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Saudis Drop Oil Prices to Clobber Iran

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Saudi Arabia has lowered oil prices to undermine its archrival Iran, which is ramping up production


Saudi Arabia has slashed the price of crude it sells to Asia to its lowest in 10 months. It is taking on its archenemy in the Middle East, Iran, as Tehran tries to regain the market share it lost while under international sanctions.

Riyadh is in no mood to raise prices. It doesn’t want all boats rising with it, not North American frackers—and definitely not its prime target, regional military and economic power Tehran, which it is trying to sink during the proxy wars they are fighting across the region. Fundamentally, Shia Iran and Sunni Saudi Arabia are at each other’s throats economically and militarily.

Iran has boosted crude production 25 percent already this year, since it cut a nuclear deal with Washington, and it aims to hit an eight-year high of 4 million b/d by year-end. It is ramping up faster than most analysts thought possible. And Asia is their newest battleground, accounting for the biggest slice of Iran’s new sales. Having dropped to fourth-biggest OPEC producer, as international sanctions bit in 2012, Iran has regained third place after they were lifted in January. To push the Persian Genie back into the barrel, the Arab leader Saudi Arabia has responded by increasing its crude and refined products exports.

In the wars of barrels and bullets between the two powers, an Iranian mob torched the Saudi embassy in Tehran, and Iranian backed Shia rebels in Yemen fired rockets at Saudi oil installations in retaliation for Saudi troops and planes supporting the Sunni government. Saudi tanks crushed a popular Shia uprising in Bahrain, and Tehran and Riyadh support rival powers in the religious conflicts in Syria, Iraq and Lebanon. Furthermore, the two countries have a maritime boundary border dispute. Saudi Arabia has a still bulging, yet depleting treasury and believes it can dive deeper and hold its breath longer than Iran—which faced food riots in 2012 when government coffers emptied. This situation isn’t promising for Canadian drillers.

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