Saudi Arabia Uses Cheap Oil to Boost Market Share, Destroy Iran’s Economy

© Fotolia / marrakeshhOil markets were negatively affected by Saudi Arabia's decision to cut prices for January deliveries to US and Asian customers.
Oil markets were negatively affected by Saudi Arabia's decision to cut prices for January deliveries to US and Asian customers. - Sputnik International
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Saudi Arabia has dropped its oil prices to try and wreck the Iranian economy and keep Tehran’s oil exports out of major European markets, international business analysts told Sputnik.

WASHINGTON (Sputnik) — Earlier this month, Saudi oil giant Aramco announced that it would cut oil prices for Europe, apparently in preparation for Iran’s resumption of oil exports to the region later this year.

"The Saudis are looking to gain a competitive advantage: this is a response to the lifting of Western economic sanctions on Iran allowing the Iranians to reenter the global energy marketplace," Eurasian Business Coalition Vice President Ralph Winnie said on Monday.

The Iranians had high hopes of rapidly expanding their oil revenue once international sanctions were lifted in accordance with the P5+1 nuclear agreement, Winnie explained, but policymakers in Riyadh are determined not to let that happen.

"The Saudis are looking to pull the rug out from under the Iranians," Winnie observed. "They are looking to gain a stranglehold on global supplies and price setting and re-establish themselves as the key global swing producer."

Saudi Arabia’s dramatic price-cutting polices hurt it badly in the short term, but Riyadh was gambling that its high-risk strategy would pay off in the long run, Winnie noted.

"For the Saudis, the fundamental issue is dominant market share," he added.

Khaled al Otaiby, an official of the Saudi oil company Aramco watches progress at a rig at the al-Howta oil field. - Sputnik International
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"They calculate that the price of oil will rise eventually and when it does the suppliers with dominant market shares will gain the most. They intend to be the first destination for reliable supplies of energy."

Riyadh also sees the opportunity to expand its share of the domestic US market following the collapse of the US fracking industry as investment in fracking is no longer profitable, Winnie maintained.

"The Saudis therefore feel they can reap the benefits of the collapse of the fracking technology sector in the US domestic oil industry," he said.

Executive Intelligence Review senior editor Jeff Steinberg told Sputnik that by slashing their oil prices, the Saudis were targeting the US and Russian oil producers as well as the Iranian ones.

"Saudi Arabia is bleeding through reserves, through heavy costs of the losing Yemen war and the revenue losses due to low oil prices, which the Saudis created by over production, targeting Russia and US shale oil, which are the Saudis’ two biggest rivals," Steinberg argued.

The Saudis were locking themselves into a self-ruinous cycle of equating low oil prices with their international prestige, Steinberg warned.

"A boost in oil prices led by the Saudis would be a signal that they have not succeeded in beating out their rivals, and now face major internal security problems due to the budget shortfalls, which are unsustainable," he stated.

The low price strategy was being pushed by young Crown Prince Mohammed bin Salman, but he was rapidly losing credibility across the Middle East, Steinberg noted.

People close to the Saudis, Steinberg added, are skeptical about Prince Salman and his schemes.

"There is a simmering revolt inside the Royal Family, and the number two, Crown Prince Mohammed bin Nayef, is battling against being dumped to pave the way for Mohammed bin Salman to replace his father [King Salman]," he observed.

Maintaining low oil prices also served to exacerbate the Sunni-Shia divide in the Middle East, Steinberg concluded.

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