The Hamas attack on Israel that derailed Saudi Arabian Crown Prince Mohammed bin Salman’s principle diplomatic initiative — a three-way deal with the US and Israel — and scrambled the regional political landscape has left one thing unchanged: Riyadh’s influence over the global oil market.
For the last year, Saudi Arabia has cut production to boost prices, including a unilateral 10% reduction in output on top OPEC-negotiated curbs. Although the market has relentlessly focused – wrongly — on perceived weakness in demand growth, the truth is Riyadh faced unexpected supply from countries under Western sanctions, notably Iran but also Venezuela and Russia. Since October 2022, Iran has boosted its production by as much as 700,000 barrels per day — the second-largest source of incremental oil supply this year, behind only US shale.
The reason? Washington turned a blind eye to rising smuggling of Iranian crude, mostly finding its way into China via Malaysia. The priority was an informal détente with Tehran, including a prisoner swap and bringing oil prices lower. Moreover, rising Iranian oil exports were an unacknowledged cost of easing the pain of another set of oil sanctions on Russia.
Iran has long supported Hamas financially and militarily — although its role in Saturday’s brutal attacks remains unclear. Yet it’s difficult to see Washington maintaining its hands-off approach to Iran much longer. The Islamic Republic isn’t just supporting Hamas, but it’s also providing weapons to Russia for its war against Ukraine. And the key to that support is oil revenue.
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