Whether you call it an exemption or a special dispensation, Iran, Libya, and Venezuela have all been spared the pain of cutting production under the newest OPEC agreement forged today with the help of non-OPEC Russia.
The real reasons behind the exemptions may never be known, but one thing is for sure: Iran, Libya, and Venezuela have all seen hard times in 2018, and are likely to see more hard times next year.
The official line is that Iran and Venezuela were both exempted because they are still under U.S. sanctions—Iran over the nuclear deal and Venezuela over the destruction of democracy and human rights violations. To then ask them to deliberately cut production would be a big ask.
Libya has been given a pass due to its chronic production outages.
Nigeria, though it too has been rocked with instability in its oil industry, was not granted an exemption this time around.
The United Arab Emirates’ Energy Minister Suhail Mazrouei said today that because these three members had been given exemptions, the remaining members would have to cut more. As it stands today, OPEC has agreed to cut a total of 800,000 bpd while non-OPEC, which includes heavyweight Russia, will cut 400,000 bpd.
The baseline for the production cuts is October 2018, and like the last round of cuts, it is assumed that OPEC’s compliance committee will keep tabs on the adherence. But when factoring in the compliance, it will not consider exempt Libya’s, Iran’s, or Venezuela’s production, which theoretically could be higher than October volumes.
This is an important distinction to make, because Venezuela just signed a $5 billion deal—with Russia no less—that will lift Venezuela’s oil production by 1 million bpd, if we are to believe that the troubled Latin American country can pull that off.
Iran, who was supposed to be suffering under the weight of the US sanctions by now, is faring better than most would have expected, thanks to waivers that were granted to eight of its customers. As a result, at least so far, signs do not indicate a huge drop-off in production leading up to the sanctions. In October, according to OPEC’s MOMR, Iran’s production was 3.3 million bpd in October. Iran’s production has reached 3.8 million in the past, so the capacity is there, so long as the customers are.
Saudi Arabia’s October production, to no one’s surprise, was quite high. In fact, a new high, of 10.630 million bpd. Al-Falih, while not providing production cut figures for individual members, did mention that Saudi Arabia’s production cut volume would be 500,000 bpd. This would put them near 10.1 million bpd—which was precisely their average in Q2 2018, and well above their average for the first quarter this year.
The production cuts are set to take effect January 1, although it is expected that they will not be rolled out instantly on that day. Russia, for one, is not expected to reach its promised cut for “months” according to Alexander Novak.
