Saudi Arabia's move to bring the oil price down for Asia: it's better late than never!

Saudis reduce oil price for Asia

 

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.

  

 

 

 

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