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Rakesh Upadhyay

Rakesh Upadhyay

Rakesh Upadhyay is a writer for US-based Divergente LLC consulting firm.

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Does Iran Have The Upper Hand In OPEC Oil War

Traditional rivals, Saudi Arabia and Iran, continue to fight to prove their supremacy in OPEC. Neither gives up an opportunity to hurt the other, whenever and wherever they can, and oil seems to be their favourite playground.

With Saudi Arabia scuttling any chances of a production freeze in Doha in April, Iran has followed suit by thwarting attempts by Saudi Arabia to introduce a production ceiling on OPEC production in Thursday’s meeting held in Vienna.

Iran, which is close to its pre-sanction levels of production, had earlier agreed to discuss being part of any production freeze after it reached its desired output. However, in yesterday’s meeting, Iran refused to adhere to any production ceiling, which led to OPEC abandoning the idea.

Iran has been a dark horse since the lifting of sanctions, increasing its market share quickly to the surprise of many investors.

Iran has resorted to offering large discounts to its Asian customers, undercutting the Saudi and Iraqi prices to levels not seen since 2007-2008 in order to regain their market share, reports Reuters.

Iran shipped 2.3 million b/d in April 2016, the highest level since 2012. These figures are 15 percent higher than the International Energy Agency (IEA) forecast. Iran has been successful in its strategy until now, but increasing its market share further might prove difficult.

Meanwhile, Saudi Arabia is attempting to cement its market share in the wake of this increased production from Iran and Iraq. Though Saudi Arabia is attempting to transition away from being an oil-dependent economy, its transformation depends on the successful listing of Saudi Aramco. Related: Clinton Campaign Pledges to Raise Fed Royalties for Oil Companies

As part of its preparation for the listing, Aramco is gaining market share and improving its efficiency, according to its chief executive, Amin Nasser.

"We are preserving our market share, which continues to increase year-on-year," he said in the interview. "This year, as last year, it is increasing. Our market share is picking up," he added, without giving figures, reports Reuters.

Ian Bremmer, the president of political risk consultancy Eurasia Group, told Reuters that the Saudi’s looked set to increase production after speaking with executives and a member of the Saudi ruling family.

The struggle for supremacy between the two nations doesn’t show any signs of abating, and there is no clear winner in this showdown.

Though Saudi Arabia has large reserves, it is burning them at a fast rate. On the other hand, experts believe that the Iranian economy is better equipped to withstand lower oil prices because its economy is more diversified and has an educated and hardworking population. Related: 4 Ways Latin America Can Achieve Energy Success

Emad Mostaque, a strategist with the London-based research consultancy Ecstrat, echoed a similar view. He said that Iran is better equipped to cope with the long-term upheaval because it is less dependent on oil than Saudi Arabia, having raised more through general taxation than through oil duties last year, reports Fortune.

The fight between the two for supremacy in the Middle East region is unlikely to end anytime soon. Currently, supply outages to the tune of 3.5 million b/d are supporting the oil prices by creating a balance between demand and supply.

Once Nigeria, Libya, and Canada resume pumping at their normal levels, the effects of the struggle between Iran and Saudi Arabia will be felt. If both increase production, the world will be awash with oil, pulling prices back to the mid $30/barrel levels.

By Rakesh Upadhyay for Oilprice.com

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Leave a comment
  • adec on June 05 2016 said:
    same bear same agenda of the author who predict 1 month ago that oil will be back to 30s.
  • Peter Rail on June 05 2016 said:
    Ramkesh Up... or so has nothing better to do than to write such BS articles.
    30 dollars oil price is his favourite subject......
  • Sadah on June 06 2016 said:
    Lame article. The Saudis are the only country that can fluctuate it's production by +/- 3 mbpd. Yes they are dependent on oil but they have been for the ladt 40 years and it didnt stop them from manipulating the market.
  • adec on June 06 2016 said:
    Everytime this author wrote something bearish, he got slammed by the market...
  • Sam Rifen on June 06 2016 said:
    Again, 30 Dollars, Iran is the greatest, and Saudis are idiots, 3 things that you'll see whenever this writer published an "article".

    1. How many times you were wrong about the (30 dollar)

    2.A recent report titled Measurement and Economic Analysis of Urban Poverty showed that between 44.5 percent and 55 percent of Iran's urban population lives below the poverty line.

    So please!!! where are the "Iranian economy is better equipped to withstand lower oil prices because its economy is more diversified and has an educated and hardworking population." ???

    3. Saudi are the only country that can manipulate the oil prices with its 12.5 million bpd , NOT Iran with its 2.1 million bpd.

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