A new global oil deal could draw lessons from 1998

Tue Feb 2, 2016 4:37am EST
 
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By Dmitry Zhdannikov

LONDON (Reuters) - After a year of secret diplomacy and hushed-up private talks around the world, OPEC's mighty Saudi Arabia and rival Venezuela were persuaded to cut a deal by non-OPEC Mexico which overcame mutual acrimony and led to a much-needed rise in oil prices.

It was 1998, trust had long broken down within the Organization of the Petroleum Exporting Countries and it took outside mediation as a last resort to stop the squabbling to clinch deals at secret meetings in Riyadh, Madrid and Miami.

Now, with oil prices touching their lowest level since 2003, OPEC officials and deal brokers are looking back nearly two decades and asking whether a behind-the-scenes deal to curb oil output between OPEC and non-OPEC Russia could be struck.

Some see OPEC rifts as insurmountable and Russia as a wild card that cannot be trusted, but others say economic necessity to boost oil revenue could overcome acrimony and distrust and lead to a global deal to cut supply and mop up the glut.

There are plenty of reasons, however, to dispel optimism.

Unlike in 1998, the challenge goes beyond rebuilding bridges between just two OPEC producers.

It pitches the interests of Saudi Arabia alongside fast-rising OPEC producers Iran and Iraq as well as non-OPEC Russia, the world's largest oil nation. All four are involved in conflict in the Middle East but also desperately need money to keep their oil-dependent economies afloat and meet social costs.

"The 1997/98 deal brokered between Saudi, Venezuela and Mexico took over a year to negotiate and it was touch and go as to whether it would get done or not," said veteran OPEC-watcher Yasser Elguindi of Medley Global Advisors.   Continued...

 
A worker checks the valve of an oil pipe at the Lukoil company owned Imilorskoye oil field outside the West Siberian city of Kogalym, Russia, in this January 25, 2016 file photo. REUTERS/Sergei Karpukhin/Files