By John Kemp, Reuters

“If we are victorious in one more battle with the Romans, we shall be utterly ruined,” King Pyrrhus of Epirus complained after winning exceptionally bloody engagements in 280 and 279 BC.

Pyrrhus lost many of his men, most of his generals and had no reserves left, while “the army of the Romans, as if from a fountain gushing forth indoors, was easily and speedily filled up again,” according to Plutarch.

The king of Epirus, reported to have been a brilliant general, has come to symbolize victories that are so expensive they leave the victor dangerously weakened.

Pyrrhus won the battle but lost the war.

As ministers from the Organization of the Petroleum Exporting Countries meet in Vienna, some may wonder if the strategy of maintaining output to defend market share risks securing a Pyrrhic victory.

OPEC has put shale producers on the defensive and forced the cancellation of many ambitious oil projects with its strategy of going for volume over price.

But members are gradually running out of money and the shale industry is waiting for any upturn in prices to start ramping up production again.

Meanwhile Iran is set to boost its oil exports once sanctions lifted, which will make the supply glut worse, and the risks of recession in developed and developing countries alike are increasing.

Some OPEC members, led by Saudi Arabia, remain hopeful that they will secure an eventual victory. The question is whether all the short-term pain will be worth it in the longer run.

Mixed Results

In November 2014, OPEC ministers decided to maintain their production unchanged even though oil prices had already fallen $40 per barrel, 37 percent, over the previous five months.

In choosing this course, which was led by Saudi Arabia but endorsed by other members, ministers expressed concern about the increase in non-OPEC supply and the continued rise in both developed and developing country stocks.

Twelve months later, oil consumption is growing at some of the fastest rates in over a decade, U.S. shale production has peaked for the time being and non-OPEC oil output is forecast to decline in 2016.

But Russian oil production is the highest on record and oil inventories in developed countries have risen by 250 million barrels, almost 6 percent, with millions more extra barrels in storage in emerging markets.

Oil prices have fallen another $27, and show no signs of recovering, while many hedge funds are betting they will fall even further over the next few months.

Lower prices have cut economic growth in half and turned budget surpluses into big deficits even for the wealthy oil producers in the Gulf Cooperation Council.

For weaker members of OPEC in Latin America and Africa, as well as Iran and Iraq, the budgetary and economic impact has been far worse.

Saudi Strategy

OPEC’s production strategy has been driven by Saudi Arabia, the cartel’s biggest producer, and its veteran oil minister Ali Naimi, who has made clear the kingdom felt it had little choice.

Four years with prices averaging at or above $100 per barrel had left the market on an unsustainable course, with supply growth accelerating, especially from shale, while demand growth was slowing.

Oil prices had to fall substantially to curb growth in high-cost production from shale and other sources while encouraging faster growth in demand.

If Saudi Arabia had cut its output to prop up prices, it would simply have encouraged more growth in shale and demands for even deeper cutbacks later.

Saudi Arabia would have been left with the worst of both worlds: lower prices and lower production. The strategy had been tried before in the early 1980s and ended in comprehensive failure.

More Time

Commentators close to Saudi Arabia insist policymakers always understood the rebalancing process would take several years.

But prices have fallen much further and for much longer than senior Saudi policymakers believed was likely in 2014.

The gains from the strategy have been modest so far which has led to mounting questions about whether it is working or should be changed.

Global oil inventories are still rising by more than 1 million barrels per day.

While shale and non-OPEC output more generally has started to fall, strong output from Saudi Arabia and Russia has kept the market oversupplied.

Consumption has grown by between 1.5 million and 2.0 million barrels per day in 2015, partly thanks to lower fuel prices, but there are doubts about whether the pace of growth can be maintained in 2016.

Iran is poised to add an extra 0.5 million to 1.0 million barrels per day to the oil market once sanctions are lifted.

In developing countries, which have accounted for all the increase in fuel demand since 2005, economic growth is slowing as a result of the collapse in commodity prices and the prospect of higher U.S. interest rates.

And in the advanced economies, the economic expansion is relatively mature and there is an increasing risk of another recession arriving within the next 2-3 years, which would cut oil demand.

Fine Tuning

Given continued oversupply in the oil market and the big buildup of inventories, most analysts do not see the market rebalancing before 2017 or even 2018.

But by the start of 2017, the U.S. expansion will be 90 months old, making it longer than all but three expansions on record, according to the National Bureau of Economic Research.

By the end of 2018, the U.S. expansion will be 114 months old, longer than every other expansion except the expansion which began in March 1991.

If the strategy is to balance the oil market by 2017 or 2018, it will rebalance just as the U.S. economy is poised for another downturn.

In the meantime, oil-producing countries are burning through their financial reserves at an unsustainable rate according to the IMF.

Saudi Arabia's external reserves have fallen from a peak of $737 billion in July 2014 to $654 billion in September 2015. Other members of OPEC have smaller much financial buffers and will run out much sooner.

Nearly all members of OPEC will exhaust their reserves in less than five years, according to the IMF, though in some cases it may be possible to extend the reserves by issuing foreign currency debt instead.

Saudi officials have been briefing journalists and analysts that prices are too low and need to rise to $60-80 per barrel in the medium term to encourage enough investment to meet demand.

The attempt to guide market expectations higher has not been backed up by any formal change in output policy.

For the time being, there appears to be enough political support in Saudi Arabia and its key allies around the Gulf to give the strategy more time. But that patience will not last forever.

If the strategy does not show clear signs of working and prices are not higher by this time next year, the political pressure to change course will be overwhelming.

For now, the Saudis and OPEC appear committed to their current course, and a formal policy change appears unlikely.

But there is scope for some flexibility in production at the margin without formally changing policy, which could limit the buildup of stocks and in turn buy the strategy more time.