Jan 30, 2016, 11:39 AM
News Code: 81941078
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Fear, main driver of Saudi oil strategy

Tehran, Jan 30, IRNA – Panicked by an assumption that the normalization of ties between Iran and the West would harm its interests, Saudi Arabia has adopted a new oil market-share strategy to stop the process.

The Iran Daily in an opinion piece published on Saturday, investigates the Saudi policy and the goals Riyadh is following to achieve.

The full text follows:

Last week over the course of holding World Economic Forum in Davos, Switzerland, Iranian Foreign Minister Mohammad Javad Zarif, in an interview with the CNN, said, “Saudi Arabia has panicked over the potential for reduced tensions between Tehran and the West.”

This viewpoint, apparently, depicts a true picture of the reasons behind political behavior of Riyadh and its oil policy, which has been focused on defending Saudi Arabia’ market share for more than 12 months.

This writing seeks to explain Saudi Arabia’s oil policy based on ‘panic assumption’, as the Iranian foreign minister told CNN, and maintains that the origins of Riyadh oil policy could be traced in the country’s fears and worries and the progress made to improve relations between Iran and the West.

Saudi Arabia decided to flood oil market with additional barrels to bring oil prices down, upon knowing that the Rouhani administration is determined to reach an agreement with the West on nuclear issue and get rid of sanctions.

Since 18 months ago, international oil markets have been experiencing tumbling crude prices. Currently, crude prices have dropped $80 from mid-2014 to $30 a barrel.

Scores of analysts maintain that Riyadh brought the prices down in collaboration with the US to harm the economies of Iran and Russia by reducing their oil revenues.

Nevertheless, given that “Saudi Arabia is panicked over reduced tension between Iran and the West”, Saudi Arabia’s behavior in the oil market can be analyzed and studied from a different angle to give us a clearer picture of the strategy the country implemented in the oil market under the pretext of maintaining its share.

This new angle shows that in addition to harming the financial systems of Iran and Russia, Saudi Arabia’s decision to saturate the market was aimed at two other goals.

Riyadh could transfer hundreds of billions dollars from exporters’ pocket to importers’ account by pursuing market-share-strategy. Riyadh sought to lure consumers and announce that it has positive functions as a member of the world society even though its foreign policy is stained with backing terrorist groups like ISIL.

Hypothesizing that Saudi Arabia’s oil policy has inflicted a loss of about $500 billion on oil exporting counties and raised importers’ revenues by the same amount, we will have a better understanding of the reasons behind the country’s oil policy to bring oil prices down.

To figure out Saudi’s oil policy, even a more important issue has been ignored. Many believe that Saudi Arabia adopted its market-share strategy, upon receiving the green light from the US, to hurt Iran’s economy and put pressure on the country to grant more concessions during the nuclear negotiations. However, it is also likely that Saudi Arabia decided to bring oil prices down in the fear that declining tensions between Iran and the West could endanger its security.

The country felt that as the icy relationship between Iran and the P5+1 was thawing, it may lose the US’ support in regional conflicts. Therefore, it decided to lower oil prices to cripple the US’ oil industry and slows Washington’s progress towards cutting reliance on crude imports which could lead to the its decreased commitment to the kingdom’s security.

A glance at international developments over the five-year period to 2014, shows that with higher oil prices, the US have raised crude production by 5 million barrels per day. continuation of such a trend could reduce the US’ reliance on oil imports from the Middle East and, thus, distort the equation of oil for security, due to which the US remained committed to Saudi Kingdom’s security.

Saudi Arabia is involved in a number of regional conflicts and is quite vulnerable to its domestic developments due to its government’s economic mismanagement, huge budget deficit and rising prices of oil products and other services at home.

During the period in which the US raised domestic oil output, its imports from Saudi Arabia declined from 2.3 mbpd to 800,000 barrels per day in 2014. This panicked Saudi rulers and prompted them to make oil production uneconomical for the US by saturating the market with cheap oil. In other words, Saudi rulers intended to guarantee their security.

If some extremists in Iran had not turn the page in favor of Saudi Arabia in diplomatic scene by storming the Saudi embassy in Tehran, Iran could focus more on Riyadh’s developments in the past few weeks and, thus, learn that Saudi rule are intimidated by improved relations between Iran and the West because they think that it might weaken the support the US is providing them with in terms of security.

During the closing days of 2015 it was clear that Saudi oil policy has imposed a huge burden on the shoulder of Saudi people: 98 billion dollars of budget deficit in 2015 and projection of more or similar deficit for the current year, decline of its foreign exchange reserves, increasing the oil products’ prices at home and fruitless involvement in regional conflicts are some signs of serious concerns of Saudi rules. These growing worries prompted Riyadh in the early days of 2016 to behead Ayatollah Nimr, a figure who could lead some dissidents on the heels of emergence of economic problems in the kingdom.

By: Heshmatollah Razavi