Why the oil plunge isn't bad for Iran

As the price of oil falls below $63 a barrel, OPEC producers have still not agreed on cutting oil production over fears that they will lose their share of the market.

The falling oil prices are hurting Iran which already has a limited quota due to embargoes, but interestingly, the falling prices are also negatively affecting the United States. Saudi Arabia, for its part, refused to reduce production for reasons of its own.

According to the International Energy Agency, oil prices have declined since June due to slow demand and a U.S. shale oil boom which has increased supply in the market. U.S. shale oil is costly to produce but President Obama has invested a lot in this industry in order to cut the U.S. dependence on foreign energy.

If the price of oil continues to drop, the U.S. ambition of becoming the world’s biggest oil producer will not be achieved

Camelia Entekhabi-Fard

With all the world’s oil producers blaming each other, Iran and the U.S. seem to have become closer due to a common interest of fighting their way out of the unsteady oil market.

A continuing drop

If the price of oil continues to drop, the U.S. ambition of becoming the world’s biggest oil producer will not be achieved due to the high cost of production. For the U.S., it is uneconomical to produce shale oil if the market price plunges even further and this is may be exactly what some countries, such as Russia, are looking for.

At this point, Iran needs to increase its quota and sales to generate more revenue in light of the cheap oil on the international market. Iran’s full-fledged return to the market will affect Saudi Arabia and Russia and this may work in the U.S. interest. So, the oil price plunge seems to have inadvertently pushed the U.S. and Iran together.

This common interest will play a role in the relationship between the two countries, especially when it comes to reaching a comprehensive nuclear deal.

Politicized oil market

OPEC Secretary-General Abdullah al-Badri made an interesting comment on the matter in Dubai on Sunday: "The fundamentals should not lead to this dramatic reduction (in price). Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran. And Russia. This also is incorrect," Al-Badri said.

In this highly politicized oil market, Iran and the U.S. resumed the nuclear talks in Geneva on Monday with a bilateral meeting. They will be joined by the P5+1 ( five members of the U.N. security council plus Germany) on Wednesday.

In November, the negotiation period was extended for seven months in the hope that a deal would be reached. With the danger of falling oil prices at the back of their minds, the U.S. and Iran could feel compelled to settle talks faster.

So, if there is any oil production battle going on between the United States, Russia and Saudi Arabia, the bottom-line is that the main beneficiary is Iran.

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Camelia Entekhabi-Fard is a journalist, news commentator and writer who grew up during the Iranian Revolution and wrote for leading reformist newspapers. She is also the author of Camelia: Save Yourself by Telling the Truth - A Memoir of Iran. She lives in New York City and Dubai. She can be found on Twitter: @CameliaFard

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Last Update: Wednesday, 20 May 2020 KSA 09:43 - GMT 06:43
Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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