After Saudi Arabia's sudden insistence that Iran be part of a meeting in Doha last weekend to discuss an oil production freeze, global market analysts are scratching their heads over what the oil-rich kingdom's next move could be.
Oil analysts and market watchers have noted with interest this week that Saudi Arabia's policy when it becomes to oil has become a lot less predictable than it seemed in late 2014. Back then, the de-facto leader of oil-producing cartel OPEC refused to cut production in order to retain market share in the face of rival producers, notably in the U.S.
Eighteen months later and its strategy has appeared to pay off, with data showing that shale oil producers are closing down rigs every week and oil output is dropping. Although its own strategy has damaged the government revenues of all 13 countries within the OPEC family, which tends to rely on oil exports for the majority of its wealth, it has enabled the so-called cartel to retain its market share of just under 40 percent.
What's Iran got to do with it?
There appears to be trouble brewing closer to home for the group, however with a highly-anticipated meeting of OPEC and non-OPEC producers in Qatar last weekend, at which it was hoped a production freeze could be agreed, failing due to growing friction between Saudi Arabia and fellow OPEC member Iran.
The Islamic Republic did not attend the meeting and had consistently said it is not willing to freeze production as it wants to restart its oil industry and economy after years of economic sanctions.
Oil prices fell following the meeting and Saudi Arabia was quick to lay the blame at Iran's door but the country knew about Iran's unwillingness to cut and so analysts are now questioning just how much Saudi's regional rivalry with Iran is driving its latest strategy over oil.
"I agree with the near-consensus among the commentariat that Riyadh's seemingly sudden decision not to support a freeze was clearly motivated by other factors," Alastair Newton, head of Alavan Business Advisory and former political analyst at Nomura, said in a note on Thursday. "And that by far the most likely of these was the ongoing decline in cross-Gulf relations with Iran."
Newton said that Mohammed bin Salman -- Saudi's deputy crown prince who is increasingly influential over oil policy – could have decided to freeze production in order to help the Saudi economy but that, Newton argued, this had taken "second place relative to looking to constrain Iran's regional aspirations by squeezing it economically."
"Against this backdrop, I have to agree with the Financial Times that Saudi policy on oil has suddenly become far less predictable."
Could Saudi boost output?
With relations between Saudi Arabia and Iran hitting another low following the failure of the Doha talks, there are reports now that Saudi Arabia, Iran and non-OPEC producer Russia could all be about to ramp up production, rather than restrict it.
On Wednesday, Russia's energy minister said his country was prepared to push oil production to historic highs, Reuters reported, should Saudi Arabia engulf markets with more crude as it threatened to this week.
Mohammed Bin Salman told Bloomberg that the kingdom could increase output by around 10 percent a day if it wanted to, saying "If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door."
There is speculation that Saudi Arabia never planned to freeze production anyway, despite overtures ahead of the Doha meeting, and that it is content to pursue its strategy of pressuring non-OPEC producers until more leave the market.
Newton said that while Saudi's threat to boost production could not be dismissed lightly, whether it could damage Iran's aspirations to boost its own production and exports was uncertain. "If his aim is to discourage oil companies from investing in new output in Iran, then it could be some considerable time before he can be sure that he is achieving his objective, implying that Saudi Arabia may indeed decide to boost output to protract the supply/demand imbalance."
"One way or other, lower (prices) for longer appears to be with us for some time to come," he warned.