Saudi Arabia’s Threat to Reduce Oil Production: How Is It Related to Iran’s Nuclear Agreement With the West?

On August 22, 2022, the Kingdom of Saudi Arabia hinted at the possibility of the OPEC Plus group reducing oil production rates amid US fears that the global and local markets would be affected by the decision.

About a week later, on August 28, 2022, Washington and Tehran expressed clear optimism about the imminent revival of the nuclear agreement that former US President Donald Trump withdrew from in 2018 and re-imposed sanctions on Iran.

Talks about a possible US-Iranian agreement to revive the nuclear program agreement started, accompanied by predictions of the possibility of Tehran returning to global energy markets and the start of oil exports to the West.

Saudi Arabia's position after the announcement made by Washington and Tehran raised questions about whether Riyadh's position came in the context of objecting to reviving the nuclear agreement and the reasons for its fears of that.

 

Sensitive Timing

The Saudi position was stated by the Minister of Energy, Prince Abdulaziz bin Salman, by saying that the OPEC Plus alliance has means within the framework of the mechanisms of declaring cooperation, which make it able to deal with challenges and guide markets, including reducing production at any time.

The Saudi minister pointed out, during an interview with the American Bloomberg agency, that work will soon begin to formulate a new agreement beyond the current year 2022, which received support from other countries that are members of OPEC Plus and caused oil prices to rise more than $100 per barrel.

OPEC Plus is a group led by Saudi Arabia and Russia, and it includes 23 oil exporting countries, including 13 member states of the Organization of Petroleum Exporting Countries OPEC, and it was formed in 2016 to reduce or increase production to improve oil prices in the markets.

Analysts linked the timing of the Saudi official's statements to the Kingdom's concern about the expected security and economic consequences of any possible US-Iranian agreement to revive the Iranian nuclear program agreement, which would allow Tehran to reinject its oil into the markets and thus lower prices.

Also, any talk of reducing oil production worries the administration of US President Joe Biden, which is seeking to achieve a breakthrough on the nuclear agreement, on the one hand, and maintaining fuel prices in the United States before the mid-term congressional elections in November 2022 on the other hand, which was one of the axes of Biden's visit to Saudi Arabia on July 15, 2022.

 

Saudi message

As for whether Riyadh's statements contained political messages, this was denied by Saudi economist Turki Fadak, during an interview with the BBC on August 29, by saying that the statements of the Saudi Energy Minister are not in response to the planned US agreement with Iran.

He explained that the OPEC Plus group, when any changes affect supply or demand, has always adjusted production in line with its expectations for the markets, so there is a predetermined meeting in early September 2022 to determine the expected production policies during the coming period.

For this reason, the Saudi expert added that if Iranian oil enters the markets, this means an increase in supply equivalent to 2.5 million barrels per day, and this requires OPEC Plus to reconsider the production policy.

Regarding the Saudi insistence on reducing production, despite the fact that Iranian oil constitutes only 5% of the total supplies of the OPEC Plus group, Fadak said that the economic forecasts of OPEC Plus and the International Monetary Fund on the economic problems of the countries of the world confirm the possibility of a slowdown in economic growth in China and Western countries.

He pointed out that this matter is expected to reduce the demand for oil during the coming period of time, so Saudi Arabia, in this policy, defends its economic interests if the OPEC Plus group takes this decision.

He pointed out that economic decisions have a political aspect and that the political and economic are two lines that go hand in hand, which is why this group of countries is clearly trying to defend their economic interests.

 

Imminent Agreement

In light of the statements of the two parties, the revival of the Iranian nuclear agreement is imminent. On August 28, the Iranian Foreign Ministry announced that negotiations to revive the nuclear agreement concluded between Tehran and world powers are proceeding on a positive path, while the White House confirmed that reaching an agreement on the file is closer than what was two weeks ago.

Iranian Foreign Ministry spokesman Nasser Kanaani said that the nuclear negotiations are proceeding on a positive track and that the remaining issues are related to the lifting of sanctions, which are few, but they are essential, sensitive, and fateful.

Kanaani added that his country will respond to the American response to the European Union's proposal to revive the nuclear agreement at the first possible opportunity after the experts study it, pointing out that announcing the details of the negotiations does not serve the desired results.

On the other hand, the US National Security Council Strategic Communications Coordinator John Kirby said that the United States is closer today to reaching an agreement with Iran than it was two weeks ago, thanks to Tehran's willingness to compromise on key issues.

Kirby added during an interview with the American network CNN on August 28 that his country is working to reach an agreement, and there are still some gaps between the parties.

The US official indicated that his country presented its response and hopes to achieve a positive result because it will be difficult to solve any problem in the Middle East if Iran obtains a nuclear weapon.

He stressed that US President Joe Biden still believes that diplomacy and a return to the nuclear agreement are the best solutions, and we will continue to work for that.

Saudi Arabia has long opposed American rapprochement with Iran, and in 2018 it put its weight behind former Republican President Donald Trump, who tore up the most important foreign policy achievement of his Democratic predecessor Barack Obama, and announced withdrawal from the Iranian nuclear agreement unilaterally, then asked the rest of the countries to refrain from cooperating with Tehran and had threatened to impose sanctions on anyone who violates this.