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opinion

Rashid Husain Syed is a journalist, energy analyst and consultant based in Toronto. For almost 25 years, he served as vice-president of a leading Saudi trading and consulting house.

Oscillating between two extremes, Saudi Arabia is emitting conflicting and contradictory signals on oil.

Last last week, Riyadh dashed hopes of any major breakthrough at the scheduled producers' meeting in Doha on April 17, saying it will freeze output only if Iran and other major producers do also.

"If all countries agree to freeze production, we're ready," Saudi deputy crown prince Mohammed bin Salman told Bloomberg.

"If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door," Prince Salman said, alluding to the possibility of increasing their own production.

This was a confirmation of the original Saudi position of not freezing output unless all major stakeholders – Iran included – agree.

On Feb. 16, as oil markets were melting down, Russia, the world's leading oil producer (but not a member of the Organization of the Petroleum Exporting Countries), finally agreed with Saudi Arabia to freeze its own output. The mere talk of maintaining production at January levels helped soothe markets.

Crude prices recovered by almost 50 per cent from January's 12-year low.

Iran, however, has been reluctant to join the arrangement, saying it needed time to recover lost market share after international sanctions against it were lifted in January.

This led to widespread speculation about whether producers would go ahead with the freeze. Much appeared to hinge on Iran.

Although some believe Prince Salman – whom many consider the most powerful person in Saudi Arabia today – was engaging in pre-Doha jockeying, his statement last week appears to put the matter to rest.

The statement was in sharp contrast to signals that have come from Riyadh and other Persian Gulf capitals in recent weeks.

Until a week ago, there were clear signals that Saudi Arabia and its allies were preparing to go ahead with the freeze arrangement, with or without Iran.

"There is agreement from many countries to go along with a freeze. Why make it contingent on Iran?" one Arab OPEC delegate told the Financial Times. The official said Saudi Arabia, Kuwait and their allies would limit their oil output regardless.

This was a real change in tone, and influential OPEC Secretary-General Abdalla Salem el-Badri seemed to be on board, too.

The Iranians "are not objecting to the meeting but they have some conditions for the production and maybe in the future they will join the group," Mr. el-Badri told delegates at a conference in Vienna.

So why the Saudi U-turn?

Riyadh is torn between its financial and geopolitical considerations.

Faced with grave economic circumstances, while sustaining expensive wars in Yemen and Syria, it needs the petrodollars to flow freely.

Saudi Arabia's foreign exchanges reserves dropped for the 13th consecutive month in February. They stood at $593-billion (U.S.), a month-over-month drop of $9.4-billion, taking the total outflow of central bank foreign assets to $150-billion since oil prices began to decline in late 2014.

This leaves Riyadh in a difficult situation, to say the least.

According to reports, Saudi Arabia is looking to borrow as much as $8-billion from international banks.

The country was also considering raising billions of dollars more from an international bond offering after securing the loan, according to The Wall Street Journal.

Saudi Arabia is also planning to list part of its state oil giant, Saudi Arabian Oil Co. (Aramco), to generate funds for a $2- trillion sovereign wealth fund.

Financial compulsion seems to be pushing the kingdom to put a cap on production levels. To put a floor under oil prices, with or without Iran, appears to be a sensible option from a financial point of view.

But geopolitical constraints, including Saudi competition with Iran on major strategic objectives throughout the Middle East, dictate that Riyadh fight it out on all fronts.

The hawks appear to be dominating the debate, and with Prince Salman (regarded as the architect of the war in Yemen and, to some extent, Syria) in charge, geopolitical objectives seem to supersede all other considerations.

Not many could challenge Prince Salman – he enjoys almost absolute authority, with independence to make decisions on issues pertaining to oil, economy, defence and regional politics. And as long as he does, there is little chance of accommodation with Iran.

After all, the Saudis can sustain the war longer.