Iran, Saudi Arabia, OPEC and Oil
On December 4th, 2014, I analyzed reports on Saudi Arabia’s reasons for continuing high levels of oil supply on the international market. In a recent article by Ali Akbar Dareini, he writes about the rising tension between Iran and Saudi Arabia over oil. In his report, he explains that “Iran’s President Hassan Rouhani said Wednesday that the sharp fall in global oil prices is the result of “treachery,” in an apparent reference to regional rival Saudi Arabia, which opposed production cuts.”
One has to remember that the Organization of Petroleum Countries (OPEC), despite being an international organization, is not always unified in its policy positions with regards to their oil supply levels. Often, Iran and Saudi Arabia are in disagreement with regards to out production output, with Saudi Arabia advocating for higher supplies compared to Iran.
Every country has their own interests. For Saudi Arabia, given very high proven reserves, and given high levels of daily production (as Dareini explains, they supply 1/34rd of OPEC’s daily output), they can more afford to keep supplies high. In addition, many think that they are also doing so to appease their US ally, as well as ensure that countries do not look to alternative energy sources.
In contrast, Iran is more reliant on the oil. And with domestic economic instability in recent years, as well as international sanctions related to their nuclear program, it seems that low oil prices are further hurting Iran’s economy, which may be weakening them regionally, something Saudi Arabia would not be unhappy about.
Thus, it is always important to examine why countries in OPEC (or any other international organization) take the positions that they do. Iran and Saudi Arabia have been regional rivals, and thus, are continuing to have political disagreement over this issue of oil. It will be very interesting to examine whether Saudi Arabia will move to reduce oil (probably not anytime soon), and the Iranian response with regards to statements about Saudi action. In addition, these developments may possibly affect Iran’s bargaining position with regards to their nuclear program, particularly if they see any continued concern about long-term sanctions.
