Grand Strategy in Global Oil Markets: The Gulf States and Iran

Iran has enormous oil and natural gas resources.

The country could be one of the richest in the world; what it lacks is access to global markets and modernization of the national energy infrastructure.

1. Iran and Saudi Arabia have a significant impact on global oil and gas markets.

Iran is currently in a bitter struggle with Western countries and Saudi Arabia for power and influence in the Middle East. This struggle extends in part to Central Asia, although it is difficult to predict whether Iran will find a diplomatic way to demilitarize.

Iran is a global energy heavyweight, but one that has no equal. In a previous article, we examined Saudi Arabia’s global energy policy in more detail and mentioned that Saudi Arabia, as the world’s largest oil producer, is engaged in an energy power struggle with Iran. The two countries have different visions of the energy industry, and the two countries also have obvious similarities in terms of energy policy.

Relatively speaking, both countries are fascinated by the fact that they are exposed to unfavourable climatic conditions, which also make the production of oil and natural gas more difficult. Saudi Arabia is a desert country and Iran a steppe country, more or less. Both oil-producing countries are in a race for dominance in the Middle East and are trying to back up their claims to legitimacy with energy policy measures. Saudi Arabia has strategically allied with the United States to create an energy alliance that has lasted nearly 70 years. While Saudi energy policy has certainly gone through periods of conflict and loyalty to the alliance, the general behaviour between the countries has been amorphous.

2. Restoration of part of the Persian sphere of influence in the Middle East and Central Asia through targeted energy policy measures

In addition, the partnership between Iraq and Iran on energy issues is straining the relationship between Iran and the United States. Iran’s influence in Iraq after the war also gave Iran some influence over the country’s energy policy. This means that Iran has additional influence over oil and gas production in one of the world’s largest oil-producing countries. Iraq’s oil and gas reserves are huge and undermine the global orientation of Saudi energy policy. Moreover, these geopolitical tensions come at a time when Saudi Arabia’s membership in OPEC is struggling to push through its demands. 

3. Iran’s energy reserves are being used as a bargaining chip to achieve geostrategic goals

Relations between Iran and the United States in the area of international energy policy have almost always been more turbulent than those between the United States and Saudi Arabia. The relationship has been in a state of shock for more than 40 years, seemingly frozen in the Hindu Kush. With the U.S. withdrawing from agreements on the civilian use of Iran’s nuclear energy and easing sanctions, relations between the two countries are not likely to improve in the foreseeable future.

Nevertheless, the European Union has decided to stick to the agreement on the civilian use of Iranian nuclear energy. One of the main reasons for this is that the European Union, while industrialized, is unable to further maximize is potential energy resources in the North Sea. There are few alternatives for the European Union to meet its energy needs other than increasing the amount of imports from Russia, the United States and the Gulf States. Russia is of particular interest to the European Union because Russia’s energy prospects have actually improved significantly due to the discovery of hydrocarbon resources, particularly in the Russian Arctic. This does not mean that oil supplies from the Persian Gulf can be dispensed with.

While the United States will be able to meet most of its energy needs from domestic sources in the medium term, there is no telling where the countries of the European Union will get their energy from. With the United States putting so much pressure on Germany and the European Union to stop the construction of Nordstream 2, there are not many options for finding energy.

The idea that the United States can meet the European Union’s energy needs – by exporting LNG to Europe – is reasonable. But it must be doubted that these energy supplies can be sustained indefinitely. LNG is not a long-term solution. New oil shale and shale gas production wells are drying up much faster than conventional oil wells. In some cases, they are financially ruinous and environmentally damaging. So you have to put this in perspective. Nevertheless, increasing LNG exports to Europe should be seriously considered.

Iran is the country with the largest natural gas reserves in the world, with the fourth largest oil reserves in the world. This makes Iran a heavyweight in global energy trade. There are only two ways for the European Union to achieve a major increase in natural gas supplies. Natural gas can be obtained from Russia or Iran.

4. Qatar and Iraq are critical components to Iran’s energy efforts. Efforts are being made to strengthen alliances. This will have an impact on global energy markets.

Iran can increase its global footprint by working with other major players in global energy markets. Iran is therefore dependent on allies such as Iraq and Qatar for its energy policy. These countries have large gas and oil reserves. Despite the fact that Saudi Arabia is the market leader in oil trade, Iran is increasingly becoming a global energy broker.

The expansion of China’s new Silk Road includes the development of ports, pipelines and transshipment stations in South and Central Asia. The New Silk Road is also focused on developing new energy projects from east to west across the Eurasian landmass. This shifts the global balance in Iran’s favor.

Iran is increasingly taking advantage of its central geopolitical location and, by expanding the new Silk Road, it is able to bypass strategically important maritime trade routes for the export of crude oil and natural gas and supply them directly to China. China, in effect, is creating the foundation on which Iran is able to thrive in a Eurasian market place. As China becomes the central hub of the Eurasian energy world, infrastructure projects are branching out in all directions from the thriving center.

The United States, on the other hand, can do little to change Iran’s central position in the Eurasian theater of nations. But much has been done to help the Chinese government make the new Silk Road a success.

5. A new axis is emerging in global energy policy.

An axis consisting of Russia and Iran is quite capable of determining the parameters of world energy trade. This is especially true if Qatar joins this axis. Should this be the case, Iran would reach one of the most important energy policy milestones of the last 40 years.

Many thanks for the shared interest in the energy world!

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