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Middle East oil crisis: Oil prices during Saudi Arabia & Iran conflict

Middle East Oil Crisis

Diplomatic conflict between Iran and Saudi Arabia could lead to the Middle East oil crisis. Why does Ar-Riyadh worsening the relations, and how this will affect oil prices in 2016?

Before the New Year the government of Saudi Arabia has decided to present his religious citizens a very unusual gift. At the beginning of 2016 more than 40 religious Shiites preachers were executed, including Nimr al-Nimr, who was famous for his sermons in the East of Arabia. In them he called for a more equitable society, where Sunnis who support the ruling family, will not have a monopoly on power.

What’s more is that 2016 should be very decisive for the Middle East. If the agreement on Iran's nuclear program will be signed and ratified, the sanctions that have restricted Tehran since the early 80-ies will be removed. And then Iran will finally be able to express themselves, not as the derelict country, but as a global player on the world stage. First and foremost it is about the price of oil.

Diplomatic conflict between Iran and Saudi Arabia, according to most experts, reflects the insecurities experienced by the ruling house in Riyadh.

Firstly, price of oil fell to the lowest level and now it is callsed as Middle East oil crisis. This year experts don't expect an instant oil prices fall to $20 per barrel, but the in the following one energy sources are supposed to be cheaper. Moreover, Saudi Arabia has no intention to reduce the rates of oil extraction, that’s why the world will soon face its overproduction. This means that an important political lever, which was previously used in Saudi Arabia, is gradually disappearing.

If earlier the OPEC countries could put pressure on U.S. or EU by cutting oil production regulations, - now shale gas revolution in America has crashed the price of oil and made this method of pressure not feasible.

Secondly, Saudi Arabia is losing its monopoly position of an ally of the West in the region. It is clear that Iran would not immediately become a great friend of Washington, but the US is pretty persistently ignoring Riyadh calls to deprive Tehran to get nuclear weapons. In recent years, Washington did not demonstrate any clear policy towards the Middle East and now in the year of presidential elections in the U.S., it may lose interest in that region. And Saudi Arabia understands this.

Middle East oil crisis

Finally, Saudi Arabia is gradually losing the status of leader of the Arabs. Of course, Riyadh has accumulated enormous currency reserves and spending them to support the desired political movements. But a population of 28 million compared to 78 in Iran, makes its influence more illusory. When the Tehran economy operates at full capacity he will get the money.

For the Middle East this means that the two crucial players in international relations will not be able to agree on how to end the civil war in Syria and how to act against ISIL. And while Tehran and Riyadh are drifting away further and further, Islamists are continuing to strengthen their powers.

By Chieffinancing 25.07.2016

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