The Saudis tightening the noose around Iran

Wednesday, June 13, 2012

The Saudis tightening the noose around Iran

Saudi Arabia is putting severe pressure on Iran by pumping record amounts of crude. It is starting to look more like a geopolitical move rather than an OPEC based targeting of supplying the market. The Saudis have gone beyond simply marginalizing Iran as a major oil producer.

SFGate: - Traditional rivals Saudi Arabia — a Sunni Muslim nation — and Shiite Muslim Iran are jockeying for influence in the Middle East as well as in OPEC.

Iran has warned the Saudis not to use the oil weapon against it by increasing supplies to countries that no longer get Iranian crude due to the sanctions. Saudi oil minister Ali Naimi has denied such intentions, telling reporters his country sells to whoever buys.

"We don't sit and say `we want to sell to this country or that country (or) whatever," he said.

But Saudi overproduction is clearly rankling the Iranians. In comments to Iran's Mehr news agency, former Iranian oil minister Gholam Hossein Nozari noted that "political issues have overshadowed OPEC," while analysts say the political implications of Saudi Arabia's production policy cannot be ignored.

"You do wonder what's tied up perhaps with the Iranian political issue," said Neil Atkinson, director of Energy & Utilities Research and Analysis. "Of course the lower the price at the moment the more damage that does to Iran."

It's happening at the time when Iranian crude production is at multi-year low and Brent is below $98/barrel. By severely limiting Iran's financial strength, the Saudi's will certainly be able to increase their influence in the region.

Source: OPEC/Bloomberg

Iran is clearly feeling the pain. The World Bank has moved its Iran GDP forecast for 2013 growth from positive 2.9% just six months ago to negative 0.7% now. Iran's banks are isolated as SWIFT (Society for Worldwide Interbank Financial Telecommunication) - the international money transfer system - has cut them out of its network. Inflation (even the official number) is closing in on 25%. The Israelis now believe Iran's economy is near collapse.

Arutz Sheva: - "The Iranian economy is near collapse, therefore it is time to continue to tighten the sanctions without letting up," Finance Minister Dr. Yuval Steinitz told visiting the Italian Prime Minister Monday.

With this backdrop in place, tensions between Iran and Saudi Arabia are escalating. Apparently the Saudis recently executed some Iranian citizens for "drug trafficking".

Tehran Times: - Iran will send a “legal-consular” delegation to Saudi Arabia to probe the recent execution of a number of Iranian prisoners in the Arab country, a Foreign Ministry official told the Persian service of IRNA on Wednesday.
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The Mehr News Agency also reported on Wednesday that the planned visit of the Iranian deputy foreign minister to Saudi Arabia had been cancelled over the executions.

In spite of the current international focus on Syria, it is Iran that poses the greatest risk to the region. Isolated and denied a great deal of its foreign currency revenue, Tehran can become highly unpredictable and possibly quite dangerous. It is also possible that the current leadership's grip on power is somewhat tenuous. The Saudi'd may be closer to a destabilized Iran than the bargained for.

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