Iran and Saudia Arabia are in a bitter feud, says practically everyone apart from the President of Iran, and yet that doesn’t seem to be the case in the energy markets. As reported by Bloomberg News, Saudi Arabia has aligned with Iran by cutting oil output by 4% so prices don’t fall below $100 a barrel. While energy economist Robin Mills informs me via Twitter that “it’s important to watch exports more than production, as Saudi domestic demand declines post-summer”, the Saudis could be using their spare oil production capacity to make it more difficult for Iran to sell its oil instead. So why aren’t they?
“The Saudis typically make decisions based on what’s in their own best interest,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “Their second priority is to do what’s best for global economic conditions. The Saudis probably like seeing the price of Brent between $90 and $100, more than at either $75 or $125.”
This could change, but as shown by this event and Ali’s report, sometimes (and much more often than we think) economic interests win over political ones.