Will Saudi Arabia's gesture of goodwill be received well by OPEC?

OPEC's bi-annual meeting kicked off today in Vienna with market participants not expecting any specific resolution to be passed after the previous two meetings drove divide between members that deemed the collusive oil body defunct at controlling the price of oil.

At the head of the division is de facto leader Saudi Arabia whose steadfast conviction in its belief that a lower oil price would drive away competition from new entrants that found opportunity in the US in the form of shale gas. However the voice of concerns from other economically vulnerable members it tried to brush aside is coming back to haunt it with the latest meeting demarcated as crucial if it wishes to amend broken ties that have the potential to unseat Riyadh as a major influence in the oil market.

The obvious casualties have been Venezuela and Nigeria who were the first to propose an emergency meeting called before the planned December 2015 conference appealing to Saudi Arabia to pull back from the current stance due to the harmful effects it was having on both their economies. It was even suggested that Russia join the meeting in a hope that the combined effort that totals roughly half the world's oil output would drive the desired move in the price of oil most members wished to see.

These pleads fell on deaf ears as Riyadh was firm on its decision, the first signs of the fractious relationship showing cracks within the organisation. At the time I had said Saudi Arabia was risking the economic prosperity of its member countries in favour of its own agenda and the result would likely cause involuntary political uncertainty due to headwinds faced by lower oil prices that only served to exacerbate a difficult economic burden on their citizens.

As developments have taken shape since that failed meeting in December, the turmoil has grabbed hold of both countries and as predicted, political instability has given rise to heightened risk by investors who put fate in their chances in those countries. This has left a considerable amount of acrimony in the aftermath of crippled economies whether or not both these nations try to veil their ill-feelings to hide signs of disunity.

Vulnerability of alliances is what will press Riyadh to relook at its diplomatic position over the last year of dealing with OPEC members with this case being the perfect example of how strong bonds may turn into weak reliances if every nation's expectations aren't met leaving the door open to possible promises being made by other ambitious members, namely Iran.

Petro-Diplomacy in Vienna: Can #SaudiArabia Mend #Opec Divisions? https://t.co/6Ca2fn0R9p via @business #oil #OOTT

— Javier Blas (@JavierBlas2) June 2, 2016

Which brings me to the next contentious issue inside OPEC right now and that's the rife between Saudi Arabia and Iran with the latter refusing to participate in an agreement that would see oil output frozen for a set period of time. The refusal comes after the Arab nation was unshackled from trade sanctions that prevented it with selling it's most popular product, oil, to other countries in Europe and the US, the bulk of its customers.

Being unable to lift output during times of sanction, Iran feels its done enough for OPEC to warrant its exclusion from the deal which it sees as a hindrance to its economic recovery rather than a benefit. Notwithstanding this argument Riyadh has come out strongly against its non-compliance saying it will not agree to any plans unless Tehran is seated at the same table and reciprocates causing immense tension between the two.

But once again, Saudi Arabia fails to take into account the economic misgivings of other member nations and instead places its own prosperity in front of everyone else. The trend of continually overlooking economic dilemma's without any sympathy is starting to paint them as dictatorial in their rule of the collusive agreement which is bound to come under some sort of resistance now or in the future.

It's effort to smooth over ties at the current meeting won't yield much more than a mere acknowledgement of a gesture but it certainly doesn't undo the calamitous outlook some of its members face because of its arrogance. Recent comments made by the deputy crown prince Mohammed Bin Salman Al Saud would certainly speak to the contrary when looking for genuineness of extending a hand of goodwill when you weigh up his threats to drastically increase Saudi's oil production to undercut Iran's plans to expand its own production from record lows.

The timing of the move should be scrutinised as Riyadh is simply trying to cover up its failings by projecting a victory of its belief by showcasing the mammoth rally experienced in the oil price which is far from the doings of its actions.

Saudi Arabia should be cautious in its approach to how it intends of resolving disputes amongst members especially those who take issue with itself. All it needs to be reminded of this is the deputy crown prince's plans to make the Kingdom less reliant on black gold and diversified in other areas of investment. The retaliatory backlash it could face from within its own OPEC membership could derail those plans altogether and place it in its own dilemma, a fate I can't think it envisions itself in.