As the ongoing battle between Tehran and Washington continues, oil prices have rallied but not to the extent that one would think. In fact, oil prices are under control even as Saudi Arabia assured the global market that it would keep it well supplied. However, it is not the Saudis that are placing a cap on oil prices but the overstocked US which has stockpiles of oil stored across the country. In fact, rather than sell more oil (after promising it would if Iran supplies ended), Saudi Arabia is cutting back on production, it slashed production by 1.2 million per day, and it has become clear that it is the US that is adding supply and taking market share. In short, the Saudis guarantee oil prices are relatively stable by using verbal intervention as Iran is seeing its sales shut out of the market, and stealthy small US firms step and sell massive amounts of US product.
The US envoy on Iran said he was very pleased with the Saudi support “to step in and sell crude oil” in what seemed to be a joke – this exercise is more about the US taking Iranian market share. Now it is clear, the US and Saudi Arabia are teaming up to lock Iran out of the market and subvert the Iranian economy.
Our View: This could go wrong for the US and Saudi Arabia, and in the end trigger a war in the Middle East. Iran will be suffering more and more as it turns into a failed state, and it will more likely be forced to attack US interests. It could turn out to be a limited war on the back of unintended consequences.