Magazine article The Middle East

Kingdom Reinforces Its Stance Re: OPEC

Magazine article The Middle East

Kingdom Reinforces Its Stance Re: OPEC

Article excerpt

/Saudi Arabia's decision not to cut development spending in its 2015 budget, despite a sharp fall in oil revenue, indicates that the kingdom will resist pressure from other oil producers to reduce output in order to force prices upwards--as Gerald Butt reports./

When OPEC oil ministers met in Vienna at the end of November the expectation was that they would agree on joint action to trim output in order to stop the decline in global oil prices. This was certainly the hope of a number of OPEC member states, not least Iran and Venezuela, two countries facing difficult economic conditions. The lead, of course, would have to be taken by Saudi Arabia, the world's largest oil producer. In the past the kingdom has been willing to adopt this role--but no more.

Saudi Arabia's view now is that any cut in production would have to involve action from all major oil producers--OPEC members, plus big players like Russia. Achieving this kind of consensus proved impossible.

The problem is that with demand for OPEC oil shrinking as the north American shale oil and gas industry expands, any cut by conventional oil producers would result in a loss of market share. This would be the case for Saudi Arabia as much as any other state. So, for the time being, the kingdom is determined to sit it out, confident that lower oil prices will dent the economics of the shale industry and that this factor will help boost global prices.

But other OPEC members are likely to become increasingly restive if prices do not recover soon; and they will be urging Saudi Arabia to take action before their economies are damaged further. Iran's deputy Foreign Minister, Hossein Amir Abdollahian, told Reuters that "There are several reasons for the drop of the price of oil but Saudi Arabia can take a step to have a productive role in this situation. If Saudi does not help prevent the decrease in oil price . …

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