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Iran and Saudi Arabia on a collision course over oil

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After a week of meetings of the Organisation of the Petroleum Exporting Countries (Opec) in Vienna, one thing is clear: Iran and Saudi Arabia are on a collision course that could eventually break the world’s largest oil producing group apart.

Faced with Saudi Arabia’s stubborn determination to keep Opec pumping at full choke, Iran’s oil minister Bijan Zanganeh has upped the stakes in this game of double bluff between the Middle East’s two dominant political forces. He has confidently stated that the Islamic Republic will pump an additional 1m barrels per day (bpd) of crude within months of nuclear sanctions being lifted by the West.

The move – assuming that Iran agrees to all US demands to curb its nuclear ambitions by the deadline on June 30 – effectively fires the starting gun in a race among Opec’s most powerful producers including Iran, Saudi Arabia and Iraq to gain a bigger share of the market. It is a race that will be run regardless of the havoc it will cause within the group’s smaller producers who face complete economic meltdown.

Tensions are running high between oil giants Iran and Saudi Arabia

Instead of emphasising consensus and a mutually beneficial production policy to work for all of Opec’s 12 members, Mr Al-Naimi now talks in terms of countries being “free to do what they want”. This begs the question: what is the point of Opec if it is just a platform for Iran and Saudi Arabia to wage economic war against each other to the detriment of all the group’s other members?

In Riyadh, the country’s new ruler, King Salman bin Abdulaziz al-Saud, faces the risk of his family’s closest allies, the US, suddenly changing sides. It could see them shifting their support to an increasingly reformist Iran should a deal to lift sanctions be reached this summer. Such a move could see political power in the Middle East tilt irreversibly towards the Shia Muslim majority in the region. That could ultimately threaten the future of the House of Saud.

Saudi Arabia’s political dilemma has been further complicated by Iranian support of Houthi rebels which it is fighting in Yemen. It also faces encroachment within its own borders of terrorists connected to the Islamic State of Iraq and the Levant (Isil). Throughout the region, the kingdom and its Sunni allies appear under siege, while in Iraq only Iranian forces appear capable of holding back the Sunni-Muslim Isil horde.

It is becoming increasingly apparent that Saudi Arabia’s insistence last November, to force Opec to essentially allow oil prices to fall, was a move aimed not at crippling US shale oil producers; this has failed to happen, with America’s oil output now at a 44-year record high. Instead, it was to allow Saudi Arabia to increase its own production to levels well above 10m bpd, while impoverishing most of its partners in Opec and, most notably, its major rival in the Middle East, Iran.

Sanctions against Iran had already exacted a heavy price in Tehran before the blow of the current oil price slump hit home. President Hassan Rouhani said last October that income from crude sales had fallen by 30pc. That was before the price of crude slumped to a multi-year low around $43 per barrel. Starved of the foreign currency earnings from oil, Iran has found it increasingly tough to support its allies in the Middle East, who also happen to be Saudi Arabia’s natural enemies among Shia Islam.

However, it’s not just Iran which has felt the pain of Saudi Arabia’s willingness to tolerate weaker oil prices in return for freedom to pump more crude. Oil revenues for the whole of Opec are to fall by 46pc this year to around $446bn (£291bn), according to the Energy Information Administration. Even with a small recovery in prices this year, Opec producers such as Nigeria, Venezuela and Algeria are being pushed to breaking point by the civil war being waged by the group’s most powerful members.

Nigeria’s new President, Muhammadu Buhari, warned just days before the start of the Opec meetings in Vienna that the African country’s economy was in “deep trouble” because of the slump in oil prices, caused largely by Saudi Arabia’s policies. However, because of the chaos now gripping Nigeria’s oil industry, the country was unable to send a minister to present its case in Austria. Its former petroleum minister, Diezani Alison-Madueke, faces corruption allegations.

Saudi Arabia and its close knit Gulf allies within Opec – such as the United Arab Emirates and Kuwait – are in the unique position of having vast foreign currency holdings and sovereign wealth investments they can draw on to see them through the current spell of weaker prices. With over $800bn in foreign currency reserves, Riyadh can absorb the fiscal devastation that is being caused by lower prices.

Iran has also tried to break Saudi Arabia’s domination of Opec behind the scenes. Officials from the Islamic Republic approached Abdullah bin Hamad al-Attiyah, Qatar’s respected former oil minister, to replace the current secretary general of Opec, Abdalla Salem el-Badri. After nine years at the head of the organisation, Mr el-Badri is thought to be too sympathetic to Saudi Arabia’s cause within the group.

