Iran Leaders Say US Not Only Target Of Suspected Saudi Oil Price War

To many observers, OPEC’s refusal to cut production and thus shore up oil prices was the beginning of a price war with the United States so that Saudi Arabia, the cartel’s most influential member, could regain the market share it had been losing during the recent American oil boom.

Now Iran’s president, Hassan Rouhani, is saying that Riyadh, through OPEC, is also using “treachery” to harm the economies of fellow oil-producing Muslim states in the Middle East.

“The fall of the oil prices is not just something ordinary and economical. This is not due to only global recession,” Rouhani told his cabinet on Wednesday. “The main reason for it is [a] political conspiracy by certain countries against the interest of the region and the Islamic world and it is only in the interest of some other countries.”

Rouhani added, “Iran and people of the region will not forget such conspiracies, or in other words, treachery against the interests of the Muslim world.”

Saudi Arabia wasn't mentioned by name, but most observers say Riyadh was the focus of Rouhani's criticism.

In the weeks leading up to OPEC’s crucial meeting on Nov. 27, several members of the cartel, notably Iran and Venezuela, were urging Saudi Arabia to call for a lowering of production levels by at least 1 million barrels a day to balance a supply glut more equitably with lower demand. But Riyadh ignored their pleas, and OPEC kept its cap at 30 million barrels per day.

Since June, the average price of crude oil has fallen from about $115 barrel to under $70.

The next day, Iranian Oil Minister Bijan Namdar Zanageh saidthe Saudi motive was to keep global oil prices low in order to threaten the viability of the US boom in shale oil. Extracting oil from shale is more expensive than conventional methods, and can become unprofitable if the price of oil falls below $65 per barrel.

Saudi Arabia’s influence in the cartel is understandable because it produces fully one-third of OPEC’s total output, which itself has a 40 percent share in the global oil market. Riyadh itself, however, has said that any cut in OPEC production would harm its own market share, and has not specified any targets of its production and pricing strategy.

Nevertheless, the Saudis have rejected pleas by OPEC members and even Russia, not a part of the cartel, to cut production.

It may make sense for Saudi Arabia to use the price of oil to regain the market share it’s lost in the energy-hungry United States, but it’s not as obvious why it would use oil as a weapon to harm its Muslim neighbors.

One theory is that Riyadh’s motive isn’t economic but political, with a bit of religion thrown in. It holds that Saudi Arabia, a Sunni Muslim country, hopes to weaken both Russia and Shi’a Muslim Iran, who support embattled Syrian President Bashar al-Assad, a longtime critic of Saudi Arabia. Further, this theory holds, al-Assad is a member of the Alawite sect of Shi’a Islam.

By Andy Tully of Oilprice.com