Many analysts believe that the decision of US President, Donald Trump to end the exemptions regarding buying Iranian crude oil is a double-edged sword. On one hand, he doesn’t want oil prices to go up and on the other hand he is adamant at pushing Iran out of oil market. It appears that like past; this time too, the US would succeed in luring Saudi Arabia to exploit the situation to its benefit. It is also believed that stringent sanctions on Iran can take both Saudi Arabia and the oil market into the unchartered waters.
A question comes to minds, is Saudi Arabia capable of filling the gap? To find a plausible reply, one should have a clear understanding of oil market dynamics. In theory it might be possible for the Monarchy to raise its output to the desired level, but for how long and at what cost remains unanswered.
As OPEC’s most influential member, Saudi Arabia is currently producing around 9.8 million barrels of oil per day and the country has been trying hard to maintain a production cut deal that could hold OPEC members along with other producers to decelerate the prices from falling.
This is not the first time that the Saudis are being pushed by the US to tow its foreign policy agenda. However, Trump has been constantly criticizing OPEC for its acts to maintain the prices and the Saudis have been pressured to increase production.
In July 2018, when Trump planned exiting Iran’s nuclear deal, he had asked the Saudis to jack up oil production to compensate the Iranian oil, which was supposed to be wiped out of the market. The kingdom promised to increase production to 12 million barrels per day, a dream that never came true. Many experts and analysts had pointed out the unrealistic nature of Saudi Arabia’s claims.
There is overwhelming impression that Saudis do not have ample spare capacity to meet 12 million bpd production target, but they can increase exports by digging into their reserves. However, this time the situation is a little different. Considering the kingdom’s current situation a question arises, would they be able to honor this promise?
Despite clear opposition from Trump, in December 2018, Saudi Arabia and its other fellow OPEC members along with the non-OPEC oil producers reached an agreement based on which all the signees committed to a certain level of production cuts to take 1.2 million barrels per day off the market for the first six months of 2019. The 15-members of OPEC agreed to reduce their output by 800,000 bpd, while non-OPEC allies agreed to a 400,000 bpd reduction.
Since the beginning, all the OPEC members showed significant commitment to the deal and their efforts led to an almost balanced market in which the prices started to rise from their low levels. In the meantime, Saudi Arabia has been pressured multiple times by the US to end the accord and to increase production; the kingdom desperately needed the prices above US$50 to maintain its precious Aramco’s value.
If Saudis accept Trump’s request this time, the kingdom would not only be ending a deal which has kept the prices from falling for so long, but it will also negate its position of strength within OPEC. Despite all the pressures from the US, Saudi Arabia wants to make sure that in the next OPEC meeting in June, the members stay committed to the cuts deal. And if Saudi Arabia goes through with the commitment to rise its production under the US pressure, it would definitely come to the OPEC gathering empty handed and it cannot expect other signees to stay in a deal which needed all the members to cut to certain levels.
The US aims at increasing pressure on Iran by reducing its revenue from crude oil sales to zero. The US is also working to minimize disruptions to the global market. However, market analysts warn against the consequences of Iran’s oil removal from the global markets.
Let no one forget Iran’s ability to maintain some level of its oil exports under any circumstances. Iran has proven multiple times having its own strategies and approaches for ensuring the US cannot realize its dream of “zero Iranian oil”. There is also the possibility of a conflict in the region, since Iran could potentially close the strategic Strait of Hormuz.
Saudi Arabia accounted for almost two-thirds of the reported OPEC spare capacity, with smaller volumes held by Iraq, United Arab Emirates (330,000 bpd) and Kuwait (220,000 bpd). Russia accounted for most of the non-OPEC spare capacity (roughly 250,000 bpd) with little or no available spare capacity in the other non-OPEC allies.
Some observers question whether such high rates of production could be implemented quickly and sustain for any length of time. Maximum production would require opening the chokes on existing wells and bringing previously shut-in wells back into service. Boosting production might risk a decline in oilfield pressure that could result in long-term damage to the reservoirs. Some spare capacity might require drilling new wells within existing fields, in which case it is not strictly speaking spare capacity at all. Saudi Arabia could boost volumes supplied to the market by releasing some of its domestic crude stocks as well as raising field production, but stock releases would only ever be a short-term measure.
Iran terms 1980 tabas desert operation ‘historic US failure’
SHABBIR H. KAZMI
On 25th April, Iran marked 39th anniversary of a failed US military operation to free its embassy staff held in Tehran after the 1979 Islamic Revolution.
The military operation on April 25, 1980, had proved a fiasco for Washington, at that time Jimmy Carter was president of the United States. Iran commemorates the event every year as a symbol of the failure of US plots against the Islamic Republic.
A sandstorm hit and brought down the group of US military aircrafts in the Tabas Desert, killing eight American servicemen and resulting in the failure of the mission. Inspections showed a helicopter crashed into a C-130 Hercules transport plane as five other choppers were stranded in the storm. The units involved in the operation were from the US Air Force, Army, Navy and Marine Corps.
President Rouhani pointed to Washington’s repeated failures against Iran over the past four decades, saying the historic US failure in Tabas was a divine miracle. He also said, “The Tabas incident was a great miracle from God which led to the failure of the Americans’ complicated military plot”.
“Every day over the last 40 years, the US officials have been hatching a new plot against the Iranian people, but they have always failed and will fail again,” he stressed.
During the takeover of the embassy, documents were discovered that proved some of the American embassy staff had been working with US intelligence agencies, meaning they were spies. Some 52 Americans were held in Tehran for 444 days, but later released unharmed.