Faced with being swamped by a tidal wave of Saudi crude and its overbearing influence within Opec, Iran has decided to respond by signalling its intention to increase supplies should it be freed from the shackles of sanctions. This it appears willing to do regardless of Opec’s decision to leave its production ceiling unchanged at 30m bpd. A flood of Iranian crude flowing into an already oversupplied market would exert overwhelming downward pressure on oil prices, which continue to trade at around 40pc below last year’s peak due to a global glut of supply.

Of course, Opec has endured even tougher times and deeper divisions among its members before. The group survived the tensions caused by Iran-Iraq war and the turmoil of the Arab Spring. However, the tension between Iran and Saudi Arabia at Opec is now palpable and it is only a matter of time before these two oil giants come to blows.

telegraph.co.uk



26 Comments on "Iran and Saudi Arabia on a collision course over oil"

  1. Newfie on Sat, 6th Jun 2015 6:25 pm 

    “[Saudi Arabia] could see [the USA] shifting their support to an increasingly reformist Iran”

    That’s total nonsense. I stopped reading right there.

  2. Sugar Seam on Sat, 6th Jun 2015 10:50 pm 

    no it isnt at all…. there is a sea change going on with U.S.-Saudi relations… just wait until the 28 pages get unclassified….

  3. Plantagenet on Sat, 6th Jun 2015 11:04 pm 

    So Iran is going to punish Saudi for opening the oil spigots by opening their own oil spigots?

    If that happens the global oil glut will get even gluttier.

  4. GregT on Sat, 6th Jun 2015 11:22 pm 

    Go back to swatting mosquitoes planter. It’s a much better use of your ‘intellect’.

  5. Plantagenet on Sat, 6th Jun 2015 11:33 pm 

    Splat.

    Oh….was that your little body, Gretg?

    Sorry dude…you are like, so squished.

  6. GregT on Sat, 6th Jun 2015 11:49 pm 

    You have a great imagination planter. You have proven that time, and time again. The real world, however, is not imaginary.

  7. Apneaman on Sun, 7th Jun 2015 1:48 am 

    ISIS and the Oil War

    http://hipcrime.blogspot.ca/2015/06/isis-and-oil-war.html

  8. jimmy on Sun, 7th Jun 2015 3:37 am 

    When the Shiites are winning support the Suni. When the Suni ar winning suport the Shiites. Bleed both sides as much as possible then swoop in and take what you want. It’s an old game. It’s not far fetched at all. Iran is a Republic. KSA is a KIngdom. I’ve always kinda had a hunch that USA would do business quite well with Iran. Besides, KSA is about to Peak hard and since the 2003 invasion failed badly it is now the case that if you want to get your hands on Iraqi oil you best come to terms with Iran.

    I’m surprised more people don’t notice that the the country that won the war between USA and Iraq is Iran (kinda like how Thailand was the big winner in the Vietnam war). Before 9/11 Iran had two big problems. Taliban to the East and Saddam to the West. The USA took care of both of those problems for Iran while Iran watched and conducted the greatest anti armour weapons lab in history. I wouldn’t be surprised if Iranian agents of influence infiltrated AlQaeda and got them on the 9/11 idea. If you want to know whose responsible for something just look to who benefits from it.

    The global winner of the 2003 USA-Iraq war is China. The regional winner is Iran. When the global winner and the regional winner team up to do business you can rest assure that the tables are turning on USA. Which is fine with me. I hate you shitheads. I hope North Korea nukes your ass.

  9. Davy on Sun, 7th Jun 2015 5:47 am 

    Jimmy, you ain’t worth my time because your IQ is too low to have an intelligent comment.

  10. jimmy on Sun, 7th Jun 2015 6:22 am 

    come on Davy admit it. You’re once proud country is a laughing stock. You got played in Iraq. You got played in Afghanitan. You got played in Libya. USA hasn’t had a successful military campaign since Panama, or maybe Bosnia but even that was a balls-up. USA is a joke. And so are it’s inhabitants. The world will laugh as you all starve and destroy each other. You’re pretty much a failed state already. I mean you guys are so dumb you think there’s a real political and economic difference between Republicans and Democrats. Are you one of those morons that thinks Obama is a socialist Davy?

