Why Saudi-Iran tensions have little impact on oil price?

Oil&Gas Materials 17 November 2017 12:25 (UTC +04:00)

Baku, Azerbaijan, Nov.17

By Leman Zeynalova – Trend:

The recent tensions between Saudi Arabia and Iran have little impact on the oil prices, Edward C. Chow, Senior Fellow for Energy and National Security Program at Center for Strategic and International Studies, told Trend Nov.17.

“Oil prices rose above $60 one week before the recent political developments in the Middle East. In fact, they have since peaked and may be heading down. So there has been very little impact as the tensions do not affect directly oil supply,” he believes.

As for the likelihood of war, Chow pointed out that so far, the danger appears to be proxy wars in the region, not direct military confrontation between Saudi Arabia and Iran.

The recent developments in the Middle East including the resignation of Lebanon’s Prime Minister Saad Hariri as well as a missile launch at Saudi capital Riyadh has worsened deteriorating ties between Saudi Arabia and Iran.

Hariri who announced he was stepping down last week during a visit to Saudi Arabia, has blamed the Iran-backed Hezbollah movement for his resignation, citing concerns over his and his family's safety.

Although Iran and Hezbollah have accused Saudi Arabia of holding Hariri hostage, he has denied the allegation.

Moreover, on November 4, Riyadh was subjected to a missile attack from neighboring Yemen. Saudi Arabia considered it as a signal from Tehran about readiness to start a missile war against it by using Houthis in Yemen. Saudi Defense Ministry assessed the missile attack from Yemen’s territory as “an outrageous act of military aggression by Iran, which can be seen in the future as an act of war against Saudi Arabia."

Earlier, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and SVP MEA-Risk, told Trend that in the case of a war between Iran and Saudi Arabia, oil prices can increase by $5-$10 per barrel.

“A war with Iran or its proxies, can first of all threaten to block the Strait of Hormuz, blocking 6 million barrels of oil per day and a vast amount of liquefied natural gas (LNG) to the world. A continuation of military actions also will increase the price by $5-$10 dollars per barrel. A blockade of Hormuz or the Strait of Aden will put another $3-$5,” said the expert.

Meanwhile, Gal Luft, the co-director of the Washington-based Institute for the Analysis of Global Security, believes that in order to overcome its rivals, Saudi Arabia will try to keep prices low enough for long enough, as they still can afford low oil prices for two or three more years.

Therefore, he doesn’t think that the upcoming OPEC meeting to be held Nov.30 will yield production cuts.


Follow the author on Twitter: @Lyaman_Zeyn