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.
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