A report notes the plan of Saudi Arabia to punish Iran by not agreeing a freeze in oil production, “OPEC’s failure over the weekend to reach a deal to freeze oil production at current levels, and thus nudge oil prices back up, shows that Saudi Arabia hates Iran even more than it hates losing money. That will make it harder for OPEC to take any meaningful steps to soak up the glut of oil that is keeping prices low and straining state coffers. Riyadh, the largest producer inside OPEC, and other big oil producers had spent months talking up the weekend meeting in Doha, Qatar. But the Saudis made clear they couldn’t sign on to any production freeze that didn’t include Iran. And Tehran didn’t even bother to send its oil minister to the freeze meeting, since Iran is busy throwing off years of sanctions and fighting to regain its share of the global oil market — and has no interest in nipping its nascent recovery in the bud. As a result, initial expectations for a deal in Doha evaporated by late Sunday — even though that will mean more financial pain in the short term as oil prices go back down. Crude oil fell in New York and London on Monday and would likely have fallen more but for a strike by Kuwaiti oil workers that knocked out half that country’s oil production”.
The article adds “The rivalry has only grown since the West and Iran reached a deal last year to halt progress on Tehran’s nuclear weapons program. That deal will enable Iran to access tens of billions of dollars in frozen assets, as well as return to the oil market as a major producer and exporter. Saudi Arabia fears Iran will parlay those increased resources into greater regional influence. Riyadh and Tehran are currently fighting proxy battles in Syria, Iraq, Lebanon, and Yemen. Relations between the two oil-producing titans took a turn for the worseearlier this year, after Saudi Arabia executed what it called a dissident Shiite cleric, sparking an angry response in Iran and the suspension of diplomatic relations. And that bad blood continued into last weekend’s Doha summit. The big oil producers, including OPEC heavyweights like Saudi Arabia and Iraq, as well as producers outside the cartel, namely Russia, had reached a preliminary deal to maintain oil output at present high levels but not to keep adding even more oil to an already glutted market. Iran would love other big producers to freeze production — but refuses to hamstring its own oil output, which is just now returning to pre-sanctions levels”.
Johnson adds that “And with Iran unwilling to help shoulder the burden, the Saudis reportedly torpedoed the whole conference, showing they are willing to countenance continued financial pain rather than do anything that could benefit Tehran. Saudi Arabia does have the deepest pockets in OPEC and still has cash reserves of $582 billion to help it weather a prolonged period of lower prices. But even so, Saudi Arabia’s finances have been badly dented by the fall in oil prices: Saudi currency reserves stood at about $730 billion just two years ago. That’s a reflection of lower income from oil exports and rising expenditures elsewhere, including a nearly 20 percent increase in the Saudi defense budget every year since the Arab Spring ignited in 2011. And while the country is taking big steps to try and save cash — including cutting subsidies and government salaries and selling off huge state assets like Saudi Aramco — Riyadh’s decision to punish Iran by keeping oil prices low could boomerang and undermine its own regional strategy”.