Hopes that a deal between OPEC and non-OPEC oil producers would lead to cuts in production have foundered. Instead, Russia and Saudi Arabia, two of the world’s biggest producers have agreed to freeze production at January levels. The accord effectively ends the battle between Saudi Arabia and Russia for market share but officials face a task of convincing other producers to cap their production levels.

Chief among the producers that must be tackled is Iran. Iran is keen to regain the market share it lost while it was the subject of international sanctions over its nuclear ambitions and is rumoured to be undeterred by the prospect of prices drifting lower.

Both Russia and Saudi Arabia are feeling the pain of low oil prices. Russia is feeling the economic effects of international sanctions placed on it following its annexation of Crimea and its involvement in the continuing hostilities in Eastern Ukraine and its currency, the rouble, is languishing at low levels against the US dollar. Saudi Arabia’s domestic budget is laden with expensive social programs introduced as part of an effort to calm its population during the Arab Spring and low oil prices are impacting upon its ability to fund these from its reserves.

“Both sides need the oil price to stabilize but these deals have a tendency to fall apart. There are tensions between Russia and Saudi Arabia that go way beyond oil; the two are at odds over the war in Syria, for example,” explained Taro Harumato, who leads energy markets research at Resona Corporate Partners.

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