The United States have asked Saudi Arabia to increase oil production to compensate for a likely drop in Iranian output that is the result of Western sanctions. The kingdom is the world’s only oil supplier with spare capacity and has signaled that it will make up for a drop in Iranian crude.
The question is not whether the Saudis will raise production but when. According to one Gulf oil official, who spoke anonymously with the news agency Reuters, Riyadh is “ready to meet demand in the market if required but would not like to take part in the politics.”
The United States would rather the Saudis boost output in anticipation of a reduction in Iranian exports. A European embargo of Iranian oil will come into effect in July.
The European Union member states, some of which are still not able to buy as much oil from Libya as they used to, agreed to boycott Iranian crude in January. Japan said it would join that same month. China, India and South Korea, which also import oil from Iran, have refused to enter the embargo.
The sanctions are in response to Iran’s uranium enrichment program which Western nations suspect is designed to develop a nuclear weapons capacity.
The Saudi oil minister said in January that his country could lift production by some two million barrels per day “almost immediately” to make up for a reduced Iranian supply. “This spare capacity is to respond to emergencies worldwide,” he told CNN at the time. “Our focus is not on who drops out of production but who wants more.”
Although the Saudi rhetoric could have only put pressure on the government of Iran, which relies for more than 50 percent on oil and natural gas sales for its revenue, the kingdom apparently has no desire to become involved too overtly in the diplomatic row between Iran and the West, even if it, too, fears that Tehran will eventually build an atomic bomb.
Saudi Arabia likes oil to trade at some $100 per barrel. If the price drops below $80, Riyadh would be in financial trouble. Other countries, including Iraq and Russia, need a price of more than $100 per barrel if they are to keep their budgets in balance.
The price of a barrel of Brent crude has risen sharply to $125 in past weeks on fears of a military standoff in the Middle East. Israel has repeatedly warned that it cannot tolerate a nuclear Iran. Tehran has threatened to shut access to the Strait of Hormuz if it is attacked. Some 40 percent of the world’s seaborn oil transports must cross this narrow waterway that leads into the Persian Gulf.