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Will US-Saudi Rift Open Oil Market to Iran?

By: Hassan Chakrani


An employee fills a container with diesel at a gas station in Riyadh in this December 19, 2012 file photo. (Photo: Reuters - Fahad Shadeed)

November 1, 2013

What do India, China, Japan, South Korea, and Turkey have in common? Iranian oil. These are the only five countries importing Iranian fossil fuel, despite Western sanctions. However, Iranian oil is beginning to flow to the legitimate market, its only obstacle being Saudi Arabia.

Prior to the latest Iranian presidential election, it was firmly believed that Washington would not allow Iran to return to the international oil market, at least not in the foreseeable future. Today, however, some reports maintain that Iran ľ one of the top five oil producers in the world ľ will be ready to pump oil into the international market at a low cost, in the event that the Western sanctions are lifted.

Information from Tehran indicates that "unofficial negotiations with interested countries and oil merchants are progressing, gradually and quickly."

A Major Player Is Back

Such speculations are based on the actual dialogue between the United States and Iran (made public in the famous phone call between Iranian President Hassan Rouhani and Barack Obama). They are also based on facts that indicate an imminent deal on the Syrian crisis, based on the common interests of Iran, Russia, and the US, allowing the return of one of the major players in the international oil market.

Holders of this opinion explain their analysis by pointing to the Iranian nuclear program, which has always been a rope to hang the laundry after being washed in the backrooms, where actual policies are made and each side fights to keep its strategic position or make more profits.

Based on these indicators, the main obstacle to the official and legitimate return of Iran to the oil market is connected to the position of its main regional rival, Saudi Arabia.

The position can be seen on two levels. The first is in the Organization of the Petroleum Exporting Countries (OPEC), led by its biggest and strongest producer Saudi Arabia. To reach the international markets, all legitimate oil exports from Iran should pass through this organization to measure the quota and look ensure the specified criteria. Iran's return would increase the supply, leading to a price reduction.

Saudi Arabia is currently enjoying wide profit margins, as the market registers stable prices at high levels. The kingdom today produces more than 10 million barrels a day, one-third of the total OPEC output. Revenues from exporting this wealth of oil are used to finance massive investment projects.

Thus, Iran's readiness to distribute its oil production outside OPEC at discounted prices, as well as its official return to the market, will negatively impact Riyadh's economic and political plans.

The second view of the kingdom's position is based on its relations with the US, which have always been the main pillar in providing the desired balance in the market. For example, when the price of an oil barrel reached $150 in 2008, these relations prompted Riyadh to increase production, flooding the market, which was contrary to its interests.

Lately, when sanctions were tightened against Iran, the Saudis were the ones the US and the West depended upon to compensate for the shortfall in the market.

Over the past two months, the kingdom has seen itself as a common adversary to the Iranians and the US. The first case is obvious, as Iran and the Saudis have conflicting aims from Lebanon to the Pakistani coast through the Gulf of Aden. As for relations with the US, it is enough to listen to Saudi intelligence chief Bandar bin Sultan (reported in the press by Ellen Knickmeyer speaking to Western diplomats) to notice that the historical alliance between Riyadh and Washington is cracking under the impact of raging conflict in Syria.

These shocking pronouncements came after an even more radical stance expressed by Saudi diplomacy, rejecting a seat at the United Nations Security Council.

On the immediate and practical level, last week witnessed more signs of the increasing gap between the US and the Saudis. Bandar bin Sultan sold his mansion in Aspen, Colorado for $36.5 million, thus liquidating half of the six properties in the luxurious ski resort area, which "formed a massive compound where the prince entertained guests including recent US presidents," according to The Wall Street Journal.

What was remarkable in the recent sale was the comment made by William Jordan, the lawyer representing Bandar's business in that region, who was "surprised he was willing to sell this one."

The Growing Rift

The rift between the two countries is growing. The US has worked for decades to guarantee the supply of Saudi oil, but will the disagreement over Syria seriously threaten the current dynamics in the oil market, thus pushing prices up to a level that the West cannot afford?

The US position in the oil market is currently set by many clear indicators. The most important news in the sector currently is that the US, using modern drilling technologies to access hard-to-reach oil, is on its way to actual oil supremacy. It will become the number one exporter of crude oil in 2020, surpassing Saudi Arabia. Gradually, the US will begin looking for efficient options for energy conservation, especially in transportation, and, by 2030, become a net oil exporter.

"The global energy map is changing, with potentially far-reaching consequences for energy markets and trade," says the latest report by the International Energy Agency.

There is no doubt that the Obama administration has shown a relative transformation in approaching its global interests. It pressed the reset button with Russia. Following a storm of threats and intimidations during the days of George W. Bush, it seems ready for dialogue with Tehran.

It is no longer a strategic secret that an important aspect of the war in Syria has to do with who will take control of the Levant and have the upper hand in the competition over the natural gas pipelines from the Gulf, specifically the South Persia field, shared between Iran and Qatar, which will pass through the Middle East and Turkey, all the way to Europe.

The picture gets even more complicated with the entry of Lebanon, Cyprus, and Israel into the equation. Prospects of exporting the huge quantities of oil discovered there in the past decade are beginning to confuse the other schemes. The situation in Lebanon seems to be related to such calculations, in addition to the impact of the sectarian regime.

The idea, which seems to be under consideration today and becoming realized gradually, is that the return of Iranian oil to the market in the context of an agreement to lift some of the sanctions against Tehran, is a clear indicator that dialogue between the US and Iran could pave the way to a deeper set of understanding in the Middle East, based on the battle for energy and oil in particular.

This article is an edited translation from the Arabic Edition.


:: Article nr. 102228 sent on 02-nov-2013 11:44 ECT


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