December 15, 2013 1:00 pm JST

Iran-Saudi Arabia war of nerves sharpens in OPEC

TAKESHI KUMON, Nikkei staff writer

Iranian Oil Minister Bijan Zanganeh calls for a steep increase in oil production at a Dec. 4 OPEC meeting in Vienna. (Reuters)

 TEHRAN -- With the U.S. and five other major world powers agreeing in November to partially lift economic sanctions against Iran in exchange for a deal to cap the country's nuclear program, Tehran has moved to resume oil exports.

     Iran is eager to rejoin the international oil market as soon as possible but Saudi Arabia, the leading producer in the Organization of Petroleum Exporting Countries, stands in its way.

     Iran will raise production to 4 million barrels a day from the current 2.7 million, even if oil prices drop to $20 per barrel, Iranian Oil Minister Bijan Zanganeh vowed following an OPEC meeting in Vienna on Dec. 4. Zanganeh also called for seven major European and U.S. companies -- Total of France, Anglo-Dutch producer Royal Dutch Shell, Ente Nazionale Idrocarburi of Italy, Statoil of Norway, BP of Britain and U.S. companies ExxonMobil and ConocoPhillips -- to resume oil production in Iran, adding that he has already made contacts with the European companies.

First step

But Iran will not be hitting its 4-million-barrel-a-day target anytime soon.

     In a deal reached Nov. 24, Iran received partial relief from sanctions imposed by the five permanent members of the U.N. Security Council plus Germany, in exchange for pledges that include not enriching uranium beyond 5%. But the deal expires after six months and the easing of sanctions does not cover the oil industry. The complete removal of sanctions, if it happens, will follow a comprehensive agreement the two sides are hoping to reach within a year.

     While the envisioned comprehensive agreement calls for lifting all sanctions related to the Iranian nuclear program based on a schedule agreed upon between Iran and the six nations, U.S. President Barack Obama has put the chances of reaching a final deal at less than 50-50.

     Nevertheless, Iran seems eager to push ahead with an oil production increase, possibly to hold Saudi Arabia in check. Zanganeh said OPEC members should make room for Iran to return to the global market, but Saudi Arabian Oil Minister Ali Al-Naimi brushed the Iranian call aside, saying that the oil market is doing fine.

     Saudi Arabia worries that a sudden increase in Iranian exports will cause oil prices to sag, which would hurt the interests of other OPEC members by forcing them to cut their own production to maintain prices, thereby foregoing revenue, or tolerating lower prices, which amounts to the same thing.

Crude poker

It appears inevitable that OPEC will lower its production targets given recent developments, including higher production of shale oil and gas in the U.S.

     As Iran's neighbor Iraq cranks up its own output, Iran poses an additional headache for Saudi Arabia, which sees itself playing the key coordinating role in the oil cartel. Iran is playing its hand shrewdly, sending Foreign Minister Mohammad Javad Zarif to Kuwait, Oman and Qatar to press his country's case. In the United Arab Emirates, Zarif invited President Khalifa bin Zayed Al Nahyan to Iran.

    Persian Gulf states UAE and Qatar, big oil producers in their own right, both have close economic ties with Iran. Sunni kingdom Saudi Arabia is trying to prevent Shiite-led Iran from expanding its regional influence. Riyadh is thus urging the six world powers not to ease sanctions on Iran.

    The struggle between the two countries for supremacy in the Middle East looks set to intensify, with attention focused on how Riyadh will cope with Tehran's diplomatic offensive.

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