The relationship between Iran and Saudi Arabia has always been in strained. Oil export is one of the prime areas which causes tension between the two said nations.
What is the oil war about?
Saudi Arabia and Iran are two of the leading oil exporter in the world trade. This fact thus creates a vast competition between them. Recently, rates of business competition among exporting countries trend upward. However, Iran and Saudi have taken competitiveness to a higher level.
The core of the war between Iran and Saudi is more than just oil exportation. Despite being both Muslim countries, Saudi Arabia and Iran still differs in their culture, beliefs and perspective on several matters. Thus, these differences contribute more to the heating rivalry between the two.
Iran’s interest in oil is mainly driven by economic gain. Since the sanctions imposed on Iran were ended they have been concentrating their efforts on increasing oil production in order to export additional units of oil per day.
They want to increase their exports in order to regain their past high market share. They do not want to drive oil prices down; they are more interested in financial gain.
Saudi Arabia’s side
Saudi Arabia already has a large amount of wealth, so their interest in oil is more than just financial. They also have produced large amounts of oil at competitive prices to carefully targeted markets.
Saudi Arabia has recently been concentrating their efforts on reducing ties with Iran and they have been involved other nations in agreeing on a deal to freeze oil output. These discussions have been affected by Saudi demanding that Iran join. Iran has so far resisted joining the agreement.
Where things currently stand
Iran has taken incredible success in its opt to concentrate on increasing their oil production. Figures show that Iran has currently an average of around 3.5 million barrels of oil being exported per day.
Said accomplishment has knocked business and economic experts when Iran attained the increase in just three (3) months—far from their prediction that it will take Iran a year to have such achievement.
Iran has also opted out of talks regarding freezing oil outputs. They stated that they wanted to improve their production to pre-sanction levels. They quoted their pre-sanction levels as being 4 – 4.2 million barrels exported per day.
If their most recent figures are correct then they are not far from their pre-sanction targets. Once they reach their target, will they then consider agreeing to an output freeze? If they did then what do these mean for Saudi Arabia?
What would an output freeze mean?
The initial agreement is that nations in the agreement would freeze their oil output to levels achieved in January.
The output freeze, if it goes ahead, would affect the Middle East’s ability to meet the increase in demand over the summer months. The effect on Saudi would be the equivalent of 5000,000 barrels a day.
When you take this into consideration it is understandable that the oil markets reaction would be in trouble. The stock market reflected traders and investors unease after the output freeze was announced.
The initial reaction failed to take into account was that January’s production levels were quite high, so the impact may not be as great as initially feared.
Will Iran agree to the output freeze?
Now that Iran appears to be recovering at a fast speed following the end of their international sanction, there is every possibility that they may now agree to the output freeze. Previously they have stated that they want to concentrate on increasing their production.
Discussions surrounding the output freeze broke down following Saudi Arabia’s insistence that Iran should join the agreement.
As it stands, Iran is still refusing to agree to the output freeze; however they have urged the other nations to continue discussions.
So, what happens now?
It would appear now that they have reached a standstill. Unless Saudi Arabia agrees to back down on their insistence that Iran agrees to the freeze or Iran agree to commit to the freeze, it seems unlikely that the freeze will go ahead.
If the freeze fails to go ahead, the summer production demand is free to go ahead as usual. The stock market has also recovered after news broke of the discussions breaking down.
Still, it’s uncertain what the next move will be, it has however been stated that the talks are far from over.
Iran Vs Saudi
It is unlikely that the ongoing conflict between Iran and Saudi Arabia is going to end anytime soon. The wounds run far too deep and issues, such as the output freeze, only add to the damage.
In order for the tension to end both sides would need to agree to put their differences aside. After all, diplomacy should always take its toll. Neither side is showing signs of being prepared to even entertain this notion. So, the fight will continue.
How this ongoing tension will affect the oil industry is unsure. Iran’s recent success has, however, made things increasingly interesting.