Saudi Arabia reduced the price of crude oil for Asia
on Sunday, which came as a bolt from the blue for the beleaguered markets. The
cut was substantial; it was more than $1 and the move makes perfect sense as
far as the biggest markets base of the Kingdom is concerned.
It goes without saying the turmoil that the region
has been descended into due to the pandemic, which in turn causes cumulative
chaos in the regional collective economy.
The state of the regional economy has been in the doldrums
for months; it’s not a new development. Yet, Saudi Arabia raised the price of
crude oil for the very region in early August – for inexplicable reasons.
Having been sandwiched between two adverse factors, the
pandemic and rising oil price, the regional governments, from India to South
Korea, were forced to turn to their respective SPRs, the Strategic Petroleum
Reserves, to mitigate the impact of the lesser of the two devils, the price of
oil price, as the last resort.
The frequent appeals by the countries in the region
through diplomatic channels to the OPEC+ to increase the output substantially
did not materialize. The OPEC+ just responded by saying it was already
happening, while referring to the daily increase in output – 400,000 bpd, as planned
from August to December.
Despite being belated in timing, the Asian consumers
can breathe a sigh of relieve at the news. The price of oil is a key factor
when it comes to reviving the affected economies by the pandemic; no economy
has been spared, from India to Japan, in Asia.
Of course, Saudis do not want to lose its main
customer base to potential competitors in the long run. Not only are they
closer to home, but also have been loyal for decades to the Kingdom.
Saudis are also aware of the impact of Iran
returning to the market, in the event of sanctions being lifted: the relations
between Iran and Saudi Arabia show no sign of improving; on the contrary, they
are getting worse by each passing day in proportion to the explosive-laden Houthi
drones reaching towards the Kingdom at an accelerated pace.
Although Iran has upped its rhetoric by taking a
stand of not compromising its interests, when it comes to reviving the JCPOA,
2015 nuclear deal, the ground realties may change its position.
The regional politics are evolving much faster than we
thought it would, ever since the US left Afghanistan. Up until this weekend,
for instance, Iran maintained a neutral, philosohical position with regard to Afghanistan, an
immediate neighbour sharing a common border; it was neither excited nor unduly alarmed.
When the northern stronghold of late legendary
commander Ahmad Shah Massoud fell to Taliban on Sunday, however, Iranian
position suddenly changed with the tone going from that of conciliatory to
confrontational.
Iran began accusing an unnamed country of
interfering in Afghan situation militarily. Whether the country in question was
Pakistan or the UAE was not clear, as both had been active in Afghanistan in
the last few days, ever since the airport saw some normalcy in its functioning.
Iran, meanwhile, is up against militants in northern
Iraq too.
Its cold war with the arch-foe in the region, Israel, shows no sign of abating either.
Israel. meanwhile, threatens to attack Iran if its
nuclear activities go up a notch from self-defined level of uneasy tolerance of
the former; the Israeli defence chief said at the weekend that the measures for
such an eventuality are already in place – an ominous threat.
In short, Iran has to fight on many fronts to stay
relevant in the region and it needs money to maintain the fragile status quo –
when its economy is in the doldrums due to sanctions and the pandemic.
In this context, Iran may soften its stand when it
comes to reviving the JCPOA.
Saudi Arabia may have taken into account the
possible Iranian re-entry into the oil markets and of course, a potential oil
supply surplus in the markets, before making the decision to cut the price of
crude oil for Asia.
