In an interview, Zamani-Nia said following six decades of activity, OPEC’s role in the market has been institutionalized, adding that it has become mature and effective enough in dealing with various political and economic developments.
He said the future of demand for oil remained uncertain due to the outbreak of the novel coronavirus.
Referring to cooperation between OPEC and non-OPEC producers, he said: “As long as the nations involved in this cooperation have a joint understanding of challenges lying ahead and have approaches for countering them, this cooperation can continue.”
Asked about if Iran would exit OPEC, he said: “Iran is a founding member of OPEC. It has done a lot for protecting and upgrading this organization in the international oil area over sixty years. Exaggeration aside, Iran remains one of the most important OPEC member states, whose membership has given credit to this body. Iran and OPEC are not separable and expressing some remarks about exit from OPEC would please our enemies, would run contrary to our national interests and would damage our country’s prestige in cooperation within international bodies.”
However, Zamani-Nia said, the main criterion would be to safeguard Iran’s national interests.
“We support OPEC as far as the Islamic Republic of Iran’s interests are safeguarded in a balanced form with fellow member states; otherwise, membership in no international organization is mandatory,” he added.
The full text of the interview is as follows:
How do you see OPEC at its 60th anniversary of foundation?
The 60th anniversary of establishment of OPEC has coincided with key events that highlight more than ever the role and standing of this Organization in global economic developments and particularly in the global oil market. The impacts and consequences of global economic recession caused by the coronavirus outbreak on the oil market and the major oil producers’ expectation from OPEC for decision-making and action based on the prevailing conditions show that this Organization, relying on its own tools, plays a significant role in restoring stability and balance to the market and helping improve conditions in favor of producers, consumers and global economy. In other words, the outbreak of the coronavirus in the year coinciding with the 60th anniversary of establishment of OPEC marks a turning point for OPEC and its member states to prove themselves through intra-organizational cooperation as well as interaction with non-OPEC producers for countering an international extensive challenge and realizing the joint objective of restoring stability and balance to the oil market and global prices.
During its sixth decade of foundation, OPEC pursued both market share policies (in 2014 and briefly in March and April 2020) and price policy (Declaration of Cooperation). What do you think about this policy about-turn and its consequences?
During six decades of activity, as mentioned in its Statute, OPEC has based its policies and plans on the objective of restoring stability and calm to the global oil market. To that end, the tools in OPEC’s hands have been used through making efforts to either preserve its market share or to upgrade oil prices. OPEC’s 2020 measures and policies have not been outside the past rules. OPEC has used all tools at its disposal for stability and balance in the oil market, depending on the market circumstances and requirements. OPEC’s 2020 policies and measures are not outside the organization’s past rules. Depending on the oil market circumstances and needs, OPEC has used every tool at its disposal for reaching stability and balance.
Is it possible to see once more a price war between Russia and Saudi Arabia, similar to March 2020, pushing Russia to quit the Declaration of Cooperation? Russia seems to be seeking to control shale oil prices through price mechanisms, but Saudi Arabia is not.
It has to be noted that OPEC+ cooperation within the framework of the Declaration of Cooperation was something unprecedented in the history of world oil market and OPEC. Huge effort has been made by the signatories for protecting the declaration. Differences of view and absence of friendly atmosphere are natural in international cooperation because every nation prioritizes its own interests and makes effort to safeguard them with every tool or method. That may even spell an end to cooperation. The OPEC+ Declaration of Cooperation is a voluntary cooperation which any OPEC or non-OPEC country may decide to quit or dishonor as was the case with Mexico. However, as long as OPEC+ signatories pursue the joint objective of restoring stability and balance to the oil market, one can be optimistic about the continuation of this cooperation. So is the case with Russia. Russia is one of the largest oil producers in the world. It pursues its own views and interests in the oil market, which are not necessarily in full compliance with OPEC’s views and policies. However, the measures undertaken by this country ever since the start of OPEC+ Declaration of Cooperation are indicative of this country’s firm will and determination to contribute to the stability of global oil market. The effective presence of this country alongside OPEC has been instrumental in cooperation between OPEC and non-OPEC since November 2016 in the management of global oil supply.
What do you think are the most important concerns of OPEC in the long term?
