In Battle for Mideast Dominance, Iran-Saudi Row Could Negatively Impact World Economy

“There is desirable treasure and oil in the dwelling of the wise; but a foolish man swalloweth it up.” Proverbs 21:20 (The Israel Bible™)

Mounting tensions between Iran and Saudi Arabia could have an impact on the world economy, experts suggest. Various media outlets are reporting on the predicted impact of the growing feud on oil prices worldwide, as well as the global effect such price fluctuations will have.

Last week, Sunni Saudi Arabia executed 47 prisoners, including Shiite cleric Nimr al-Nimr, charged with terrorism. Shiite Iran responded by storming the Saudi embassy in Tehran and demanding its diplomats leave the country within 48 hours.

The two countries, each considered the regional power of rival Muslim factions, have escalated their threats against one another. Each is actively working to undermine the other in an effort to dominate the Middle East and prove, among other things, the superiority of their particular set of Islamic beliefs.

“[The] impact of the conflict on key sectors such as oil, tourism and trade but also on the overall economy could be felt not only by Iran but also by the already fragile MEA [Middle East and Africa] region,” wrote Kinda Chebib, senior research analyst at Euromonitor International, in an analysis reported by Gulf News.

According to Chebib, Iran and Saudi Arabia have strong import-export ties, and the current conflict has affected them. “The situation can have a repercussion on the economy, as trade has also been halted between the two.”

As Saudi Arabia is home to Mecca and Medina, the two holiest Muslim sites to which pilgrimage is obligatory, Iranians travel there frequently. However, 150 flights between the two countries have since been reportedly cancelled.

“This can be detrimental for the tourism industry in the region, as tens of thousands of Iranians travel to [Saudi] each year to complete Hajj and Umrah pilgrimages. This is in addition to the fact that [obtaining] visas is likely to become more difficult for Iranians in general,” Chebib said.

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Investors internationally may also shy away from both countries due to increased risk. According to Chebib, “Intensified crisis between the two countries could trouble investors, since most Saudi oil production comes from its Eastern Province, dominated by Shiites.”

Meanwhile, experts are divided on how exactly recent developments will impact oil prices. Oil prices have been dropping for some time now, due to higher supply than demand, and while that seems like good news to consumers, it could cost many jobs in oil-dependent economies around the world, including many US states. Some predict a sharp rise in oil prices due to the Mid-East instability, but others point to other mitigating factors.

“Because of high volume of output by Saudi Arabia and Russia, as well as increased production by the United States, there has been an increase in oil inventory. On the other hand, China’s economic slowdown foretells of stagnant demand. In response to the current dispute, most likely Saudi Arabia will continue its high level of extraction to deny Iran any substantial increase in its oil income following the nuclear agreement. Thus, we should expect short term volatility in oil prices, medium term stability and long term slow increase,” Kamran Dadkhah, a professor of economics at Northeastern University in Boston, Massachusetts, told Azernews.

In addition to the direct impact on oil prices, Iranian-Saudi tensions could create conflict in the Organisation of the Petroleum Exporting Countries (OPEC). Several members, such as Iran and Venezuela, have been calling for an agreement on limiting production to stabilize prices. Alp Eke, senior economist at the National Bank of Abu Dhabi (NBAD), pointed out to Gulf News this is unlikely to happen at this point.

“At the moment, a unified policy by Opec will be almost impossible to achieve. In the recent past, Iran and Venezuela have been asking other members of OPEC to reduce production, but Saudi Arabia, with its vast FX reserves, have been in favour of keeping the same production levels.”

With sanctions being lifted against Iran, Eke said, the Islamic Republic may try to take advantage of the very problem it had previously sought to solve, increasing its oil production and flooding the  already full oil market. Saudi Arabia has therefore long opposed the lifting of sanctions against Iran.

Analysts and officials in the US are not worried, however, about the possible impact on the local economy, reported Fox News.

“The geopolitics of energy has changed significantly over the last decade,” Jack Gerard, president of the American Petroleum Institute, said at his annual State of American Energy address on Tuesday, downplaying the impact of Middle East disruptions. “The United States is now the world’s No. 1 producer of oil and natural gas.”



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