Revamped Iranian oil production and U.S. hydraulic fracturing operations have Saudi Arabia’s control of the global oil supply “on the ropes,” according to Bloomberg’s Sam Wilkin.
The Saudi-led Organization of Petroleum Exporting Countries (OPEC) will meet Thursday to work out a plan to cut global oil supplies and boost prices, but OPEC member Iran has an incentive and the power to screw the whole plan up.
Wilkin noted that Saudi Arabia’s previous attempts to boost prices failed due to rising oil production from the U.S. and Iran, which are gaining on the Saudi’s oil market share. Iran is inviting foreign investment in its oil industry, which could boost oil production enough to harm Saudi Arabia.
Experts see Iran’s gunning for Saudi Arabia’s oil business as an extension of lingering tensions between the two nations.
“Iran and Saudi Arabia have had serious frictions in the past, but the last few years have seen a real increase in tension,” John Gay, executive director of the John Quincy Adams Society and coauthor of the book “War With Iran,” told The Daily Caller News Foundation.
“They’re fighting a bit of a proxy war in Syria, and Iranian activists, likely with state collusion, stormed the Saudi embassy in Tehran after the execution of a Shia cleric in Saudi Arabia in January 2016, which led Saudi Arabia to cut relations,” Gay said.
OPEC wants to keep oil prices relatively higher than they have been in recent years, having lost $76 billion in 2016 due to cheap oil caused by rising American and Iranian oil production, according to a report by the U.S. Energy Information Administration (EIA).
“As a general rule, Iran, as a populous country, is going to favor higher oil prices, but that doesn’t always hold up case to case, and they’ve been more flexible lately.” Gay said, noting that Iran’s increasing control over the global oil market could be a weapon against Saudi Arabia.
Iranian oil is making the already sour relationship with Saudi Arabia even worse. U.S. sanctions against Iran made Saudi Arabian oil more valuable, and allowed the Kingdom to increase its share of the global oil market. Iran’s re-emergence is making Saudi foreign policy more aggressive, while undermining the economies of Saudi Arabia and other OPEC nations.
Iranian oil production rose after former President Barack Obama ended years of sanctions. By increasing oil production, Iran is acting to decrease prices.
U.S. producers handle cheap oil much better than many OPEC members. As recently as June 2014, the price of a barrel was almost $109.
The OPEC conference will closely follow President Donald Trump’s visit to Saudi Arabia. Trump has increased U.S. support for the Saudis against Iran, which could increase the risk of a battle for control of the oil market spilling into an all out confrontation.
“The Trump administration’s recent moves in the region may increase the dangers of confrontation between Saudi Arabia and Iran,” Gay said. “Trump’s speech on Islam and countering extremism was music to Saudi ears, especially when he aligned the United States with the Saudi vision of Iran as a main source of regional instability and as a state that must change before it can be integrated into the regional order.”
“[I]f the Saudis are confident that America has their back, no matter what they do, they may see little need for rapprochement,” Gay told TheDCNF. “For better or worse, Washington seems ready to follow Riyadh’s lead in the region.”
The U.S. may export more oil in 2017 than four OPEC member states produce, according to a survey of energy analysts by Bloomberg. The U.S. is already outproducing Libya, Qatar, Ecuador and Gabon; in 2017, U.S. companies could ship more oil overseas than those OPEC nation pump out of the ground.
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