Why Saudi Arabia is Weaponizing the Price of Oil

03 February 2015
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Iran’s President Hassan Rouhani, following OPEC’s decision not to cut back oil production, said that countries that stood behind the fall in global prices would regret their decision. He has further warned both Saudi Arabia and Kuwait that their decision might also cause them to suffer from drastic a drops in oil prices alongside Iran.


Since June 2014, oil prices have fallen 50 percent from their peak, from 110 dollars per barrel to the current price of below 50 dollars. This has occurred as a result of several factors. One reason is related to the increase of oil supplies now available in the global markets, which is the result of the increase in the supply brought about by American shale oil production since 2008. This increased oil supply in the market, which coincided with the lessening demand for oil both in Europe and Asia, has led to the rapid fall of oil prices. Following this, OPEC’s November 2014 decision not to scale back oil production triggered a further fall in prices. Hence, the operational rules of the global oil market, which simply relies on the basic rules of supply and demand has naturally created today’s falling oil prices. 


After staying fairly stable from 2010 until mid-2014, oil prices in the last eight months have started to drop very sharply. Naturally, this situation has brought the greatest relief to consumers. However, countries that are either placed either on the producing/exporting side, or on the supplying/importing side of the global energy market have naturally found themselves positioned either on the negative or positive side of the story. According to the general view, oil producing and exporting countries that depend largely on high oil prices to balance their budgets, are today in severe trouble. In fact, countries like Iran, Russia and Venezuela, in the aftermath of the drop in oil prices to below $50 per barrel have already become the losers. However, on the other hand according to most economists’ expectations, the overall economic effect of cheaper oil is expected to be felt positively across the global economy, but of course it is also said that this would depend on the length of time that these prices stay low.


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