ALGIERS: Opec might still agree an oil output-limiting deal later this year as the economic problems of Saudi Arabia force Riyadh to cede more ground to arch-rival Iran.

Saudi Energy Minister Khalid Al Falih said on Tuesday Iran, Nigeria and Libya would be allowed to produce “at maximum levels that make sense” as part of any output limits which could be set as early as the next Opec meeting in November.

That represents a strategy shift for Riyadh, which has said it would reduce output to ease the global glut only if every other Opec and non-Opec producer followed suit. Iran has argued it should be exempt from such limits as its production recovers after the lifting of EU sanctions earlier this year.

The Saudi and Iranian economies depend heavily on oil but in a post-sanctions environment, Iran is suffering less pressure from the halving in crude prices since 2014 and its economy could expand by almost 4 per cent this year, according to the International Monetary Fund.

Riyadh, on the other hand, faces a second year of budget deficits after a record gap of $98 billion last year, a stagnating economy and is being forced to cut the salaries of government employees.

“Does the salary cut indicate the Saudis are ready for a fight or does it indicate that they are ready for a deal,” said an Opec source from a Middle Eastern producer, when asked about the Saudi shift.

Iranian Oil Minister Bijan Zanganeh said on Wednesday talks about a deal to cap output were ongoing. Opec began an informal meeting at 1430 GMT, but few Opec watchers expect any deal before a formal, regular gathering on Nov. 30.

Oil prices were up around 1 per cent, with Brent crude trading at about $46.50 per barrel by 1440 GMT.

Low oil price pressures

Saudi Arabia is by far the largest Opec producer with output of more than 10.7 million barrels per day (bpd), on par with Russia and the United States. Together, the three largest global producers extract a third of the world’s oil.

Iran’s production has been stagnant at 3.6 million bpd in the past three months, close to pre-sanctions levels although Tehran says it wants to ramp up output to more than 4 million bpd when foreign investments in its fields kick in.

“Iran is not losing as much as Saudi. They are in a stronger position,” an Opec source travelling to Algeria this week said when asked about the shifting dynamic within Opec.

Saudi oil revenue has halved over the past two years, forcing Riyadh to liquidate billions of dollars of overseas assets every month to pay bills and cut domestic fuel and utility subsidies last year.

“The Iranians have lived with a very tough macro backdrop for many years, and are not used to the government’s benevolence — whether subsidies, employment or spending contracts — in the manner the Saudis are,” said Raza Agha, chief Middle East economist at investment bank VTB Capital.