Friday, 11 March 2016

Why pressure on Iran to freeze oil production at current level?

Saudi Arabia and Russia initiated the move to freeze output at January 2016 level and other smaller oil producing countries joined them. However, most of the stories published by the western media regarding containing glut seems to be terming Iran as spoiler. One has to review the situation dispassionately to find if Saudi Arabia and Russia are being judicious in asking Iran to agree with their demand?
To begin with, it seems very interesting that the US that attained the status of one of the largest producers of oil lately is keeping mum. It may be because in the US number of active rigs have come down from more than 1,900 to less than 400 but the level of oil production has not come down correspondingly.
In my view the indifferent attitude of the US is because: 1) it managed to install record number of rigs and those suspending production can be brought online as and when desired, 2) the decline in oil price has caused enough damage to its arch rivals i.e. Saudi Arabia, Russia and Iran, 3) massive reduction in oil price has failed in accelerating GDP growth rate, even in the US and 4) on the contrary central banks of developed countries are forced to keep interest low and offer other stimulus for accelerating economic activities.
I also believe that Saudi Arabia is not ready to curtail its output because its economy is heavily dependent on oil. As against this Iran has endured sanctions because of its substantial non-oil exports. The other reason Saudi Arabia appears adamant at keeping Iranian oil exports low is the fear that after the withdrawal of sanctions and release of withheld payments, Iran can attain the status of regional super power.
Another point worth probing is why Russia, fighting a proxy war with Saudi Arabia in Syria, has joined hands with its arch rival? It may be said that Russia is trying to get its hold in the Middle East more firmly. In the region there are two contenders trying to attain the status of regional super power, Iran and Saudi Arabia. Over the years Iran has been fighting its own as well as proxy wars, whereas Saudi Arabia is militarily not strong enough, it has survived mainly with the support of US.
Russia also realizes that after the withdrawal of sanctions imposed on Iran, Saudi-US relationship have become strangulated. One can recollect that in the past Saudi Arabia relied on the US/Nato forces but lately it was forced to form a group of 34 countries to defend its interest. At present joint exercises are being held in Saudi Arabia that is a clear message to the US that Arab Monarchs have found the alternative.
In the prevailing situation Saudi Arabia wants to maximize pressure on Iran by keeping its oil exports at the lowest level. However, the logic being followed by Saudi Arabia seems to carry no weight as all the countries have snatched Iran’s share. If Iran is demanding up to 4 million barrel per day production it is fully justified.

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