Concerns about weakened global oil demand have always been a major cause of concern for OPEC and its member states. Either in the short-term or in the long-term, the issue of demand security is a major concern for OPEC. The outbreak of the coronavirus and its consequences for global economy may cause some important changes in the consumption patterns and global demand for oil although the virus is expected to be short-lived. However, the mid-term and long-term impacts of such changes would be worrying. On the other hand, changes in the global energy mix and moving in the direction of using clean energy instead of fossil fuel would be a major cause of concern for OPEC in the long term, which would give rise to significant consequences for the oil market and OPEC member states in competition for guaranteeing their quota in the global oil and energy market.
Oil demand is forecast to be falling as conventional and unconventional oil is being supplied simultaneously on the market. It seems that we are entering the era of oil abundance. How long will oil prices remain low?
Any prediction on the future of oil price is as tough and almost impossible as the current complications in the global oil market, especially at a time when the global oil market is under strain from weak demand and supply glut mainly due to the coronavirus outbreak and the ensuing fall in global oil consumption. In early 2000s, everyone talked about the era of oil abundance and peak oil, but we saw that new trends came to dominate the oil market, which increased oil demand to more than 100 mb/d. As long as the world economy has not returned to pre-covid conditions, it would be impossible to resent any realistic outlook about the future of global oil demand. On a broader scale, the global oil price is affected by numerous political, economic and security parameters. Any change in these parameters would affect the future trends and levels of global oil prices.
What are low oil price challenges for OPEC nations which are heavily dependent on oil revenue? Which policy do you think these nations adopt?
The loss of a significant part of annual revenue and a reduction the fiscal power of oil producing nations including OPEC about new investment in enhanced recovery would represent the most important challenge caused by low oil prices, which is affecting all oil producers. The solution for fighting these conditions is to reduce surplus costs in the economy, boosting productivity and diversifying sources of income based on national economic capabilities, which must be used as the economic priorities of oil exporting nations under the present circumstances.
How can OPEC+ cooperation continue within the framework of the DoC? OPEC has lost a major share of the market in recent years due to increased decline in production while at the same time the US has been supplying oil on the market.
About four years have passed since DoC took effect. Over this time, more than 10 joint ministerial meetings have been held between OPEC and non-OPEC. As far as cooperation between these two is concerned, cooperation can continue as long as the countries engaged in this cooperation have a joint understanding of challenges lying ahead and have solutions for countering those challenges.
Don’t you think that continuation of this policy would lead to OPEC’s collapse?
Cooperation between OPEC and non-OPEC has had many positive results, which should be taken into consideration when it comes to reviewing OPEC’s behavior and policy. These positive results include lower market stability, modification of the level of oil storage particularly pre-covid and improvement in oil prices and revenue by OPEC member states. Without DoC, OPEC and non-OPEC would not have moved to modify the level of oil supply and while US oil production has increased, there was no guarantee for OPEC to maintain its market share. OPEC’s share of oil market is an institutionalized role that has taken shape over six decades in the face of various political and economic developments and that is why OPEC has reached the current maturity and influence. Definitely, it would lead OPEC in the future.
One of the major concerns of OPEC is the application of environmental and climate conditions against fossil fuel production in the world. What do you think about the significance of this issue?
Since mid-1980s, OPEC has been faced with uncertainty about the impact of the environment on global oil prices and it has taken this issue into consideration. The 1992 adoption of the United Nations Framework Convention on Climate Change pushed various organs including OPEC to pursue global environmental and climate changes with more sensitivity and this issue was included in OPEC’s 10 main challenges in its long-term strategy. This challenge affects long-term oil supply and demand at various degrees. Over the past 30 years, it has taken new dimensions as international organs and conventions been upgraded. Equally it has affected long-term oil price developments and subsequently oil revenue from OPEC member states.
In a long-term horizon ending the current century, depending on the level of obligation and the level of application of environmental standards against oil production and consumption, sanctions and global extent and the level of development of alternative energy technology, global oil prices may experience different unstable conditions in the future. Of course it has to be noted that environmental policies are first and foremost directed at the reduction of coal consumption. Coal made up a 27% share in the 2019 global energy mix.
As OPEC starts its seventh decade of life, an inevitable fact is the issue of energy transition, for which there is strong evidence. In your view, how can OPEC nations deal with this issue? Which approach should countries like Iran adopt? Is it likely that a significant portion of Iranian oil reserves is abandoned uneconomically under the ground?
