World Bulletin/News Desk

The fall in oil prices drags Iran into an oil export race with Saudi Arabia, favoring Riyadh and complicating Teheran's bid to recover its sanctions-hit economy, experts say.

Brent crude price, the benchmark for oil purchases worldwide, has continued to drop since June this year, and is currently around US$88. 

Experts debate that low prices will disappoint Iran's bid to revitalize its economy, as they are the main pillar of their recovery strategy. Experts say, therefore, Iran will lag behind Saudi Arabia in their hidden competition for oil prices.

"By trying to lower oil prices, the Saudis are trying to strike a blow to Iran's economy," said Meir Javedanfar, an Iranian expert at the Interdisciplinary Center in Herzliya, Israel.

He explained the economic interests of the Iranian Revolutionary Guards are heavily involved in Iran's energy sector, adding that "Guards are also militarily involved in places such as Iraq, Syria  and Lebanon where they are supporting, arming, training, and in the case of Syria, fighting alongside the enemies of Saudi Arabia: Bashar Al Assad."

He noted that Iran is logically worried about Saudi efforts to bring down oil prices and is trying to match them in the market.

"However with current sanctions and the high costs which they have incurred, Iran's ability to match Saudi Arabia's efforts in lowering its oil prices are much more limited."

Abhishek Deshpande, an oil markets strategist of Iranian origin at Natixis - a French corporate and investment bank said, with lower oil prices from Saudi Arabia, Iran is likely to push its official selling prices down to compete for the market share in the near term. The decision to sell more oil is seen as the only way to make up the loss in revenue due to lower oil prices.

"Low oil prices and lower oil exports, due to competition, would be quite unfavorable for Iran," Deshpande said.

London-based Global Resources Corporation President Mehmet Ogutcu said low oil prices will render Iran's comeback to world politics and the strengthening of its economy difficult as oil revenue was its best means to attract fresh capital, technology and management to its sanctions-hit hydrocarbon industries.

Ogutcu stated that a deal with the West over Iran's nuclear program seems as yet to be far away.

"As a result, Iran is turning from a revisionist to a status quo power seeking peaceful settlement of disputes and guarding what economic and political influence it has in the region," he said.

Contrarily, Mohsen Qamsari, director for international affairs at National Iranian Oil Company claims that as Saudi Arabia's official oil price in the world market dropped over the current month, it is natural for the Iranian crude price to decrease proportionally, and maintains that it has nothing to do with competition between Riyadh and Tehran.

Iran sees oil-price weakness as temporary

Iran, in a change of tack, is saying it can live with lower oil prices, moving closer to the views of Saudi Arabia and other Gulf OPEC members and reducing the likelihood of any collective cut in OPEC output to support prices.

OPEC's traditionally second-largest producer is normally among the first members of the Organization of the Petroleum Exporting Countries to call for supply cuts to support prices. Iran needs relatively high oil prices to balance its budget, analysts say.

But a drop in oil prices - which fell towards $86 a barrel on Tuesday, the lowest since 2010 - did not prompt calls for cuts in OPEC supply.

"At this time of year, it is normal to have some price weakness," a source familiar with Iran's oil policy told Reuters. "And oil-price weakness has been compensated for by the appreciation of the dollar."

OPEC's Gulf Arab producers are at ease with lower prices. Saudi Arabia has been quietly telling market participants it is comfortable with lower oil prices, a shift in policy that may be aimed at slowing the expansion of rival producers including those riding the U.S. shale oil boom.

Another core Gulf OPEC producer, Kuwait, said on Sunday OPEC was unlikely to cut production.

Western sanctions have drastically reduced Iranian oil output and exports and have limited its ability to participate in output cuts at a time when Tehran's energy-dependent economy is suffering from much lower oil revenues.

In the past, OPEC countries have cited a weakening dollar as a reason to justify higher oil prices, which erode the purchasing power of dollar-based oil revenues.

But the dollar is close to a four-year high against a basket of currencies, helping offset the drop in prices. 

"I am not worried at all," a second source familiar with Iranian thinking said recently, when asked about the drop in oil prices.

OPEC meets to review policy on Nov. 27 and such comments add to the sense that a collective cutback to support prices - which would be OPEC's first since the 2008 financial crisis - looks unlikely - at least for now.

Iran's deputy oil minister said on Tuesday the recent drop in oil prices is short-lived, the oil ministry's news agency Shana reported.

Rokneddin Javadi, who is also the managing-director of the National Iranian Oil Company (NIOC), asked if the fall in oil prices would harm Iran's budget, said: "I don't think so."

The IMF has estimated that to achieve a zero fiscal balance Iran needs oil prices to be $130 a barrel, the second-highest after Libya of eight of OPEC's 12 members it looked at.

Iran, traditionally the No. 2 producer in OPEC, was overtaken by Iraq in 2012 after European sanctions on Iran forced it to reduce exports and as Iraq expanded supplies with the help of foreign oil companies.