The recent renewal of hostilities between Iran and Saudi Arabia may, ironically, be a silver lining for other oil exporting countries. Over the weekend, Saudi Arabian authorities executed Shiite cleric Nimr Al-Nimr along with 46 other people, prompting Iranian protesters to set fire to the Saudi embassy in Tehran, the capital of Iran. The executions came a few weeks after Saudi Arabia announced a coalition, made up of nations with mostly Sunni-Muslim populations or having a Sunni leadership to fight terrorism. Iran, Iraq and Syria were excluded from the coalition, causing analysts to suggest there was a possible hidden agenda.
Saudi Arabia and Iran sectarianism and oil prices
Saudi Arabia and Iran are two of the world’s biggest oil exporters, and members of Organization of Petroleum Exporting Countries (OPEC) along with Nigeria. Saudi exported 10.2 million barrels of crude oil per day in November ($96 per barrel) while Iran produced 2.9 million barrels per day that month ($70 per barrel). In contrast, Nigeria produced about 1.7 million barrels per day that month, at a price of $100 per barrel. Late last year, Iran promised to increase its oil output in 2016 by about at least a million barrels of oil per day. This move, which would see international oil prices reduce a lot more, would be made possible when international sanctions are lifted off the country.
Nimr Al-Nimr, a Shiite cleric regularly speaking against the Sunni monarchy of Saudi Arabia, was killed along with Sunni al-Qaeda terrorists after being imprisoned for 2 years. At a time when petroleum prices are unstable and being determined by Saudi Arabia and Iran as well as the formation of coalitions, Nimr’s execution could be a power play from Saudi to confound Iran and halt its proposed plans to release more oil into the market. Three member countries of Saudi’s coalition have either severed relations with Iran (Saudi Arabia and Bahrain) already or reduced the number of diplomats in Iran (United Arab Emirates). Other Saudi allies in the Middle East could follow this lead in a show of support for Saudi Arabia.
Where does this leave Nigeria?
Nigeria, which is a part of the coalition, might find itself leaning the way of Saudi. In December, the country which is largely dependent on petroleum as a major source of income set its oil bench mark at $38 to the its 2016 budget. It seems Nigeria can still operate at that benchmark price despite analysts pushing the government to reduce it further to $20. Oil prices in Europe increased a bit on Monday due to this Saudi-Iran conflict, but slumped back down by Tuesday morning (prices increased to over $38 from $37.22 before going back down to around $37). A further show of force between Saudi and Iran might keep the price hovering along these values, playing to Saudi Arabia’s fancies of wanting to keep the price of oil where it is.
