Longstanding tensions between Middle Eastern rivals Saudi Arabia and Iran will hold OPEC back from an oil production freeze as the oil group meets in Algeria Wednesday, analysts said, underscoring geopolitical complexities within the group.
The meeting comes at a crucial juncture for oil prices that have witnessed a pronounced downturn amid an economic slowdown, excess supply from traditional producers as well as competition from shale producers in the U.S. A section of the market has hoped for a compromise between Saudi Arabia and Iran although conflicting objectives will likely ensure barriers to any agreement are high.
"The relations between Saudi Arabia and Iran are just so, so poor I can't see any scenario under which Saudi Arabia would cut without Iran freezing and Iran has said so consistently that they just will not freeze until they reach pre-sanctions levels," BMI Research 's oil and gas analyst, Emma Richards, told CNBC recently.
Fitch Group's research arm BMI Research was not expecting an agreement on the production freeze at the informal meeting on the back of the conflicts within OPEC, with tensions between Saudi Arabia and Iran the "main impediment" to a deal, the house said in a recent report.
Iran is producing 3.6 million barrels of crude oil a day—under its 4 million barrels a day target, making it OPEC's third largest oil producer after Saudi and Iraq.
The two countries, contended BMI Research, were vying for religious and regional political hegemony, facing each other through proxy conflicts in Syria, Yemen, Iraq, Lebanon and Bahrain.
"We're talking about a long-term i.e. 1,400-year chasm between the Sunni side and the Shia side. OPEC has only been around for 60 years so what we're looking at now is the greatest chasm between the Sunni side of OPEC and the Shia side of OPEC," Stephen Schork, Editor of the Schork report told CNBC's "Squawk Box".