The conflict between the two big oil producers, Iran and Saudi Arabia, could disrupt crude supplies in the Middle East region, market participants fear.
But some analysts say the tensions in the Middle East are more likely to prompt the Saudis and Iranians to boost output in an already saturated global market.
That fear helped whipsaw the price of crude-oil from up sharply Monday to down sharply in a volatile day of trading, as global stock markets tumble on renewed fears of an economic slowdown in China.
The “Saudis are far less likely to cut back on production if Iran attempts to put more oil on the market,” said James Williams, energy economist at WTRG Economics. “The best the Saudis can do short term is keep them broke.”
“Cutting production wouldn’t be useful for anyone, and sabotage of facilities is possible, but unlikely,” said Lynch, adding that he believes unrest will be largely in civilian areas.
The deteriorating relationship between the Saudis and Iranians come as sanctions on Iran are expected to soon be lifted, following an agreement with the West last year over Tehran’s nuclear activities. Iran has said it plans to raise oil exports by at least half a million barrels once those sanctions are lifted.
“Saudi Arabia might now be even less willing to cut its own output to support oil prices if Iran would be a major beneficiary,” said analysts at Capital Economics, in a note to clients Monday.