  11. Boat on Sun, 7th Jun 2015 6:40 am 

    I don’t get the comments, supply and demand is all it’s about. US is to blame for not taking over all these countries and deciding how much by each should be produced? I think not. Saudi is the blame for to much production? I think not. This is world capitalism and each country makes decisions on their oil production based on what they think will make the biggest dollar and the most dollars. Sometimes your the hammer and sometimes your the nail.

  12. Davy on Sun, 7th Jun 2015 8:29 am 

    Jimmy, who cares about that. We routinely talk about these issues with commentors here who have some sophistication and knowledge. You remind me of a snot nosed kid with an attitude trying to talk with adults at a family dinner. Grow up and get a life. That was my point not defending a series of failed US foreign adventures.

  13. Rodster on Sun, 7th Jun 2015 8:40 am 

    “The world will laugh as you all starve and destroy each other.”

    Correction, the world will starve and destroy each other. That’s where the CON-men posing as leaders around the world have taken civilization to, the point of no return. We are all heading for that Wile E. Coyote moment in the future.

  14. Dredd on Sun, 7th Jun 2015 8:49 am 

    Greenland / Antarctica and the U.S. are too (Greenland & Antarctica Invade The United States).

    The difference is that the U.S. cannot win even if Iran or Saudi Arabia do.

  15. Boat on Sun, 7th Jun 2015 9:03 am 

    The US win what? It is in the worlds interest that oil flows. Soon it will take other nations to keep the flow going as the US is 17 trillion in debt.

  16. BobInget on Sun, 7th Jun 2015 10:23 am 

    Bitchy posts don’t add to our understanding.

    I posted this article some days ago and got no comment. Now, I see why.
    WE seem more interested in furthering some vague agenda then ‘waisting time’ with viewpoints with which we don’t agree.

    There’s one story out of Saudi Arabia today
    (it easily be an Iranian story) every poster in the West, left, right, center, can understand.

    DUBAI: Saudi Arabia’s supreme court has upheld a sentence of 10 years in jail and 1,000 lashes against blogger Raif Badawi on charges of insulting Islam, his wife said on Sunday.

    The judgement came despite worldwide outrage over his case and criticism from the United Nations, United States, the European Union, Canada and others.

    “This is a final decision that is irrevocable,” Ensaf Haidar told AFP in a telephone interview from Canada. “This decision has shocked me.”

    Badawi received the first 50 of the 1,000 lashes he was sentenced to outside a mosque in the Red Sea city of Jeddah on January 9. Subsequent rounds of punishment were postponed on medical grounds.

    Amnesty International slammed the “abhorrent” decision to uphold a “cruel and unjust sentence,” describing it as a “dark day for freedom of expression.”

    “Blogging is not a crime and Raif Badawi is being punished merely for daring to exercise his right to freedom of expression,” said Philip Luther, Amnesty’s Middle East and North Africa director.

    Badawi’s wife expressed fear that the implementation of the flogging sentence “might resume next week.”

    “I was optimistic that the advent of (the Muslim fasting month of) Ramadan and the arrival of a new king would bring a pardon for the prisoners of conscience, including my husband,” she said.

    Badawi co-founded the Saudi Liberal Network Internet discussion group.

    =========================================
    How much longer will the Kingdom, in its current configuration survive?

    Read more at: http://english.astroawani.com/world-news/saudi-supreme-court-upholds-jail-lashes-blogger-414?cp

  17. shortonoil on Sun, 7th Jun 2015 10:42 am 

    “The US win what? It is in the worlds interest that oil flows. Soon it will take other nations to keep the flow going as the US is 17 trillion in debt.”

    Sorry Boat, but that dog don’t hunt? The US has “offical debt” of $17.5 trillion with an annual GDP of a little over $17 trillion, or about %100 debt to GDP. The world has “offical debt” of $200 trillion with an annual GDP of about $73 trillion, or 273%. Now, there is absolutely no doubt that the US has its butt in a sling, but this time when the US catches a cold the world is going to have one very bad case of pneumonia. The best thing that the US could do for itself is close its doors, pick up the pieces, and let the rest of the world die. But, the TPTB have too much invested in some sweat shop in China to let that happen.

  18. BobInget on Sun, 7th Jun 2015 11:26 am 

    Thanks Apneaman for posting the ‘Oil War’
    link. We all should do what we can to expose
    the fallacy that Al-Qaeda, Islamic State, USA
    and its 40 nation ‘coalition’ Russia, Saudi Arabia and its Gulf State coalition, Yemen, Iran, Sudan and Nigeria are fighting God’s War and not ‘Oil’s War’.

