Saudi Arabia reduces oil prices for Europe, perhaps to undercut Iran

Saudi Arabia on Tuesday sharply cut the prices it charges for crude oil in Europe, a move that could undercut Iran as sectarian tensions escalate between the rival Middle Eastern nations.

The Saudi move appears to pave the way for a competition over European oil markets later this year when Iran is expected to increase its exports after the expected end of western sanctions over its nuclear program.

Italy and Spain relied on Iran for 13% and 16% of their oil imports before the European Union banned such purchases under sanctions related to its nuclear program in 2012. Although the country was replaced in the market by Saudi Arabia and other countries such as Russia, Tehran is counting on rekindling those ties when it resumes exports.

The price cut comes after a diplomatic chasm opened this week between Saudi Arabia and Iran, and by extension, the Sunni and Shiite Muslim worlds. Riyadh and a number of Sunni Muslim capitals have severed or downgraded diplomatic ties with Iran after the Saudi embassy was set on fire in Tehran following the execution in Saudi Arabia of Shiite cleric Nemer al-Nemer.
Iranian oil professionals interpreted the move as a way to compete with Iran returning to the oil markets. The European Union is set to lift an embargo on Tehran as soon as next month.

“The Saudis are preparing for Iran’s return,” said Mohamed Sadegh Memarian, who recently retired as the head of petroleum market analysis at Iran’s oil ministry.

The Saudi price cut ran against European market trends. Russia’s Urals prices have increased lately, while oil futures suggest some traders expect a rebound in Europe’s main benchmark, the Brent, this year, said Ehsan Ul-Haq, a senior analyst at U.K. consultancy KBC Advanced Technologies.

source: Market Watch