Saudi Arabia

Life in the Middle East never stands still. The inexorable progress of Iran towards some form of nuclear capability has not been halted by the negotiations which began at the end of last year and which have now run on for almost six months. In the absence of a deal others are assuming the worst. Unilateral direct action by Israel still cannot be definitively ruled out. Meanwhile, other countries are feeling the need to prepare their own deterrents. Having lost confidence in the umbrella of US security the Saudis are developing their own capabilities. The dangers for the region and for the world’s energy markets are enormous. Read more

Nowhere is the failure of the talks between the international community and Iran over Tehran’s nuclear programme more welcome than in Riyadh. A fudged deal would have given legitimacy to the government in Tehran and confirmed the weakness of the strategic alliance between Saudi Arabia and the US.

More important still, it would have raised the prospect of the Saudis having to make serious cuts in oil production and exports to support the price of the output from Opec, the oil producers’ cartel. These are cuts the kingdom can ill afford. But, sooner or later, Iran will be on its way back into the oil market. Read more

The Brent oil price has fallen by more than $10 – which means 10 per cent – in less than two weeks and now stands below $ 100. The precise number matters less than the trend. Now the question is how much further prices will fall.

Saudi Arabia is the only country in the world with the ability to cut production and to keep prices up. Some feel the Saudis are using the fall to discourage investment in high-cost projects including tight oil and some deep water ventures. I am not convinced. The Saudi oil minister, Dr Al Naimi looks tired and unsuited to such a high-stakes game. I expect the Saudis to pursue the tactic of making small incremental cuts in output in the hope that the market will stabilise. I doubt if this will work. Only a cut of 1.5m to 2m b/d will suffice to maintain prices and that would squeeze Saudi revenues too much. With growing domestic demand Saudi Arabia has little room for manoeuvre. As noted last week, the Saudis seem to be in process of losing control of the oil price. Read more

The Brent oil price fell by more than six dollars last week and at $ 104 is now 20 per cent below its recent peak in the spring of 2012. No particular events have triggered the fall. There has been no deal with Iran which would end sanctions. Economic activity levels are hardly exciting but they haven’t suddenly collapsed. Uncertainties around North Korea might normally have been expected to push prices up. Read more