Saudi Arabia Not Sole Cause for Global Oil Slump

Tuesday, January 20, 2015

Tehran, Riyadh Both Hit by Falling Oil Prices

Interview with Abbas Maleki
Associate Professor at Sharif University of Technology’s Faculty of Energy, Tehran

Each side of the oil-politics equation can affect the other side. Any country producing a lot of oil can influence the economy and politics of other countries by just increasing or decreasing its output. Powerful countries, on the other hand, can cause fluctuations in oil prices by influencing production policies of those oil producing countries that “listen” to them. For a while now, the price of crude oil has been seeing a remarkable slump in international markets and, in parallel, oil producing countries have seen varying degrees of deficit in their annual budgets. Although many economic factors play a role in setting the price of oil or causing it to fall, more analysts have been blaming Saudi Arabia for the recent global oil price fall. During a public address in the southern Iranian port city of Bushehr, Iran's President Hassan Rouhani said, “If the fall in oil price harms Iran, it also harms other producing countries, such as Saudi Arabia and Kuwait, even more than Iran.” He also warned those behind “this plot” that they would soon regret what they have done. Although most of that warning was apparently aimed at Saudi Arabia, it can be also addressed to other countries; perhaps even the United States. In the following interview, Sharq Persian daily has discussed the role of Saudi Arabia in reducing oil prices with Abbas Maleki, a former Iranian diplomat, director of the National Iranian Oil Company’s crude oil pricing department from 1980 to 1985, and an associate professor at Sharif University of Technology’s Faculty of Energy.

Q: Some political experts believe that the main reasons behind the current reduction in global oil prices are political and yet, others blame it on economic reasons. In your opinion, what are the relative shares of politics and economy in reduction of global oil prices?

A: I believe that oil price is one of those cases where the number of effective variables are more than other phenomena in the world. For this reason, it is not very easy to analyze its trends. The price of oil is affected by a set of factors, including economic, political, psychological and historical.

Q: We are focusing here on political reasons, especially the role played by Saudi Arabia in this regard. Some analysts are of the opinion that Saudi Arabia is playing a destructive role by reducing oil prices. Do you agree with their view?

A: One of the countries which will be at loss due to reduction of oil price is Saudi Arabia. Although this country has a huge foreign exchange reserve, but I don’t think that there is a country in the world, which does not need to further expand its financial resources. In general, economics is defined as the science of management of scarce resources. Therefore, Saudis also need those resources and I don’t think that they are the main factor behind the ongoing fall in oil prices. The price of oil fluctuates and, as I said before, there has been a historical cycle which has caused price of oil to greatly vacillate since 1850. Some experts maintain that this price vacillations goes through cycles which take about 50 years and, during recent years, that cycle has become shorter and vacillations have taken place more rapidly.

Q: So why did they oppose a reduction in OPEC’s oil output during the recent meeting of the organization?

A: This is the main point. First of all, there is no reason to prove that reduction of OPEC’s crude output will cause a rebound in oil prices because reduced production will only help pull the prices up when the overall supply has been decreased. At present, you are talking about a group of oil suppliers whose control over the oil market is limited to at most 30 percent of that market and 70 percent of the market is controlled by non-OPEC producers and those producing unconventional forms of oil. I don’t want to mean that Saudis have played no important role, but what I want to say is that Saudi Arabia is not the only important variable anymore. Of course, I believe that a reduction in OPEC’s output would have been a good move. The member states of the OPEC were also willing to raise oil prices to a certain degree.

I believe that the global oil prices will become relatively stable when investment in shale oil and gas is reduced and, as a result, the cost for producing every barrel of unconventional oil would be higher than the market price for a single barrel of Middle Eastern oil. The second factor that should not be ignored here is the entry into the market of the oil reserves of major consumer countries. Most of oil consumer countries are member states of International Energy Agency. The Agency has obligated its member states to store a minimum of 60 days of their consumption within their territories. There have been recent reports showing that part of those reserves has found their way into the market and this move has definitely played a role in pulling global oil prices down.

Q: In Iran, however, Saudi Arabia is mostly blamed for being behind the current oil price nosedive.

A: Although political issues leave their mark on global oil prices, after all, oil is a commodity whose price follows suit with economic rules. Oversupply of oil is not an issue to be controlled by OPEC alone. Therefore, all countries only think about their own national interests in order to be able to cope with problems related to their annual budgets and expenditure.

As for Iran, this is a good opportunity to adjust our annual budget in order to keep it safe from the impact of oil market fluctuations. At the same time, we must not forget those parties that are working against the interests of Iran, and only focus on our neighboring states. As for the issue that we have been discussing here, we must try to find the country which quite recently put the names of several Iranian companies and individuals on the list of its sanctions. We must also seek out all those countries that implement sanctions against Iran. It would not be realistic to ignore all of them and just focus on Saudi Arabia because of the assumed hostility of Riyadh toward Tehran.

Q: Well, Saudi Arabia’s hostility toward Iran does not seem to be just an assumption.

A: I also accept that Saudi Arabia only thinks about its own interests. There was a time when Saudi Arabia was unrivaled leader of the Islamic world, especially among Arab countries; but this is not the case anymore. The mistakes that Saudis made with regard to Iraq, Syria and Egypt, have dealt drastic blows to their regional standing. Let’s not forget that Saudi Arabia’s new ambassador is supposed to arrive in Baghdad in the near future. This measure is in contradiction with remarks made by certain Iranian officials who believe that every step taken by Saudi Arabia is against Iran.

Q: You talked about the United States’ measures against the national interests of Iran. Some people believe that Saudi Arabia is playing a role in the new oil game as proxy of the United States.

A: It seems that when it comes to certain issues, the interests of Saudi Arabia and the United States overlap and converge. However, this is not true at all times. Saudi Arabia has its own interests which are not at all times in line with those of the United States. For this reason, the United States has decided to shift its regional focus from the Middle East region to Southeast Asia and pay attention to that region, but this does not mean that all policies adopted by Saudi Arabia should be in line with Iran's national interests. However, it would not be good to forget all other players that are working against Iran in Washington and simply focus on our own neighbor while all available evidence shows that we must have good relations with our neighboring countries.

Q: Will the oil price fall continue in case of a nuclear agreement between Iran and the P5+1 group?

A: I think the oil price reduction is taking place in a totally different environment than that in which nuclear talks are going on. Of course, if the fall in oil price continues, both the governments of Iran and Saudi Arabia will find themselves in dire straits. More importantly, a low oil price will render investment in new and renewable energy resources economically unattractive. Therefore, we must not think that the current fall in oil price is just an effort by Saudi Arabia to mount pressure on Iran.

Source: Shargh Daily
Translated By: Iran Review.Org

More By Abbas Maleki:

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*Islamic Caliphate and Changing Borders in Middle East:

*U.S.-Iran Misperceptions A Dialogue:

*Photo Credit: Proactive Investors, IRNA

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