Oil ministers from three OPEC member nations – Qatar, Venezuela and Saudi Arabia – met with Russia  in Doha on Tuesday, and have reportedly reached an agreement to freeze oil production at January levels. The deal is aimed at addressing the almost 1 million barrel per day surplus that has existed for the last two years, and which has driven oil prices down to record lows. Talks are reportedly underway with Mexico and Norway, whilst the UAE released a statement backing the OPEC-driven production freeze. The UAE Minister of Energy Suhail Al Mazrouei stated that ‘we believe that capping the levels of production by OPEC members would have a positive effect in balancing future demand with the current oversupply.’

This deal is not only economically important, but also politically. The steep decline in the price of oil over the past 18 months to about $30 from $110 per barrel has forced governments to cut spending and rethink economic strategies. Saudi Arabia ran a deficit of $97.9 billion in 2015, and the IMF has stated that Saudi Arabia could be bankrupt by 2020 if the price of oil does not increase, or if Saudi Arabia does not diversify economically. Whilst Saudi Arabia has been the highest profile country negatively affected by the drop in oil prices, the gulf states – including Qatar, the UAE and Kuwait– have all faced increased economic pressure. In light of this the deal to stabilize, and then presumably increase oil prices, is particularly important.

However, it remains to be seen whether these production limitations implemented by Russia and the OPEC states are capable of closing the supply-demand gap. The levels at which these countries have proposed to freeze production represent record highs. Further, global oil storage inventories, which have accumulated during the current glut, are at record levels. Finally, while US crude production has begun to decline slightly from its mid-2015 high and drilling rig counts have dropped in response to low prices, this could reverse if the price of oil were to rebound.

More importantly, the effectiveness of any freeze is subject to agreement from other producers – most notably being Iran. Iran has only recently re-entered the market after the lifting of US sanctions, and has stated that they aim to increase their oil production by 700 000 barrels per day, seriously undermining the capacity for OPEC to manipulate the price of oil. According to John Hall, chairman of the London consultancy Alfa Energy,

“if Iran is working outside OPEC, the group cannot move. OPEC cannot do anything without Iran.”

Iran’s refusal to co-operate with OPEC at this stage is just another point of tension between Saudi Arabia and Iran, long time regional rivals and the dominant powers in the Middle East for the Sunni and Shi’ite denominations of Islam respectively. The two powers are already engaged in a number of proxy conflicts within the region. Saudi Arabia is leading a military coalition in Yemen fighting Shiite Houthi rebels whom Iran says it supports politically. More importantly, Iran supports President Bashar al-Assad in the Syrian conflict, whilst Saudi Arabia supports opposition groups who want to unseat him in the country’s five-year war. Iran’s refusal to limit oil production will likely result in backlash from Saudi Arabia in some way, and this may prolong or exacerbate current conflicts in the region. Most topical are the peace negotiations underway between President Bashar al-Assad and opposition groups over the future of Syria.

We can only hope that the economic disagreement between Iran and Saudi Arabia does not lead either party to undermine these peace negotiations in a bid to disadvantage the other. Whether this may happen remains to be seen.