Iranian oil production is surging after President Barack Obama ended years of sanctions, according to data compiled by Bloomberg.
Production is almost at 2011 levels, sparking conflict with the country’s rivals in the global oil market.
Iranian oil will certainly make the already sour relationship with Saudi Arabia even worse. 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 will likely make Saudi foreign policy more aggressive, while undermining the economies of Organization of Petroleum Exporting Countries (OPEC) nations.
Saudi Arabia and three other Sunni nations cut diplomatic ties with Iran in January. The Saudis banned ships carrying Iranian crude oil from entering the country’s waters or utilizing its infrastructure in April, making Iran more unwilling to cooperate. The Saudis have threatened to increase production by up to a million barrels a day — which would vastly lower the price of oil — simply to hurt Iran.
However, the Saudis need Iran to freeze oil production to increase the global price. Iran has repeatedly said it is unwilling to accept any freeze in oil production to increase the global price, until it regains the market share it lost during years of economic sanctions over the country’s nuclear program. Iran sunk a planned OPEC conference in September before it even began by refusing to accept any cuts to its oil output. Saudi Arabia and other Arab countries have repeatedly refused to make any deal to reduce oil output without Iran involved. “Iran has to be there or there will be no freeze,” one OPEC delegate in the region told The Wall Street Journal in August.
Iran’s oil sector is only now recovering from years of serious under-investment due to sanctions. Simply restoring previous oil production levels is estimated to require a minimum $150 billion of new investment, and could cost Iran up to $500 billion over the next five years, according to reports by the country’s state-run news agency. Iran desperately needs the kind of quick cash that only selling oil on the global market can provide.
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