AS he emerged from nearly five hours of talks in Algiers on Wednesday evening, Iran’s oil minister Bijan Zanganeh stopped to speak to reporters.

“Opec made an exceptional decision,” he said as the Saudi energy minister left the meeting without taking questions from the media.

After two years of squabbling, the cartel had finally crafted a provisional deal to cut production and tackle the global supply glut in crude oil.

Agreeing, in principle, to cut production by 32.5-33mbpd was enough to send oil prices shooting higher. Opec, it seems, is back, delivering a rebuke to those who have penned the cartel’s obituary. But hurdles remain before a deal is finally signed off.

Central to this week’s agreement in Algiers were Opec’s most powerful and influential members, Saudi Arabia and Iran.

Riyadh softening its stance towards Tehran provided the backdrop for the pledge by Opec to reduce its output. The kingdom privately agreed to take the bulk of any cuts, with Iran given special consideration as its oil production recovers after years under Western sanctions.

It also signifies a change in the Saudi-led Opec strategy of pumping flat out to maintain market share and put pressure on high-cost producers — from US shale drillers to those pumping oil from Brazil’s deepwater fields.

“Saudi Arabia and Opec have returned to active market management,” says Michael Wittner, head of oil research at Société Générale.

But stiff challenges remain in order to turn the agreement into a binding deal in time for the cartel’s next formal meeting in Vienna on November 30.

Opec’s ability to reach at least a consensus for a new production range was seen as a positive development, with oil rising to a level just shy of $50/barrel yesterday. But obstacles remain.

First, no official cut will take place until Opec’s November meeting, with the group pushing the most contentious part of any agreement — who should curb output and by how much — down the road. “Opec saves face and kicks the can to November,” was how analysts at Barclays summarised the meeting.

While it was no small feat for Saudi Arabia and Iran to come to an understanding of any sort, much work remains.

Saudi Arabia gave ground to a slightly higher level of 3.7mbpd for Iran, according to one person briefed by Gulf Opec delegates. The kingdom does not believe Tehran can ramp up any higher, but allowing Iran to openly increase even on paper is politically problematic, a person familiar with Saudi policymaking said.

Although Iran supported the freeze, in the days leading up to the meeting it played hardball over the level at which it would cap its output and initially signalled it would only accept around 4.2mbpd. Iranian delegates said years of sanctions had left the country less reliant on oil revenues.

Still, negotiations will continue at a technical analyst level next month, one senior Gulf Opec delegate said. The aim is to bridge the 200,000bpd gap.

Another threat is Iraq. Iraq’s oil minister argued that its oil production is being underestimated by the so-called secondary sources Opec will use to form the basis of any target, with Ali Hussein Al-Luiebi berating a journalist from a pricing agency that assesses the members’ oil flows.

“The Iraq minister commented that secondary sources for oil production are too low, with his country’s output potentially 300,000 higher . . . a gap of nearly half of the proposed production cut,” note analysts at Goldman Sachs, the investment bank with the most clout in the commodities space.

The cartel will also have to contend with a sceptical oil market.

Published in Dawn, Business & Finance weekly, October 3rd, 2016