For at least the past two decades, oil, the most important resource in the Middle East, has been used as a tool for political and economic pressure and even as an excuse for regime change. The former Iraqi president Saddam Hussein in the early 1990s invaded Kuwait claiming that its oil wells belonged to Iraq, leading to the First Gulf War whose consequences are still felt in the region. Most of the problems of the Middle East stem from oil, and the flood of oil has meant that state and social structures may be washed away, however strong and stable they may seem to be. The former shah of Iran lost control of his country when oil flooded the market in 1977, and Russia is another example of a country facing a collapse in oil prices. What has happened over the past couple of years is that Saudi Arabia has flooded the markets with oil, mainly in an attempt to push back newcomers, including US shale oil producers. However, there may be other aims that thus far have remained hidden. According to a document produced in late 1976, US officials urged the Saudis at the time to flood the market with oil. Iran was the dominant force in OPEC at the time, and the Saudi act might have been a way of putting political pressure on the shah. The shah lost control of the Iranian economy, and the subsequent 1979 Islamic Revolution in the country began with strikes at Iranian oil and petroleum facilities that were at the time the heart of the country's economy. Saudi Arabia more recently flooded the market again to confront US shale oil producers and also possibly reduce the amount of money Iran can spend on its clients Hizbullah and Hamas and its activity in the region. This policy worked well until the time when the sanctions against Iran were removed in the wake of the Iran nuclear deal, and now there have also been shifts in Saudi Arabia's own oil agenda. Last week in Vienna in an astonishing and historic move Iran and Saudi Arabia made an agreement as the most two important OPEC members to stabilise the international oil market. According to the agreement, most OPEC members agreed to decrease their production, except Iran, which can increase its production to pre-sanctions levels. These were nearly four million barrels per day, and Iran can now increase its production by 90,000 barrel per day to reach its pre-sanctions quota in the market. Oil prices have climbed more than 15 per cent since OPEC agreed last week to reduce output by 1.2 million barrels a day starting in January. Non-OPEC members like Russia pledged a cut of as much as 300,000 barrels a day and put their differences behind them with Saudi Arabia, with this rapprochement being considered an even greater success than the actual oil deal. The agreement builds momentum between Saudi Arabia and Russia and makes further regional cooperation possible, with Iran taking the credit for the Russian cooperation with OPEC. It is true that oil prices are rising, but none of the exporters expect that the price will reach the pre-Saudi flood times of above $100 per barrel. The market is optimistic that oil prices will reach $50 to $60 per barrel in the coming six months if the OPEC agreement can last and all the producers keep their reduction promises. The agreement has been reached, and now the focus is on OPEC's compliance with the accord and efforts to persuade other producers to cooperate. Interestingly, the Iranians see themselves as benefitting the most from the OPEC agreement, which the Iranian media has claimed is a victory in the country's oil policy with Saudi Arabia. OPEC members will cut their production next month, but generally it takes two to three years before the impacts will be seen in each exporting country's economy, and Iran has suffered from important damage. For states like Iran that are dependent on oil revenues, any uncertainty in annual budgets is dangerous and any shocks to the system can cause budgets to drop drastically. Iran survived with oil costing just $25 per barrel, but the country's finances will take time to absorb the changes and its economy recover. In the Middle East energy has been a central factor in driving conflicts. Oil drew the world into the region, and it has also meant the growth of many small countries such as the members of the Gulf Cooperation Council (GCC). Oil can be used to share resources and bring people together, or it can create divides and divisions. The good news is that the recent OPEC agreement makes division less likely between the two regional powers of Iran and Saudi Arabia, at least on oil policy. They could cooperate on other matters, too, if they gave up the ambition of overthrowing each other using the power that comes from their oil resources.
