Traditional rivals, Saudi Arabia and Iran, continue to fight to prove their supremacy in OPEC. Neither of them is ready to miss any opportunity to cause damage to the other and crude oil seems to be their most trusted weapon.
With Saudi Arabia ready to sabotage any chances of a production freeze, Iran has followed suit by thwarting attempts by Saudi Arabia to introduce a production ceiling on OPEC production the recent in the recent meeting in Vienna.
Iran, which is close to its pre-sanction levels of production, had earlier agreed to become part of any discussion being part of production freeze. However, in the latest meeting, Iran refused to adhere to any production ceiling, which led to OPEC abandoning the idea.
Iran has been quick in boosting its output soon after lifting of sanction and boosting its market share faster than anticipated. It is being said that Iran has resorted to offering large discounts to its Asian customers, undercutting the Saudi Arabia and Iraq.
According to media reports, Iran shipped 2.3 million b/d in April 2016 the highest level since 2012. These figures are 15 percent higher than the International Energy Agency (IEA) forecast. Iran has been successful in its strategy until now, but increasing its market share further might prove difficult.
Meanwhile, Saudi Arabia is attempting to cement its market share in the wake of this increased production from Iran and Iraq. Saudi Arabia has been attempting to transition away from being an oil-dependent economy, its transformation depends on the successful listing of Saudi Aramco.
The struggle for supremacy between the two nations doesn’t show any signs of abating, and there is no clear winner in this showdown. Though Saudi Arabia has large reserves, it is burning them at a fast rate. On the other hand, experts believe that the Iranian economy is better equipped to withstand lower oil prices because its economy is more diversified and has an educated and hardworking population.
Though Saudi Arabia will never accept, Iran is better equipped to cope with the long-term upheaval because it is less dependent on oil than Saudi Arabia, having raised more through general taxation than through oil duties over the years.
The fight between the two for supremacy in the Middle East region is unlikely to end anytime soon. Currently, supply outages to the tune of 3.5 million b/d are supporting the oil prices by creating a balance between demand and supply.
Once Nigeria, Libya, and Canada resume pumping at their normal levels, the effects of the struggle between Iran and Saudi Arabia will be felt. If both increase production, the world will be once again flooded oil, pulling prices back to around US$35/barrel levels.
Both the countries are involved in proxy wars in Syria, Yemen and Bahrain. Gone are the days when the United States was a friend of Saudi Arabia, in fact it has become a foe now. Iran is supported by Russia and United States seems least interested in the affairs of Middle East. On the contrary, it is feared that Saudi Arabia may have to face the brunt of 9/11.