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Industry

Angry Saudis Could Drown Slow Market With More Oil

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Over the course of the past 30 months, Saudi Arabia has been able to defiantly ignore the economic principle of supply and demand. The problem is that its refusal to cut back in order to both trigger that demand and also deliver a knockout blow to the shale industry in the United States has failed. Prices have remained the same for the most part over the past year.

The reason for this approach stems from the fact that decades have infused trillions of dollars into the treasury of the Kingdom’s coffers. In addition, the cost of oil production per barrel can be as low as just $9, an amount that still offers plenty of profit.

The problem is that there’s no apparent end to the stagnating prices. Now, after first hinting that it might consider production cutbacks, the Saudis reacted with a frustrated threat to Middle Eastern neighbor Iran following the Vienna OPEC meetings in late October. The two countries had been trying to find a happy medium when it comes to the level of production, but Iran continues to balk at any cutbacks.

One of the key concerns is that the Iranians, who struggled under years of economic sanctions, have plenty of oil to sell and need revenue to bolster their economy. The fact that profit from such sales has dipped considerably doesn’t seem to be of much concern to them. Thus, the reluctance to focus on any cutbacks, which has flown in the face of Saudi Arabia’s new approach.

The Saudis had taken the drastic step of replacing the Kingdom’s finance minister in an attempt to smooth negotiations. That was met with apathy from Iran, which sparked an immediate threat to boost oil production to as much as 12 million barrels per day.

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