    Everyone of the above leaderships seek to
    inspire religious anger (not love) to further
    a quest for the power of oil.

  19. Apneaman on Sun, 7th Jun 2015 12:00 pm 

    The US military rightly calls climate change a “Force Multiplier”. It would be more than accurate to call religion the ultimate Force Multiplier. It’s like putting Hell’s Inferno hot sauce in the baby formula. Of course you can get the same effect by creating a zealous xenophobic ideology. You know like when the Nazi’s were talking about how exceptional and indispensable they were – dangerous shit.

    “Religion is an insult to human dignity. With or without it you would have good people doing good things and evil people doing evil things. But for good people to do evil things, that takes religion.”

    Steven Weinberg

  20. BobInget on Sun, 7th Jun 2015 12:54 pm 

    I agree.
    Intellectual discussions raging today center around Islamic religions. Does Islam foster
    the sort of violence practiced by so called a Islamic State? Or, has Islam been ‘hijacked’ to be used as a young male recruitment tool? Is there a ‘back door flaw’ in Islamic ‘software’. Since only non Muslims are permitted to discus this point, I don’t know.

    Meanwhile since Islam having a ‘300 years war’ of their own. We living today will never find out.
    Is it a coincidence this second two thirds of Islam’s 300 years war is being fought in oil rich environments? I don’t think so.

    I continue to be struck by the number of refugees, over 26 million, fleeing AGW,
    religious intolerance and Plantagenet’s ‘oil glut’.

    “Global warming will force up to 150 million “climate refugees” to move to other countries in the next 40 years, a new report from the Environmental Justice Foundation (EJF) warns.

    In 2008 alone, more than 20 million people were displaced by climate-related natural disasters, including 800,000 people by cyclone Nargis in Asia, and almost 80,000 by heavy floods and rains in Brazil, the NGO said.

    At this moment almost 500,000 refugees are trying to gain access to the UK.

    In 1948 Israel displaced 400,000 Palestinians.
    To date this single issue dominates Mideast
    politics.

  21. BobInget on Sun, 7th Jun 2015 1:10 pm 

    Palace coup coming to KSA. That’s the fanciest gossip I have to offer.

    I would like to repost here an internet hero (of mine) on energy investments. I hope you don’t mind.(if you are a small child, stop here)

    light and the shade

    For those spreading false rumours about my stock positions, I have this time say:
    “Influence and hatred go together, they are companions, one can not be picked without the other, the light and the shade, the obverse and the reverse, the crown and its thorns.” – Bernard-Henri Levy.

    The adjustment in the oil market is going as expected. I also believe the balancing process will accelerate over the next few weeks/months as the impact of the oil price shock and the subsequent collapse in capex spending will start to be felt meaningfully in the oil supply stream. The oil business is a capital intensive business, hundreds of billions of dollars in oil related projects have been cancelled or deferred over the last 3 quarters, over a 100K people laid off and well over a thousands rigs globally have been laid down. The impact of all of this on future supply will be real, tangible and consequential.
    Meanwhile demand growth has been strong and will continue to be strong as lower prices continue to stimulate additional consumption.

    There is has never been a better time to invest in oil companies with quality assets and good management such as (deleted) among others. The best time to invest in a commodity business is at that sweet spot after the oversupply crash plants the seed of the next up-cycle thus giving birth to the next boom. This coming oil boom should come in full swing by 2017, however oil stocks will likely adjust higher much faster than the actual boom in commodity.
    On another note, I have not posted much of late because there is not much to post about beside short term noise, secondly I have not been positing because I am in the process of writing a new book “Dark Hair Blue Eyes” which is a fictional book underpinned by existentialist philosophy (should published by July/August) and finally because it is a pleasure to see the haters squirm for attention from their dens of obscurity.
    Regards,
    Nawar

  22. BobInget on Sun, 7th Jun 2015 1:45 pm 

    Russian View: (RT)

    Africa, Fracking, Middle East, OPEC, Oil
    A market flooding production strategy many saw as intending to kill the US-centric shale revolution, has, if anything, only made it stronger. In essence the OPEC cartel is signing its own death warrant.

    As always the communique suggests harmony and continuity but behind the scenes this was apparently a more fraught OPEC meeting than most. The ‘swing producer’ Saudi Arabia managed to keep things going the way it wants, albeit by continuing to flood the market with oil below even its own cost of production.

