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Editor’s Comment: A tale of two cities

by Jonathan Sheikh-Miller on Jun 20, 2018




As late evening merged into night on May 8th, the mood in two of the region’s key cities couldn’t have been more contrasting. Following President Trump’s reinstatement of sanctions on Iran, Riyadh, a vociferous supporter of the decision, positively “welcomed” the move, while in Tehran, there were reports of resignation and sadness on the streets.

It was hardly a bolt from the blue: from Trump’s first overseas trip as President to Riyadh, which culminated in more than $100bn worth of arms sales, to hawkish appointments within the US administration, juxtaposed with a barrage of ominous threats against the Islamic Republic, the obvious conclusion to draw has been that the countries of the Arabian Gulf are allies and trading partners, while Iran is an international pariah.

There is precious little upside for the Iranians to hang on to. Oil and gas experts have speculated that ultimately at least 500,000 barrels per day (bpd) of Iran’s oil production will be prevented from hitting the international market, while blue-chip global players like Total and Siemens, who were set to play a part in modernising the country’s industrial infrastructure, will now reluctantly exit the scene.

There is also no guarantee that maverick operators like the Russians and the Chinese will ride into town and salvage some of what has been left behind. Indeed, uncertainty now surely hangs over the future of some of the big-ticket multi-billion dollar tie-ups agreed last year with the likes of Russia’s Gazprom and Rosneft, which were set to drive forwards Iran’s hydrocarbon industry across both the upstream and downstream sectors.

It actually gets worse.

The fall-out of Trump’s proclamation has predictably included a notable spike in the oil price, which has now hit three-year highs, touching $80 a barrel. Good news once again for Saudi Arabia, which needs a Brent crude price of $87.9 a barrel to breakeven in 2018 according to the latest International Monetary Fund figures.

Part of the reason for the immediate price jump was anxiety in the market that Iran’s impending output reduction, could lead to genuine shortfalls in supply, especially as Saudi Arabia and Russia have also been leading stringent cutbacks of 1.8mn bpd for well over a year to offset the potential impact of burgeoning US tight oil production.

But, no worry.

Saudi Arabia’s Minister of Energy, Industry and Mineral Resources Khalid Al Falih, was quick to reassure the international community that whatever gaps might appear in the global oil supply, once Iran’s sanctions begin to bite later this year, the kingdom would be more than ready, alongside its partners like the UAE, to “mitigate” any potential problems by opening their taps once again.

Tehran’s loss really could become Riyadh’s gain.


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