While oil prices experience volatility due to Greece crisis inching towards its exit from euro zone and P5+1 negotiations keep on extending Saudi Arabia takes a somersault.
It is becoming evident that Saudis are getting more desperate to retain their market share and trying to strike new deals with India and Russia. For India, the Saudis are offering to ship crude using their own tankers to Indian refineries, which would cut the costs significantly for India.
The strategy is aimed at selling crude oil to India at a discount, one of the major buyers of Iranian oil. It may be said that using Saudi ships to transport crude to India would allow the country to save up to 30 cents per barrel. Saudi strategy is aimed at securing it market share at a time Asian buyers are looking for better deals in a global glut.
Another negotiation is going on between two oil giants Saudi Arabia and Russia. This is important also because Russia has now officially surpassed Saudi Arabia to become China’s top crude supplier in a battle to enhance its market share. But it’s not oil that the Saudi’s are dealing with Russia—for obvious reasons.
Saudi Arabia has signed a deal to invest up to US$10 billion in oil rival Russia, in the fields of agriculture, medicine, logistics, retail and real estate. It is evident that while the Saudis are busy trying to secure oil market share, the Russians are trying to make up for hits they’ve taken from Western sanctions.
This has produced a fair amount of dramatic talk about Saudi Arabia and Russia joining forces in a new alliance. Overly dramatic or not, the U.S. sentiments are turning against long-time friend Saudi Arabia. Washington is certainly annoyed with changing mindset of Saudis that may pave way for the withdrawal of sanctions from Iran to teach a lesson to the ally of recent past.
Any deal with Iran would mean more geopolitical change than the faltering Saudi Arabia—which is fighting a war in Yemen that is leaking across its borders. The competition on the oil scene, though not immediate, would eventually hit Saudi Arabia hard, as the Kingdom is already scrambling to secure market share. The consequences would be immense and Iranian deal, more than anything, will define future relations. There are many who would like to see this final noose tighten around Saudi Arabia.
Experts have repeatedly expressed fears that Greek crisis could infect oil markets. WTI fell by 8 percent on July 6, falling to around US$53 per barrel. Brent lost nearly 5 percent, dropping to under US$58 per barrel. Oil is now trading at its lowest level in months, erasing several weeks of stability as well as optimism that the market had begun the arduous process of adjustment.
The Greek crisis has entered a new and much more dangerous phase, raising the possibility that the country could get booted from the currency union. JP Morgan Chase stated that it thinks odds are more likely than not that Greece leaves the euro. With Europe in turmoil, oil prices may not recover in the short-term.
But it isn’t just Greece. In another geopolitical development, the Iranian negotiations are at the finish line. The outcome is still in doubt, as the deadline has once again been pushed back, but all sides seem extremely close to striking a deal. After weeks and months of uncertainty, the progress over the past week seems to have finally convinced the oil markets that a return of Iranian oil is close to becoming a reality.
The extent to which Iran can bring oil fields online and ramp up exports is a matter of much debate. But realistically speaking Iran could send up to a million barrels oil per day to the global marketplace after concluding the agreement. Reportedly Iran has stored over 40 million barrel crude oil in ships that ready to sail any minute.