(Ecofin Agency) - Saudi Arabia and Russia, the world's two largest crude oil producers, said they're ready to cooperate to limit output, helping send prices to a one-year high. Agence Ecofin spoke with Francis Perrin (photo), the chairman of Strategy and Energy Policy and the Editor of Arab Oil & Gas.

Agence Ecofin:Let me start by asking that Saudi Arabia has long relied on oil to fuel its economic growth and development. Isn't it surprising that Saudi Arabia appeared to relent and agreed to not only freeze production but to cut its output by a few hundred thousand barrels while exempting arch Saudi enemy – Iran,  from the agreement terms, permitting it to pump until it hits pre-sanction levels, or higher?

Francis Perrin: Saudi Arabia will go on relying on oil for its development for a long time even if the country wants to diversify its economy under the framework of its Vision 2030, which was recently unveiled. If a small cut in its production, which averaged 10.4 million barrels per day over the first eight months of 2016, can contribute to a rise in oil prices, the kingdom could be a winner in terms of oil revenues, as would be other producers.

That being said, it does not mean that Saudi Arabia will leave Iran alone. We will see at the end of November what the future OPEC production quotas will be, country by country. We are also speaking about a short-term horizon. Saudi Arabia can accept to cut its output for several months but it will not tie its own hands for a long time.

AE:Is it that the Kingdom doesn’t have a choice this time?

FP: There are some other issues: Saudi Arabia has understood that Iran would never accept to curb its production before reaching a volume of about 4 million b/d, which was its production level at the beginning of this decade; oil prices remain low more than two years after the beginning of the fall during the summer of 2014; the rebalancing of the market is slower than expected; and the kingdom is under pressure because many producing countries, whether OPEC members or not, think that it is time to act collectively to push prices up.

AE:Do you think cutting production will boost the kingdom's budget deficit and encourage long-term investment?

FP: The key issue is not only what Saudi Arabia will do, even if it is very important, but what OPEC and some non-OPEC producers will effectively decide and implement to reduce world oil output. The impact on oil markets will be more important if the participation is wider and if the volume is significant. If it was at least 1.5 million b/d for OPEC and non-OPEC countries it would be significant.

AE:Saudi Arabia on Monday said it is not unthinkable that the price of crude oil could increase to $60 a barrel by the end of the year but also warned against drastic production cuts that might shock markets. Do you think they are planning to deal the market another blow?

FP: The aim of the game is that the increase in prices must be greater than the reduction of production. If, for instance, OPEC cuts its output by 3% - the maximum percentage according to the figures adopted in Algiers on 28 September - and that oil prices go up by 15% it will be good news for the budgets, the balances of trade and the balances of payments of many producing countries, including Saudi Arabia. As far as investment is concerned there is a straight line here: higher prices mean higher revenues for oil states and for oil companies and it is a strong incentive for them to invest more in the future. There are however two conditions: the rise in oil prices must be significant and the key players must be convinced that prices will not fall again soon.

AE:Looking at the meeting at World Energy Congress in Istanbul, Russia and Saudi Arabia have come out to say they are ready to cooperate to limit output. Many producers outside the group are willing but members inside the group are quiet, except Saudi Arabia of course.

FP: Russia seems ready to do something, either a freeze or a slight reduction, but the Russian Energy Minister ruled out any specific announcement during the World Energy Congress in Istanbul. The meeting between OPEC and non-OPEC countries during this Congress is presented as an informal meeting. It will be useful however in order to see how many non-OPEC countries are present, which are these countries beyond Russia and if some of them are talking about their possible commitments in the future. Anyway the normal end of this process is at the end of November in Vienna and not now in Istanbul.

AE:Which countries do you think will sacrifice output to balance the market?

FP: Within OPEC, Saudi Arabia will take the lead and several other countries will follow except for Libya, Nigeria and Iran. Iraq will be a difficult client. Outside of OPEC Russia will have an important role to play but other countries such as Norway, Mexico and Oman could bring their contribution to this collective effort. The key countries are Saudi Arabia and Russia.

Interview by Anita Fatunji