Saudi Arabia’s Unprecedented Maneuver in OPEC

22 January 2012 | 15:48 Code : 1897283 Interview
Riyadh is breaking the tradition, collaborating with the West to bring tougher days for Iran. Interview with Nersi Qorban.
Saudi Arabia’s Unprecedented Maneuver in OPEC

IRD: The Saudis have found a new tool to express hatred and political hostility toward Iran: oil, the black treasure that has become the topic of conversation in Arab circles as well as in the European Union.

 

The West is reinforcing pressure on Iran due to its nuclear program, while it depends on Iran’s oil supply. Additionally, countries like China see no reason to cut ties with Iran as an oil partner because of the West’s false accusations against Iran.

 

These days, diplomatic activities and visits to Riyadh have increased. The US is aiming to encourage the Saudi family to increase daily oil production, offsetting Iran’s oil and avoiding a rise in global oil prices. 

 

As a member of OPEC, will Saudi Arabia be able to ignore Iran’s interests and deprive Iran by replacing its oil?

 

In an interview with IRD, Nersi Ghorban, General Director of Narkangan Co., an oil and gas affairs expert, discusses the particular consequences of a 12 million barrel a day oil production in Saudi Arabia.

 

IRD: As a member of OPEC, Saudi Arabia has commented on increasing its oil production to offset a potential embargo on Iran’s oil. How do you evaluate this?

 

NG: There are two ways to speculate on Saudi Arabia’s comments. Firstly, if Saudi Arabia announced that it would balance the reduced oil in the market in order to keep markets level, that is understandable. Secondly, if Saudi Arabia announces that it wants to replace Iran in the oil market, that will be an absurd announcement.

 

IRD: Are such announcements in line with OPEC regulations?

 

NG: OPEC is an organization that was created to resist the international oil companies’ pressure on oil exporters, and so far it has been successful. Yet during times of peace one member replacing another’s oil production is unprecedented.

 

During the 8 years of the Iran-Iraq War, both Iran and Iraq, which were among the biggest OPEC members, employed various methods to eliminate enemy oil sites. Similarly, during the Iraq-Kuwait war, one member of OPEC occupied another. However, during times of peace, when one member is facing sanctions, no other member has officially proposed to replace the sanctioned country’s production.

 

Currently there are no problems between the Iranian and Saudi government. Therefore the Saudi proposal is merely helping the Western countries that impose sanctions on Iran.

 

IRD: Does Saudi Arabia have the capacity to wholly replace Iran in the oil market?

 

NG: In a way, Saudi Arabia’s claim to increase production to 12 million barrels a day is a measure to level global oil prices. Yet, whether the country has the capability or not is unknown. 

 

Additionally, the type of the oil produced is significant. For instance, its richness and level of sulfide are factors that have to be taken into consideration. Saudi’s oil is not identical to Iran’s and therefore with Iran’s absence the global oil system will change as each refinery produces a certain type of oil.

 

As a Muslim country however, the recent statement of Saudi’s oil minister regarding Iran’s oil is considered unfriendly.

 

IRD: How would Saudi Arabia’s intervention affect OPEC and the oil market?

 

NG: It all depends on the global economy in the next six months. In the case of a global economic decline, overall demand for oil will automatically drop in which case Saudi Arabia won’t need to substitute Iran’s oil. With a weak global economy, demand for Iran’s oil will decrease. For instance, if Japan decides to reduce its oil consumption by 300 thousand barrels, 150 thousand of that will be cut from Iran and the rest from all the other suppliers combined. If this process also occurs with other countries, Iran will experience a significant drop in demand for its oil. Conversely, with a healthy global economy there is always demand for Iran’s oil.

 

IRD: Will countries like China profit from an embargo on Iran’s oil?

 

NG: At any given time every country aims to benefit from significant events or fluctuations in the oil market. China has announced that it is willing to continue trade with Iran, by paying Iran in goods instead of dollars. This will be to China’s advantage.