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Under pressure from Trump, OPEC embraces Putin



VIENNA (Reuters) – When Vladimir Putin announced this weekend that OPEC would expand production cuts, broadcast an agreement before the group even met to approve it, the attack moved some member states.

FILE PHOTO: Russian President Vladimir Putin speaks to the media at the G20 summit in Osaka in Japan on June 29, 2019. Alexander Zemlianichenko / Pool via REUTERS / File Photo

They were dismayed at leading role non-OPEC Russia, as a Once viewed as an enemy in oil markets, played in shaping the group's policies.

But the reality soon came in, and the acceptance that Moscow could help OPEC in its goal of achieving the oil price at a time when it faced rising heat on another front: from US President Donald Trump.

Trump puts an unexpected pressure on OPEC and its de facto leader Saudi Arabia, demanding that they pump more raw to reduce fuel prices – a key issue for him when seeking re-election next year.

Iranian oil minister Bijan Zanganeh initially informed rebellion against Russian President Putin's advance announcement on the extended production cuts.

"OPEC is going to die with these processes," he said on Monday morning, before OPEC's oil minister met to effectively rubber stamp a finished deal, combating the Russian-Saudi dominance of the group's affairs.

But on Monday night he had thrown his support behind the agreement: "The meeting was good for Iran, and we achieved what we wanted."

OPEC and Russia have become unlikely bedfellows and forged an "OPEC +" alliance to reduce global raw supplies to counter US floating production and a weakening world economy.

It is a practical marriage, since both will have higher oil prices to increase their finances, while the alliance could also strengthen OPEC's position in light of Trump's requirements.

"I don't think Russia is calling the shots," said Saudi Energy Minister Khalid al-Falih, when he asked if Putin was now OPEC's boss. "I think Russia's influence is welcome."

Iranian veterans OPEC governor Hossein Kazempour Ardebili agreed, echoing the reconciling tone of his chief Zanganeh.

"Russia is a big player. If it announced anything in consultation with the rest of OPEC, this is most welcome," he said. "We work together."

Iraq, which has taken over Iran as OPEC's second largest producer After Saudi Arabia, and has taken its market share in Europe and Asia, Moscow's growing role was also positive.

Such a chorus of approval is a sharp reversal of the relationship between OPEC and Russia, which has been characterized by antipathy and mistrust in Decades ago.

Back in 2001, Russia helped reduce production in line with OPEC, but never delivered on its promises and instead increased production, the severely damaged relationship and other attempts at cooperation failed – to the last alliance.

In his book "Out of the Desert", former Saudi oil minister Ali al Naimi wrote that his meeting with Russian officials in 2014 was just minutes, after learning Russia would not cut production. ine and said, "I think the meeting is over."

CHANGE DYNAMICS

Putin announced on Saturday that he had met the Saudi Crown Prince Mohammed bin Salman on the sidelines of a G20 meeting in Osaka, and they had agreed to expand OPEC + production cuts.

Gary Ross, CEO of Black Gold Investors, said that although it was "exclusively for Saudi Arabia to let Putin announce the deal, it showed the changing oil market dynamics.

"Trump has an interest – low oil prices. Putin wants higher prices," says Ross, a veteran OPEC caretaker. "Putin is important to OPEC. And it is still in Russia's best interest to cooperate with OPEC, as half of the budget comes from energy revenues. Russia needs prices of $ 45-50 a barrel to balance the budget, and the economy is stretched by US sanctions imposed after the attachment of Crimea, Saudi Arabia needs an even higher price of $ 80. Benchmark Brent Raw is currently In the $ 65 per barrel area.

But just as the cooperation could lend Saudi Arabia, some support for Trump, who has asked Riyadh, has increased the oil supply if it wants US military support in its standoff with regional rival Iran, and it provides also Putin more than extra income.

Good relations with Riyadh, an American ally, supports Moscow's clusters in the Middle East, helps Putin's campaign in Syria and can even help direct relations with Washington, according to two sources in Russia's delegation to Vienna, where OPEC officials have met.

Highlights the cutting roles, Russian energy minister Alexander Novak also serves as head of several Russian government commissions on trade and cooperation, including with Saudi Arabia, Iran, Turkey and Qatar.

Iran's change in tone particularly illustrates the conflicting political and economic pressures it faces.

Tehran's declining production, due to US sanctions reimposed and expanded by Trump, has reduced its role within OPEC as they increase in Saudi Arabia and non-OPEC Russia.

Iran's exports fell to 0.3 million barrels a day in June from as much as 2.5 million bpd in April 2018. Oil production in the OPEC's exempt nations: tmsnrtrsrs / 2Fx7Lcc

But Iran also sees itself as helping Russia, one of only a few countries that have offered to help Tehran to counter sanctions, suffocates its oil trade and hammering its finances.

Two Russian energy companies said that some work was being done to increase the Iranian economy, but conversations were slow and difficult without giving details of the nature of the plan.

Further reporting by Rania el Gamal, Alex Lawler and Ahmad Ghaddar; Writing by Dmitry Zhdannikov; Editing by Pravin Char

Our Standards: Thomson Reuters Trust Principles.

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