    The 30 million barrel per day output target stays, although that is being habitually broken by the members (30.93 million in April for instance). At the center of OPEC, Saudi Arabia is being heavily criticized by various countries whose production costs are significantly higher than even the $60 range to which crude prices have recently bounced back after ranging from a $115 peak to around $50 at the lows. Their squeals of pain are proportionate to their lack of reserves – the House of Saud has built up a large war chest over the years to play the energy market for perceived political gain. Bankrupt Venezuela and growing nations like Nigeria simply don’t have the cash reserve firepower to withstand the Saudi’s open taps flooding the market and pushing prices down.

    However the greatest internal threat comes from Saudi Arabia’s old Persian foe. If Tehran convinces President Obama to remove sanctions, then the Iranians are already threatening to increase output by another million barrels per day. Thus the maths of OPEC’s mutually assured bankruptcy are growing.

    The OPEC cartel has been threatened many times but actually this time it may be different. A perfect storm is attacking the oil industry. The perceived thrust of the OPEC decision to pump and be damned, was expected wash away the upstart shale producers of North America. This strategy has managed in the past to keep threats from the likes of Norway, the UK Brent fields and so forth in check. However, the problem is no longer one of single field producers upsetting the balance of the prevailing cartel. Now the threat is the hydrocarbon equivalent of the digital revolution.

    Shale producers shuddered when the oil price plummeted and the number of US rigs dropped 24 weeks in a row from 1600 to around 600. The problem is the remaining rigs are producing more oil than the US pumped before.

    The fracking revolution is inevitable. As Russian Energy Minister Aleksandr Novak noted the other day “By 2040, almost 65 million barrels of high-tech oil will be extracted per day, this includes shelf extraction, shale, deep-water extraction and so on.”

    Remember: the current daily OPEC target is 30 million barrels per day.

    In the United States, the oil industry has long been driven by some (often crazy) entrepreneurial folk who have pushed technology to profitably deliver our energy future. Last year, OPEC apparently conceived of a simple, ruthless move. Wipe out the relatively undercapitalized fracking ‘wildcatters’ and thus ensure the cartel’s future.

    Thus all plans look exquisitely viable when viewed in the linear. In truth, the oil industry has always been built by lateral thinking mavericks. Faced with a direct attack on their model, the North Americans struck back as only they know how: raw ingenuity. ConocoPhillips’ CEO Ryan Lance remarked last week that break-even costs for US unconventional oil production has been cut by nearly a third since last November. They’re still falling – with $60 in sight, and $50 on the horizon. Technological ingenuity is driving a Moore’s law like technological advance (the Intel founder’s maxim: computer power doubles roughly every 2 years).

    This ingenuity will, like the web enabling our interaction, soon go global, benefitting every continent which embraces the future. This process will genuinely reorient the world’s Middle Eastern-centric oil cartel.

    One day (soon) we will look back at the way the world waited with baited breath to evaluate the latest, often arbitrary moves, from a cartel which held energy prices in its thrall for a half century and more… And wonder at how technology has freed us. The frack for freedom may have begun in the USA but our energy future is already being driven by unconventional high-tech production becoming the norm across the world. In the near future, expect Russia and other hydrocarbon powers to be energized as the Arctic brings us bounteous sources of cheap power to drive the world’s prosperity.

    The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.

  23. Speculawyer on Sun, 7th Jun 2015 7:57 pm 

    Oil exporters getting into a price war and pushing down oil prices.

    Thanks, Obama.

  24. rockman on Mon, 8th Jun 2015 7:20 am 

    “The problem is the remaining rigs are producing more oil than the US pumped before.”

    Sorry…not even close to being correct. Lag time…lag time…lag time. And the predictable drop in production has just begum to show up. The productivity of the shales even BEFORE the rig count drop showed weakening.

    No need to debate the point now: by the fall/winter there will be all the proof laid out in cold, hard and irrefutable numbers.

  25. charmcitysking on Mon, 8th Jun 2015 7:37 am 

    The 28 pages won’t be declassified in any of our lifetimes.

  26. shortonoil on Mon, 8th Jun 2015 7:40 am 

    “Oil exporters getting into a price war and pushing down oil prices.”

    It has more to do with weak economies that can not pay for high priced oil. That situation will only get worse. Prices fall, and producers are forced into increasing production to make up for declining revenue. More production, lower prices. It is an ongoing downward spiral that will only continue:

    http://www.thehillsgroup.org/depletion2_022.htm

    Obama had nothing to do the effects of depletion. The war that we could get into because of it will be very much his doing! Keeping their empire together is more important to Washington than the America people?

    http://www.thehillsgroup.org/

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