Many believe that the precipitous decline in the price of oil that the world just saw was Saudi Arabia’s reaction to Obama cozying up with Riyadh’s sworn (literally) enemy, Iran. Saudi Arabia essentially dropped an “oil bomb.” The blast from which the world appears to have absorbed for the most part.
Now the spigots are still on but the flow of oil isn’t increasing. As such the price of crude has more or less stabilized at between $45-$55/barrel. The bombing for the time being has stopped, or at least isn’t escalating.
But are the Saudis pulling their punches, saving themselves for another round? Or are they anticipating Iranian oil coming online (thanks to an American agreement) and readying for a tightening of Saudi flows as a new source of crude hits the market?
We may be seeing a realigning of power in the Middle East, one which tips the scales to the Shiites and away from the Sunni Arabs. The impact of this shift may have profound destabilizing effects politically and economically.
It has already destabilized things (more). As we speak the Saudis are pushing into – now – Shiite controlled (in large part) Yemen. Many believe that the princes in the kingdom to the north see the recent overthrow of the Yemeni (Sunni) president and the ongoing unrest on the southern tier as an existential threat. That a Shiite revolt, or even revolution could spread across the desert.
So that makes 2 countries in the neighborhood which fear for their very survival.
As the deadline for Iran nuclear talks looms, the possibility of a deal which in some way lifts crude export sanctions is starting to be realized. As we warned 2 weeks ago, despite all the rhetoric, a confluence of political factors makes a deal highly likely at this point; and as The Telegraph reports, Iran is a sleeping oil giant holding 9% of the world’s proven oil reserves and with an estimated 2m barrels per day of excess supply already sloshing around international markets, any significant increase in Iranian output could easily trigger a further rout in prices. While OPEC may well clamp down on this in June, as The Telegraph concludes, by then a barrel of oil may already be selling for $20.