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Saudi Arabia led countries to compensate for a drop in oil exports from Iran, as EU sanctions against insuring oil tankers from oil became effective. This makes it difficult for Iran to export its oil.

 

During this month, Iran oil production fell to its lowest level in two decades, whilst Saudi Arabian oil production reached a 30-year high.

 

The increased Saudi oil production, coupled with a weakening global demand has pushed oil prices to below $90 per barrel, the lowest in 18 months. Oil prices have reached $130 per barrel in March 2012. Industry surveys reported by Reuters estimate that should Saudi production remain at this level, oil prices would fall to $74 by the end of 2012.

 

 

Analysis and Forecast: Increasing Risk


 

The deliberate lowering of oil prices through increased production may have a number of economic and political reasons. However, the most serious implication is its impact on Iran, and in the longer-term Iraq and other states. Critics in the Arab World have accused the Saudis of attempting to undermine the financial stability of Iran by lowering the price of oil to be below that of the break-even price for those states. This not only negatively impacts the probable target of the Saudi action - namely, Iran and Iraq, but also other GCC states whose breakeven price of oil has dramatically increased during the past few years.

 

The price manipulation therefore leads to an increase of overall risk on two fronts:

  1. On the political front particularly for Saudi Arabia, as it is seen by Iran and Iraq as a proactive economic act of aggression;
  2. On the economic front for other GCC states as it leads to lowering of income from oil, and the lowering of oil prices closer to or below the breakeven price.

Therefore the result is an overall increase of economic risk for all GCC states as well as an increase in political risk, particularly against Saudi Arabia.

 

The figure below shows the approximate oil production in percentage from key OPEC members in June 2012 (percentage from OPEC total).

The figure below shows the break-even price for oil in the GCC states: