish Stream gas pipeline project is now officially back on track. Where all of this gas is going to eventually end up is a little unclear at present, but I am sure that willing buyers will be found when the gas eventually starts flowing.
And Russia’s involvement in the world energy field does not stop there. Russia ranks eighth in the top ten list of the countries with the largest oil reserves in the world. And when it come to gas, Russia is number one on the list with more gas reserves than the next nine countries on the top ten list, all added together. So Russia is an important and influential player in the world’s fossil fuel energy market. And it appears that they do not sit idly by while events overtake them.
So whilst I was struggling with writers block, trying to find something more meaningful to comment on about European politics, my attention was drawn to an interesting article concerning the OPEC meeting held on 30 November in Vienna, Austria.
Many “alternative” economic news seekers on the internet will have come across the website “Zero Hedge“. To me, the articles that are published on Zero Hedge always appear to contain more than a few grains of truth whilst always trying to stir up a bit of controversy (def –
This is what Zero Hedge had to say about how the agreement at the OPEC meeting was finally achieved.
by Tyler Durden (1 Dec 2016)
Going into the Algiers OPEC meeting in late September, the prevailing sentiment among the analyst community was that there is no way any deal will get done: after all there was no secret that the recent animosity between Iran and Saudi Arabia had recent reached unprecedented levels, with both side directly involved across from each other in the Syrian proxy war.
However, the deal did happened, surprising virtually everyone, and based on a new Reuters report, it was thanks to one man.
Russian President Vladimir Putin was the mediator who played a crucial role in helping OPEC rivals Iran and Saudi Arabia set aside differences to forge the cartel’s first deal with non-OPEC Russia in 15 years.
The interventions ahead of Wednesday’s OPEC meeting came at key moments from Putin, Saudi Deputy Crown Prince Mohammed bin Salman and Iran’s Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani, OPEC and non-OPEC sources said. According to Reuters, Putin’s role as intermediary between Riyadh and Tehran was pivotal, and is a “testament to the rising influence of Russia in the Middle East since its military intervention in the Syrian civil war just over a year ago.”
It started when Putin met Saudi Prince Mohammed in September on the sidelines of a G20 gathering in China. The two leaders, who realized they stand to benefit more from cooperating in order to push prices higher, agreed to work together to help world oil markets clear a glut that had more than halved oil prices since 2014, pummeling Russian and Saudi government revenues.
The financial pain made a deal possible despite the huge political differences between Russia and Saudi over the civil war in Syria.
“Putin wants the deal. Full stop. Russian companies will have to cut production,” said a Russian energy source briefed on the discussions. Of course, Russia’s energy minister Novak has already said that it will take a long time before Russia’s fulfills its production cut quota of cutting 0.3tb/d from its current production level of 11.2tb/d due to “technical complications” suggesting that Russia is perfectly happy to sit back and watch how the world reacts to the OPEC cut first before engaging following through on its promises. After all, there is potential Saudi market share to be gained.
But first, prices had to go up.
The back story is familiar to all who have followed the endless OPEC melodrama of 2016: in September, OPEC agreed in principle at a meeting in Algiers to reduce output for the first time since the 2008 financial crisis. But the individual country commitments required to finalize a deal at Wednesday’s Vienna meeting still required much diplomacy.
Recent OPEC meetings have failed because of arguments between de facto leader Saudi Arabia and third-largest producer Iran. Tehran has long argued OPEC should not prevent it restoring output lost during years of Western sanctions. Then there is raging animosity between the two nations: proxy wars in Syria and Yemen have exacerbated decades of tensions between the Saudi Sunni kingdom and the Iranian Shi’ite Islamic republic.
Threatening a repeat of the April OPEC meeting which achieved nothing, heading into the Vienna summit, the signs were not good. Oil markets went into reverse. Saudi Prince Mohammed had repeatedly demanded Iran participate in supply cuts. Saudi and Iranian OPEC negotiators had argued in circles in the run-up to the meeting.
And, then, just a few days beforehand, Riyadh appeared back away from a deal, threatening to boost production if Iran failed to contribute cuts.
That’s when the Russian leader stepped in.
Putin established that the Saudis would shoulder the lion’s share of cuts, as long as Riyadh wasn’t seen to be making too large a concession to Iran. A deal was possible if Iran didn’t celebrate victory over the Saudis. A phone call between Putin and Iranian President Rouhani smoothed the way, Reuters reports. After the call, Rouhani and oil minister Bijan Zanganeh went to their supreme leader for approval, a source close to the Ayatollah said.
“During the meeting, the leader Khamenei underlined the importance of sticking to Iran’s red line, which was not yielding to political pressures and not to accept any cut in Vienna,” the source said.
“Zanganeh thoroughly explained his strategy … and got the leader’s approval. Also it was agreed that political lobbying was important, especially with Mr. Putin, and again the Leader approved it,” said the source.
On Wednesday, the Saudis agreed to cut production heavily, taking “a big hit” in the words of energy minister Khalid al-Falih – while Iran was allowed to slightly boost output.
Iran’s Zanganeh kept a low profile during the meeting, OPEC delegates said. Zanganeh had already agreed the deal the night before, with Algeria helping mediate, and he was careful not to make a fuss about it.
As we showed yesterday, the resolution culminated in an oil production table with a deliberate “error” in it” – while Iran’s reference level was picked based on directly communicated data, at just under 4mmb/d, the adjustment was applied to the “secondary” reported data, some 400kb/d lower, allowing Iran to present the deal as a victory to the people as it was the only nation that had a “positive” adjustment, while Saudi Arabia would demonstrate that Iran’s effective production level was 200kbpd lower than its reference point.
After the meeting, Reuters notes, the usually combative Zanganeh avoided any comment that might be read as claiming victory over Riyadh. “We were firm,” he told state television. “The call between Rouhani and Putin played a major role … After the call, Russia backed the cut.”
There was one problem: a last-minute quarrel threatened to derail the deal when Iraq became a problem (just as we warned would happen in September).
As ministerial talks got underway, OPEC’s second-largest producer insisted it could not afford to cut output, given the cost of its war against Islamic State.
But, facing pressure from the rest of OPEC to contribute a cut, Iraqi Oil Minister Jabar Ali al-Luaibi picked up the phone in front of his peers to call his prime minister, Haider al-Abadi. “Abadi said: ‘Get the deal done’. And that was it,” one OPEC source said.
Will the deal last? It is unclear – many say that due to the inherently unstable game theory involved in the deal, there is very little chance that some or all deal participants won’t cheat, dooming the agreement to failure. However, one thing is certain: with oil up over 4% today, following yesterday’s 9% gain, the head of the world’s largest oil exporter – having masterminded the Vienna deal at a time when both OPEC and Russia are pumping record amounts of oil – is smiling.”