GRM 2010 GRM 2011

Abstract Details

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Title of Paper:
Iran, Saudi Arabia and the regional imbalances in gas market
Paper Proposal Text :
The rivalries between Iran and Saudi Arabia date back to when both were staunch allies
of the United States in the strategically important Persian Gulf region. They competed
arguably within the OPEC and by setting the level of their respective oil production.
Most notably though, they were rivals in a race to become the closest ally of the US in
the region. Iran, thanks to its population, size and better developed infrastructure was a
more favorable ally in becoming a proxy for the U.S. military and protecting their interest
in the region.

After the Islamic revolution in Iran in 1979, a national security and religious dimension
was introduced to the enmity between the two countries. Today in almost every aspect of
the regional and international issues, Iran and Saudi Arabia are at loggerhead. Differences
of opinion and policies over Bahrain, Yemen, Syria and Iraq are examples of such deep
mistrust between the two countries.
On the other hand Saudi Arabia despite being a major oil producer and exporter of oil in
the world, is suffering from natural gas shortage. The kingdom’s domestic energy
consumption is skyrocketing. The growth of electricity demand is particularly strong and
Saudi Arabia consumes a significant amount of crude oil to generate electricity. The
kingdom’s level of crude oil export would be eroded if the rise of local oil consumption
could not be tamed.

The country’s petrochemical sector, which is more dependent on liquid oil as feedstock is
in dire need of natural gas to be able to compete in the international markets. In the past
Saudi Arabia has opposed plans for Qatar to export pipeline gas to other GCC members
such as Kuwait, regardless the Dolphin Energy project went ahead allowing UAE and
Oman to import around 2 billion cubic feet of gas per day from Qatar.

The regional imbalances in the gas market are set to rise. Gas production in almost all the
Middle East countries is struggling to keep pace with demand. Middle East will become
increasingly more dependent on gas. In addition to UAE and Kuwait, Bahrain and Saudi
Arabia are set to become the largest importer of LNG in the region. According to some
estimates the four countries could be importing as much as 25 mmtpa of LNG by 2035.
Among the countries of the Persian Gulf, Iran has the potential to become a significant
natural gas exporter to its Arab neighbors. Given the animosities, which exist between
Iran and Saudi Arabia, the question is whether or not the economic realities in the future
could encourage the both sides to engage in natural gas trade. The paper examines such
possibility by looking at the relevant history of bilateral relations especially after 1979.