Over recent years, the issue of energy transition in the world towards green energies has been expanded within the framework of Sustainable Development Goals (SDGs) with environmentalists analyzing it in a conceptual framework as the solution to save humanity from the consequences of global warming. However, the fact is that the issue of “energy transition” within the framework of reducing dependence on oil was first raised by the Organization for Economic Cooperation and Development (OECD) after the second oil shock in the 1970s under the title of renewable energies or alternative fuel within the framework of a policy countering OPEC. Therefore OPEC member states have already experienced this phenomenon, albeit limited, and taken action for its management. OPEC has always taken this issue into consideration in its oil management policy that high oil prices can prepare the ground for increased investment and development of energies to replace crude oil and subsequently reduce OPEC’s share of oil market. In fact, OPEC has benefited from the advantage of producing low-cost oil price in dealing with the phenomenon of energy transition. On the other hand, OPEC and its member states have attended international forums and organizations in a bid to modify ambitious climate policies and demand development of technologies that would be helpful in the green production and consumption of oil. Meantime, within the framework of “right to development” adopted by the United States, OPEC has proceeded with its talks for the transfer and development of technology and diversification of economy in the oil-dependent nations within the framework of talks about climate changes. In a general assessment, it must be said that the mains strategy pursued by OPEC and its member states for the management of “energy transition” over coming years would be summarized in benefiting from advantages, managing the global supply of oil and showing active presence in international talks on climate.
Meantime, it has to be noted that since two decades ago, some oil analysts have been talking about the end of oil era and today there is talk of oil demand peaking over one decade. However, it is seen that oil constitutes the highest share of the energy mix. Based on the latest projections by OPEC Secretariat (Aug 2020), the oil share of the world’s energy mix would be 27.5% by 2045, the highest among other energy carriers, and the natural gas share would reach 25%. In other words, over 25 years, oil and gas would totally constitute 52.5% of global energy consumption with renewable energies (solar and wind) accounting for only 8.7% despite their significant growth. It has to be taken into consideration that development of green energy technologies in recent years has increased their competitive power particularly in electricity generation and a bright horizon is seen for this kind of energy in the electricity sector. However, oil consumption in the transport sector, particularly in large parts of the world with no access to new technologies and necessary finances, will continue to play the dominant role at least up to 2050. On the other hand, given the use of oil for non-energy purposes in the industry and human life, it would be pessimistic to think that after transition to clean energy, oil would become a stranded asset. However, it does not mean that we can be assured about the future of oil and oil revenue (in terms of market and price). A variety of threats and uncertainties exist about oil the consumption of oil in the future as a special fuel in the light of climate change policies and consuming natural gas for heating and movement would be reliable only for the period of transition. In fact, the signs of the new energy era are drafted in the Nationally Determined Contributions (NDCs) presented within the framework of the Paris accord to the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC). It is clear that the evolution of energy policies towards carbon-free (green) energies target upgrading energy productivity and behavioral changes of consumers. Implementing such measures would require billions of dollars in annual investment and technology. Therefore it would differ from one country to another over coming years. However, it could be imagined that the world would take fundamental steps for changing the scene of global energy with the help of novel technologies.
Many nations want Iran to leave OPEC? Is it time for Iran to do so?
Iran is a founding member of OPEC. It has made huge efforts over the past 60 years for upgrading and protecting this Organization in the international oil arena. Exaggeration aside, Iran is one of the most important member states of OPEC, whose membership has given credit to this Organization. Meantime, Iran’s membership in an international organization for more than six decades despite all political and economic ups and downs, due to the country’s effective role in OPEC’s decision and policymaking, has boosted Iran’s prestige. Iran and OPEC are inseparable and expressing such remarks about Iran’s OPEC exit would favor our enemies and are in conflict with our national interests. That would also damage our country’s prestige regarding cooperation within the framework of international bodies. Of course our main criterion is to safeguard our national interests and I think that OPEC membership and upgrading this Organization would be in the interests of the country. Now and in the future when fossil resources would be put under strain, the value of solidarity among OPEC member states would become more tangible. It should be said that we support OPEC as long as the Islamic Republic of Iran’s interests are safeguarded on part with fellow member states. Otherwise, membership of no international organization is mandatory.
As the last question, how do you assess OPEC’s treatment of Iran and Venezuela, which are both founding members, on the 60th anniversary of the Organization?
During some periods in the history of OPEC, we have seen the imposition of political will and pressure from outside on OPEC and direct interference within its affairs. Unfortunately that has happened due to support from some member states. Any use of oil as a political lever to pressure and sanction oil producers has to be unanimously rejected and decried by all OPEC member states. OPEC should protect its own interests and rights as well as those of member states through reliance on cooperation and partnership.