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Saudi Arabia turns oil weapon on Iran: Kemp

Saudi Arabia's Oil Minister Ali al-Naimi arrives to a meeting between OPEC and non-OPEC oil producers, in Doha, Qatar April 17, 2016.

Saudi Arabia's decision to scupper negotiations on a coordinated oil output freeze in Doha on Sunday seems to confirm a significant shift in the kingdom's oil policy.

For decades, the kingdom has insisted it does not wield oil as a diplomatic weapon, but at the weekend it did just that as part of an intensifying conflict with Iran. ("Saudi-Iran tensions scupper deal to freeze oil output", Reuters, April 17)

The kingdom's position on Iranian oil production has steadily hardened over the course of the last year and at the weekend it reached its logical conclusion.

Saudi Arabia will not accept any constraints on its output, even freezing at record levels, unless Iran agrees to similar controls, which it has rejected until production has reached pre-sanctions levels.

By insisting on this hard-line position, Saudi Arabia ensured the talks would fail, and the kingdom seems comfortable with the outcome. Diplomatic strategy seems to have trumped oil market considerations.

Saudi Arabia would rather have a lower oil price and lower revenues for all producers, including itself, rather than reach a production agreement that would deliver increased income to its arch-rival across the Gulf.

GULF RIVALRY

Iran has reiterated for more than a year that it intends to increase production to pre-sanctions levels before it will consider any restraint to help stabilize prices, a position that most other oil producers have quietly accepted.

Boosting oil exports and revenues in exchange for controls on its nuclear activities was the centerpiece of the deal between Iran and the permanent members of the United Nations Security Council reached in July 2015.

Saudi Arabia has consistently opposed the nuclear deal fearing that it will strengthen Iran economically and allow it to increase funding for proxy conflicts in Lebanon, Syria, Iraq and Yemen.

Until recently, however, the kingdom's oil policy appeared to be in the hands of technocrats in the petroleum ministry and Aramco, rather than be run as a branch of foreign policy.

Saudi officials privately cast doubt on whether Iran would be able to increase its exports as rapidly as it claimed once sanctions were lifted.

But the official line was that growing world oil demand would help the market accommodate extra Iranian crude without any need for output restraint by other producers.

ROAD TO A DEAL

By the end of 2015, it was clear the Saudi strategy of maintaining...


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