Saudi Arabia, Oil Prices, and the Claim of a 'Conspiracy Against Iran'

Hassan Rouhani, coinciding with the release of the 2015 budget items, described the drop in oil prices in the market as a conspiracy (by Saudi Arabia and the U.S.) against the people of the region and Muslims (Iran) and claimed that his government has the ability to manage the country even with these prices. During the recent OPEC meeting, Saudi Arabia ignored the recommendations of the Islamic Republic and several other members, preventing a reduction in the production of oil-producing countries. As a result of Riyadh's decision to maintain production levels, the trend of declining oil prices in the market continued, with oil prices now falling below $65 per barrel, and the downward trend has not yet stopped. During the summer of this year, oil prices in global markets fluctuated around $110 per barrel. A 40% drop in oil prices in less than six months had only been seen in the mid-1980s when Saudi Arabia, as the largest oil producer, initiated the global price decline by increasing oil supply beyond market absorption capacity. The fall of the Soviet Union's communist empire at the end of the 1980s has been attributed to the consequences of the aforementioned oil war, resulting from the former Soviet Union's financial capabilities being overstretched in relation to its internal and external commitments. The Islamic Republic now claims that it, along with Russia, has become a target of a 'political conspiracy' and that the decline in oil prices is not merely a natural market reaction. Oil is considered the most valuable strategic commodity in the world, and price fluctuations, security of distribution and resources, and market control are influenced by a mix of political, security, covert operations, capital wars, multinational corporate competition, and of course, natural factors as well as scientific advancements and new technologies in the world. Oil has been the main factor in the rise and fall of dozens of political regimes and governments, and the onset of numerous wars and coups in contemporary history. The influence of oil on global relations has not diminished despite changes in the world's landscape and the nature of international relations. 35 years ago, OPEC's oil policies (global prices) were determined by oil producers, with the participation and actions of Iran and Saudi Arabia, two of the world's largest oil producers. Jahangir Amuzgar, the then Iranian Minister of Finance, and Sheikh Ahmed Zaki Yamani, the Saudi Minister of Oil, were recognized figures in the oil world in the 1970s. 35 years later, Ali Naimi, the Saudi Minister of Oil, is a dominant figure in OPEC, and his country plays a decisive role in changing global oil price trends, while Bijan Zanganeh, the Iranian Minister of Oil, has a role less effective than the fifth wheel in the Organization of the Petroleum Exporting Countries, and Iran has lost its minimal influence over oil markets. The main reason for Iran's changing status in global oil markets and the unchanged role of Saudi Arabia is the significant reduction of Iran's share in global oil markets: a role that Saudi Arabia has continuously maintained over the past forty years and is determined to preserve for the foreseeable future. Saudi Arabia considers its oil export power as the most effective lever of its foreign policy and is determined to use this lever to protect its long-term interests. Saudi Arabia is the only major oil producer in OPEC. Riyadh knows well that if it reduces production capacity by one to one and a half million barrels per day, other producers, including Iraq, will fill this capacity without affecting current prices. As a result, Saudi Arabia would only shrink its share in the market and suffer losses. A voluntary reduction in oil production by Riyadh could have encouraged the U.S. to grant more concessions to the Islamic Republic and lift some unilateral sanctions, thus allowing more Iranian oil to enter the market. This recent capacity would practically come out of Saudi Arabia's pocket. By not changing the oil supply ceiling to the market and considering current prices, the U.S. is stricter about lifting sanctions on Iran (at least in support of its national interests as a producer). Another factor justifying Saudi Arabia's decision not to reduce production and maintain its share in global oil markets is the increase in U.S. oil production. This year, the U.S. has surpassed 9 million barrels per day in oil production using new technologies, outpacing both Russia and Saudi Arabia. The cost of producing a barrel of crude oil from oil sands is about $53 per barrel. A drop in oil prices to around $50 per barrel would halt investment in producing more shale oil in the U.S., and thus Saudi Arabia's share in the global oil market would not be further threatened. In adopting its policy of refraining from reducing production, Saudi Arabia is initially thinking of maintaining its share in the oil market and subsequently aware of the increased U.S. oil production, while also being well-informed about the economically vulnerable situations of Russia and Iran due to falling oil prices. In the Syrian front, Saudi Arabia sees itself in opposition to Russia. In contrast to the Islamic Republic, this front is much broader, and the scope of Riyadh's competition with Tehran extends from Damascus to Baghdad and from Lebanon to Manama and Sanaa. Saudi Arabia, with its significant foreign currency reserves, can endure oil priced at $50 per barrel without putting any pressure on its domestic market and national economy, while enduring more financial pressure would be very difficult for Russia and the Islamic Republic. Saudi Arabia had set its current year's budget based on oil at $85 per barrel. The Islamic Republic had accounted for at least $110 per barrel in revenues from oil sales last year, with desirable prices for Tehran being $134 per barrel. The Islamic Republic has not only reduced Iran's share in global oil markets and thus its strategic position as a major crude oil exporter and significant player on the international stage to virtually zero, but it has also diminished the share of oil in the prosperity of the people's livelihood by shrinking it. In the current year's budget of the 'Hope and Prudence Government,' the foreign currency revenues from Iran's oil sales are estimated at about $20 billion based on $70 per barrel. This amount for the first time reduces the share of oil in the total foreign exchange revenues of the country to less than 25%, which is a positive change on paper. In practice, and due to the lack of replacement for the lost oil share in the country's foreign exchange revenues with other sources, the depth of the economic disaster becomes evident: the acceleration of public poverty and deprivation from natural resources that have so far made the national economy possible.