Saudi Arabia, Russia should take long view on oil agreement, says IEA chief

IEA boss Fatih Birol praised Saudi Arabia’s efforts to diversify away from oil dependency. (AP Photo)

• Executive director of the International Energy Agency Fatih Birol warned that short-term volatility can throw out policymakers’ calculations
• The 2016 agreement between Saudi Arabia, the world’s biggest oil exporter, and Russia, second in global rankings, has been credited with stabilizing the oil price after the 2014 collapse

HOUSTON: Fatih Birol, executive director of the International Energy Agency (IEA), has urged Saudi Arabia and Russia to be aware of the consequences of their alliance on oil production levels.
Speaking exclusively to Arab News on the sidelines of the CERAWeek by IHS Markit energy forum in Houston, Texas, Birol said: “It is very important to see what are the consequences of such agreements not only in the very near term but also in the medium term. This is important, to make those agreements according to the entire picture.”
The 2016 agreement between Saudi Arabia, the world’s biggest oil exporter, and Russia, second in global rankings, has been credited with stabilizing the oil price after the 2014 collapse.
However, Birol warned that short-term volatility can throw out the policymakers’ calculations. He cited the recent renewal of production limits as a case in point, when the latest deal to extend the caps on output was followed by a period of volatility in crude prices.
“Russia has become one of the main drivers of the Vienna parties agreement, if not the main driver. What we have seen, however, is that after the recent agreement to bring the prices up, prices in fact went down.”
He explained the weakness in crude prices late last year, after signals from Russia and the Organization of the Petroleum Exporting Countries (OPEC) that the “Vienna alliance” would be extended, by reference to the strength of US shale oil production. The IEA highlighted the “remarkable growth” in US oil production as the main reason why crude prices have not risen more in recent months.
Birol made clear that he was not advising Saudi Arabia and Russia on the future path of their oil alliance, saying that was an issue for the policymakers of the two biggest oil exporters. Asked later in the CERAWeek forum if the alliance was having the intended effect of balancing out global oil supply and demand, he said it is getting there.
Asked what Saudi Arabia and Russia should do in the face of increasing US oil production, to the extent that the US will overtake Russia and rival Saudi Arabia as an oil exporter in the next five years, he said both countries should continue their efforts to diversify away from oil dependency.
“They (Saudi Arabia) made a very important plan in terms of Vision 2030, and they took some important steps. I really hope that this vision will be realized, not only for Saudi (Arabia) but for Russia and all the others. In my view, it is obvious that no country can afford to be a single-product economy now, and they have to diversify.
“Saudi Arabia has all the means to be able do that. There have been some successful steps in recent times, like the petrochemical industry and putting more emphasis on natural gas. But there are also some non-energy steps that need to be part of the game, like a broader economic diversification,” he added.