The world oil war is getting hotter, with Saudi Arabia vowing to produce even more than its record-setting output, and Iran slashing prices to capture market share from its rival.
As a result, look for oil prices to remain relatively low for longer, and for oil producers including Russia and much of OPEC to suffer continued fiscal strain.
Saudi Arabia launched the war almost two years ago with an attack on US shale, griping that higher-cost American drillers were encroaching on the kingdom’s own, rightful share of the market. The result has been a bloodbath on the US oil patch, with a plunge in drilling and a large number of oil company bankruptcies.
The Saudis have since turned their fire on their traditional regional rival, Iran. After reaching agreement with the US to lift sanctions in exchange for nuclear concessions, Iran has steadily pushed back up its oil production, reaching 3.5 million barrels a day, up 700,000 barrels from a year ago.
But this return to the market has rattled Saudi Arabia, with which Iran is already in a tense battle for regional influence, including proxy battles in Yemen and Syria.
Now, in actions and in words, Iran and Saudi have escalating their oil war. In a new price list covering June sales, Iran has slashed what it charges for its oil compared with Saudi crude. Analysts said the move marks a new stage in the two countries’ rivalry. ”This is the signal I’ve been looking for- “market share” battle entering new phase,” tweeted Jamie Webster, a Washington, DC-based energy analyst.
Meanwhile, in a lunch with reporters today, Saudi Aramco executives said that the kingdom is increasing production from its already blistering pace of 10.2 million barrels of oil a day. CEO Amin Nasser said that Saudi Arabia can sustain a level of 12 million barrels of oil a day—a volume it has never reached.
These volumes are meant as a signal not just to Iran, but to Saudi Arabia’s other main rivals—the US and Russia—that it is not only not prepared to cede market share, but that it intends to take more.