Last week, Saudi Arabia’s Energy Minister Abdulaziz bin Salman threatened to cut oil production through OPEC+ in response to the recently volatile markets, which, according to him, stray away from the ‘fundamentals.’ However, according to analysts, the move may be aimed at the US which is slowly on its way to revive the 2015 nuclear deal with Iran from which the US withdrew in 2018 under former President Trump.

Saudi Arabia - the world's top crude oil exporter - wields strong leverage in OPEC and OPEC+, and there are two main reasons for its recent threats. Firstly, after cutting production of oil since the onset of the Covid pandemic, OPEC+ has been increasing production for two years now. Still, the organisation has not been meeting its targets each month by million barrels. In July, OPEC+ missed its target by 2.9 million barrels a day. Secondly, the potential revival of the Iranian nuclear deal poses an economic and security risk to Saudi Arabia, as it would invite Iranian oil back into the world’s markets. The Saudis might fear that lifting the current sanctions would allow Iran to use its new profits in funding terrorist activities - similar to what Israel fears. Moreover, Riyadh likely plans to put a price floor of $100 per barrel - something which would be hard to achieve if the sanctions on Iran were to be lifted. According to the Financial Times, ‘A new nuclear deal could restore as much as 1.3mn barrels a day of Iranian oil exports — equivalent to about 5 per cent of Opec’s total supply — easing traders’ fears of shortages as Europe tightens sanctions on Russian crude shipments.’ Although Iran would not raise output immediately, as it would need to revive parts of its oil industry, it does have large reserves stored at sea ready to release as soon as possible.

If the nuclear deal goes through, markets could experience further volatility, which has already been heavy. Since June, the cost of a barrel of oil has slid by $25. Moreover, Saudi Arabia’s threats alone have stirred movements in the markets, where the price of Brent crude oil rose from $94 a barrel on Monday, August 22 to $102 a barrel on Thursday, August 25. Regardless of the outcome, oil markets can expect further activity driven purely by insecurity.