Will Saudis Play Oil Card To Get Revenge For Iranian Plot? The Obama administration is consulting with U.S. allies on how to respond to the alleged Iranian plot to assassinate the Saudi ambassador to the U.S. But Saudi Arabia may have its own idea: It could try to undermine Iran's economy by driving down oil prices.
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Will Saudis Play Oil Card In Revenge Against Iran?

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Will Saudis Play Oil Card In Revenge Against Iran?

Will Saudis Play Oil Card In Revenge Against Iran?

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It's MORNING EDITION from NPR News. I'm Steve Inskeep.


And I'm Renee Montagne. Good morning. In capitals around the world, American diplomats are laying out evidence that elements of Iran's government plotted to assassinate Saudi Arabia's ambassador to Washington. The U.S. is leading the push to hold Iran accountable. But Saudi Arabia may want to respond to Iran in its own way. Its weapon could be oil. NPR's Tom Gjelten reports.

TOM GJELTEN, BYLINE: Iran and Saudi Arabia for decades have been rivals in the Muslim world, Iran as the protector of Shia Muslims, Saudi Arabia as the preeminent Sunni power. Iran's regional clout has grown in recent years. But the Saudis have an advantage of their own - in the global oil market, where both countries are big players. Whereas Iran is producing all the oil it can and needs all the oil money it can earn, the Saudis have spare capacity. If they want to drive the price of oil down, they can increase production. A lower oil price would hurt Iran more than it would hurt the Saudis, because Iran depends so much on its oil income.

Mohsen Milani is an expert on Iran at the University of South Florida.

MOHSEN MILANI: The Iranian economy is indeed ailing, and it's vulnerable. And if the Saudis can manage to bring down the price of oil significantly, they could hurt Iran.

GJELTEN: That would be non-violent but effective retaliation for the alleged Iranian effort to assassinate one of Saudi Arabia's leading diplomats. In fact, if the Saudis were to increase their oil production to the maximum, it could hurt Iran disproportionately.

Reva Bhalla, the director of analysis at Stratfor, a private intelligence firm, points out that Iran and Saudi Arabia compete directly. They sell to the same customers.

REVA BHALLA: Most of that Saudi output would be going to Asia, which is Iran's primary market, and would be of relatively similar grade, so the Saudis would be hitting both Iran's main customer base and its product type.

GJELTEN: But this is theoretical, Bhalla says. It's not actually clear Saudi Arabia really could punish Iran economically right now. The question is whether it could boost oil production enough to drive the price down to a point where Iran's oil revenues would be significantly affected. Many of the presently unused Saudi oil facilities, she says, have been out of commission for some time. And a long-term effort would be needed.

BHALLA: They would have to sustain that level of production for a while to make a significant dent in price and deal most importantly with the repercussions from Iran in that kind of a trade war.

GJELTEN: Among the possible repercussions, Iran could threaten to close the Straits of Hormuz, through which 60 percent of Persian Gulf oil currently has to pass. In sum, while Saudi Arabia is theoretically in position to use its oil capability against Iran, the practical issues around doing that are enormous.

DANIEL YERGIN: It's a very blunt weapon, very uncertain in terms of its impact, how low the prices go, who else is affected.

GJELTEN: Daniel Yergin is chairman of IHS Cambridge Energy Research Associates.

YERGIN: So this is not something that can be a fine-tuned policy.

GJELTEN: And on this point, among these experts, a consensus: Saudi Arabia probably cannot play the oil card now against Iran, even if it would like to do so in response to the alleged plot against its ambassador to Washington. Mohsen Milani.

MILANI: They are going to do their best, but I don't think they are going to be very successful.

GJELTEN: And Reva Bhalla of Stratfor.

BHALLA: This is something I think the Saudis are keeping in reserve. But I haven't seen any indication that they're going to be going down this route.

GJELTEN: Meaning Saudi Arabia and Iran may be sliding into a cold war, but an overt confrontation on either the military or economic battlefield is probably unlikely for now. Tom Gjelten, NPR News, Washington.

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