Inauguration Of Emirates National Oil Co. Plant

Why are Oil Prices Still Falling In Spite of Tensions Between Saudi Arabia and Iran?

In direct conflict with past history, oil prices are continuing to tumble despite tensions rising between Saudi Arabia and Iran, two of the world’s largest oil producers. Surprisingly, oil prices currently sit at 11-year lows, and falling, as supply is exceeding demand all across the globe.

The trouble began when officials in the Sunni-Muslim dominated nation of Saudi Arabia moved forward with the execution of 47 Shiite-Muslim activists, including prominent cleric Sheikh Nimr al-Nimr. In response, Shiite Iranian citizens attacked and damaged the Saudi embassy in Tehran. The end-result has been the total cessation of diplomatic ties between these two neighbouring countries.

Other than creating more upheaval and unrest in the Middle East, it would appear that recent events are having little to no economic effect on other countries, even those that are entirely dependent on oil supplies from one of these nations or the other.

One reason events like this tend to have minimal economic effect on other countries is because of the lack of desire of foreign nations to invest in countries facing so much turmoil. If it weren’t for the need to import affordable oil, most nations would most likely cease to transact business of any kind with many if not all countries in the Middle East. It’s just too risky for most foreign investors.

As far as the future prospects of oil prices, it would appear that oil supplies are high enough to continue putting downward pressure on pricing. It seems the only way to curb falling prices is for OPEC to agree to massive production cuts. That said, it isn’t likely to happen because both Saudi and Iran are part of OPEC and neither would realize an advantage from such cuts. Also, OPEC doesn’t have the kind of economic influence over the oil market like it did in 1970s and 80s.