Are Saudis waging an oil-price war on Iran?

Meanhwhile, the Bush administration is only too happy to see Ahmadinejad's deteriorating domestic situation — and to let the Saudis further turn the screws. Moreover, administration officials are hinting they will be applying financial pressures to complement the Saudis. (As one official said recently, Iran cannot operate in the oil markets without using dollars.)

The officials did not reveal how the pressures would work, but said they are underway. The U.S. blacklisted the state-owned Bank Sepah, Iran’s fifth largest, in recent weeks and last month, Iranian Oil Minister Kazem Vaziri-Hamaneh acknowledged having difficulties in financing oil projects. Commerzbank of Germany also has announced that it will no longer handle dollar-currency transactions for Iranian banks at its New York branch.

One trader is convinced that the U.S. and Saudis sealed a secretive deal on Iran when Vice President Dick Cheney met with King Abdullah in what appeared to be a hastily arranged summit in Riyadh in late November 2006. There have been lower-profile meetings as well that could have dealt with the arrangement.

Equipment problems
Long term, traders say that the Iranian oil will become even more expensive, if not impossible, to extract because Iran does not have access to up-to-date exploration and drilling equipment.  Only two countries, the U.S. and Canada, manufacture the equipment needed for the job and they simply do not sell to Iran. Iranian attempts to get the Japanese to sell some of their equipment — not the same quality as the North American equipment but adequate — failed when the U.S. pressured the Japanese.

The biggest field discovered in the past 35 years, at Azadegan, near the Iraqi border, is considered “geologically complex,” according to the U.S. Energy Information Administration, and thus will be costly to develop. The lower world oil prices, the more difficult it becomes to make the field profitable and to get foreign investors to do complicated joint ventures with the national oil company. 

Rafsanjani is known to believe that Iran should not continue to anger the U.S. and should align itself with the Americans in a fight against the Sunnis, an opportunity that is slipping away as Iran angers the U.S. in Iraq and on the nuclear front. And this week, reformist Ayatollah Hossein Ali Montazeri joined in the criticism. 

For the U.S. and Saudis, this can only be seen as good news.

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