Saudi Arabia, Iran eye boost in oil production to maximise profits

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Photo - Nabil al-Jurani/AP

Reports released by the International Energy Agency (IEA) last week show Saudi Arabia boosted its crude oil production to 9.8m barrels a day last month. This is the highest amount produced by the Kingdom in the last 30 years.

OPEC RIFT

At the 159th OPEC (Organization of Petroleum Exporting Companies) meeting in Vienna in June this year, Saudi Arabia failed to attain backing for its proposal to boost output. Iran, its arch-rival, proposed to maintain the current output which was agreed by the other member states. The Saudi oil minister called it the worst meeting OPEC have ever had.

The escalating cold war between the two oil giants, Saudi and Iran left OPEC unable to strike a balance between handling regional turmoil and the global economy that requires a higher supply of oil, but cannot match up to its current prices. Although Asian refineries had little doubt that Saudi would not be able to meet the demand the demand for oil supplies, they were concerned that the differences between Riyadh and Tehran could affect the cartel for sometime.

Saudi Arabia has been meeting its oil production obligations with little reluctance. The last time the country had pumped as much as it did in July was in 1981 when the Kingdom moved in to boost the production lost due to the Iranian revolution and the beginning of the Iran and Iraq war.

IRANIAN WORRIES

While Saudi fortunes continue to grow, regional rival Iran saw a steep decline in its oil output which has dropped to its lowest level in 8 years to 3.5 million barrels a day. Pressure is now building up on Tehran to catch up with Riyadh.

The Kingdom is in the process of cashing in on high monthly revenues as it sells oil at prices of about $100 a barrel. This stance has managed the Saudis to earn a rare political praise from consumer countries such as the US, France, UK, China and India. It has also restored its position as a country with a moderate voice within the OPEC oil cartel.

Iran, on the other hand, is facing an uphill challenge. Its oil production is lagging in the wake of new economic sanctions imposed by the US and a looming threat of Israeli aggression over Tehran’s alleged nuclear programme. Rostam Ghasemi, the countrys new oil minister, spoke defensively. Saudi Arabia is not the whole OPEC. Iran and other OPEC members should also play a role in OPEC with more cooperation and convergence, he insisted.

COMPETITION

Iran and its ally Venezuela have not invested as much as Saudi Arabia in increasing their oil capacity. And in the last decade they have seen their maximum sustainable output level falling, inevitably giving Saudis more power.

The Venezuelan oil output peaked in mid 2009 at 3 million barrels per day but came down to 2.5 million barrels per day despite the high demand and prices.

On the other hand, Riyadh has spent billions of dollars in new oil fields and its maximum production capacity has steadily risen over the last decade. Today Saudi Arabia has the potential to boost its production to more than 10 million barrels per day.

Earlier this year, Venezuelan President Hugo Chavez signed an agreement with Iranian President Mahmoud Ahmadmejad to work more closely within OPEC framework to fulfill its quota obligations. Both countries, also common adversaries of the US, have favoured efforts to boost prices within the organization by cutting total output, a move opposed by US regional ally, Saudi Arabia.

Sources: Financial Times, Fuel Fix, Al Arabiya

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