Iran Welcomes Saudi-Russian Deal on Curbing Oil Production — Sort Of

Iran said on Wednesday that it welcomed a historic agreement brokered by Saudi Arabia and Russia to rein in the high level of global oil production, which has flooded energy markets and contributed to a collapse in the price of oil. But the country's oil minister stopped short of committing to a freeze in production, as Iran seeks to regain the market share it lost during years of sanctions.

Saudi Arabia and Russia, the world's two largest producers and exporters of oil, announced on Tuesday the first agreement since 2001 on production levels between OPEC and non-OPEC nations.

Early Wednesday, Iran's OPEC minister, Mehdi Asali, rejected the deal.

"Asking Iran to freeze its oil production level is illogical," Asali told the Shargh daily newspaper. "When Iran was under sanctions, some countries raised their output and they caused the drop in oil prices. How can they expect Iran to cooperate now and pay the price…? We have repeatedly said that Iran will increase its crude output until reaching the pre-sanctions production level."

But, later in the day, Iranian oil minister Bijan Zanganeh said he welcomed the Saudi-Russian deal.

"We look forward to the beginning of co-operation between OPEC and non-OPEC countries and we support any measure that can stabilize the market and increase prices," he said.

Zanganeh did not promise to limit Iran's output, however.

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Qatar, Kuwait, the United Arab Emirates, and Venezuela joined Saudi Arabia and Russia in agreeing to limit output to January levels in order to get a handle on growing oversupply and prices that fell below $30 a barrel in January from a high of $115 in June 2014.

Prior to international sanctions in 2012, Iran exported about 2.5 million barrels per day (bpd). Exports fell to about 1.1 million bpd once sanctions were imposed, and Tehran says it will increase output by about 1 million bpd in the next 6 to 12 months.

The world is already producing more than 1 million bpd than it consumes, with oil stockpiles at record levels.

Jason Bordoff of the Center for Global Energy Policy at Columbia University and a former Obama administration energy advisor told the BBC that as a result of the oil surplus, US production is down 500,000–600,000 barrels of oil per day.

"I think US shale has been much more resilient than anyone expected," he said. "The fact that the price has been as low as it's been for a year and only recently has US production started to fall, the question is when the price picks back up toward $50 or $60, how quickly can the US start growing again."

Five-hundred-and-forty-one oil rigs are in operation in the United States, according to Baker Hughes, which is more than 800 fewer than were in operation a year ago.

The drop in oil prices has been a blow to Saudi Arabia, Russia, and Venezuela, causing each to burn through cash reserves and scale back budget projections.

"The producing countries are certainly being hard hit, and I think that is what has put a lot of pressure on the Saudis, among others, to try to take some action to sure up the low price," Bordoff told the BBC. "If you look at the economic situation of Venezuela, for example, which was in economic difficulty beforehand, it is in real danger of collapse now: hyperinflation, basic shortages of food stuffs in grocery stores. Nigeria, other counties, are really facing economic hardship, as is the industry overall."

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The consulting firm Deloitte issued a report on Tuesday that found that 175 oil and natural gas companies, or 35 percent of the 500 it surveyed, were at high risk of going bankrupt.

"2016 will be the year of hard decisions. We could see… bankruptcies surpass Great Recession levels as companies struggle to remain solvent," John England, a vice chairman for Deloitte, said. "Access to capital markets, bankers' support, and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning."

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