Geopolitics & Black Gold: The Danger of the Iranian-Saudi Arabian Contest Over Oil

If the Middle East is inseparable with two things in the public mind, it is oil and war (or its virulent offshoot, terrorism). Narratives about the fragile region typically focus on these two facets of a multi-faceted place, one composed of numerous rivalrous states and non-state entities. The two largest and arguably most conflicted--the Islamic Republic of Iran and the Kingdom of Saudi Arabia--are both as imposing as their images suggest. Each vies for regional dominance. Their on-going competition over oil production is crucial to understanding a complex, tense and often ruthless dynamic that holds massive consequences.

OPEC (Organization of Petroleum Exporting Countries) recently announced it would hold an informal meeting at an energy conference in Algeria to discuss a new pricing mechanism for exporting countries. The call was in no small part due to the upswing of Saudi Arabia's massive production of 10.67 million barrels a day, which may cause prices to fall. Both Saudi Arabia and Iran (two of the largest exporters within the organization) were locked in a standoff in April regarding how OPEC ought to proceed. Iran doesn't want to be tied down now that harmful sanctions against its economy have been lifted. The Saudis do not want any limitations on production unless such a decision is unanimous, which is unlikely given the current politics.

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The importance that oil--or 'black gold'--holds for Saudi Arabia cannot be stressed enough. Their economy is dependent on exports of the vital resource for revenue; Saudi Aramco--the world's largest refiner of crude oil and billed as the world's most valuable company at $1.25 trillion minimum--is a nationalized entity that is under the strict orders of the monarchy. Iran, though slightly diversified, relies on crude oil just as much. It has its own nationalized company, the National Iranian Oil Company, which is only second to Aramco in size and evaluation. Its military patrolling of the Persian Gulf and the Strait of Hormuz--through which most of the world's crude oil is transported- emboldens their status as the apparent gatekeepers of the world economy. The economic rivalry over oil prices reflects just one tense point of a dangerous relationship that could potentially spiral out of control, plunging the world economy into a vulnerable state. 

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The differences between the two seem to emphasize the idea of an inevitable confrontation. Saudi Arabia is Sunni, the caretaker of Islam's two holiest pilgrimage sites (Medina and Mecca), and ruled by a repressive monarchy backed with brutal Wahabbism. Iran is Shia, a rising (and latently aspiring nuclear) power, characterized by a curious mesh of theocracy and democracy, and is likewise an exporter of militant Islam through its subsidizing of fundamentalist organizations like Hezbollah and Hamas. Economically, politically and socially, the two are locked in a struggle for dominance. To date, they are engaged in a proxy conflict in Yemen and a prolonged game of brinkmanship over the strategic island nation of Bahrain (whose population is majorly Shia but whose dynasty, the Al-Khalifa, is Sunni), located between the two in the oil-rich Gulf. When Saudi Arabia executed a prominent Shia cleric earlier this year for criticizing the state, riots ensued in Tehran that quickly turned violent, promising retribution. To say that the two have a tense relationship is an understatement.

The two countries contestation is an irrefutable fact of Middle-Eastern politics, and of economics, that will continue so long as there is oil to be refined and influence to be grabbed.