The Real Reason Behind Saudi Arabia's Move Against Iran

For more than a year, Saudi Arabia has been waging a price war against US frackers—raising rather than cutting its oil production.

The trouble is that this game ended up hurting its own financial coffers more than those of American frackers.  Last August, Saudi Arabia issued $5 billion in bonds to cover a big shortfall in its oil revenues.

Now, Saudi Arabia is engaged in another war, in our opinion — trying to keep Iranian oil off the market to push oil prices higher by provoking a Saudi-Iran conflict.

First, Saudi Arabia proceeded with plans to execute a dissident Shiite cleric, Nimr al-Nimr, though it was almost certain that the execution would invoke anti-Saudi protest in Iran.

Second, it quickly cut diplomatic relations with Iran, after such protests took place in Tehran and turned violent.

The logic behind these moves is clear: a Saudi-Iran conflict is like adding fuel to the many fires already burning in the region, raising fears of oil supply disruptions — hence, higher oil prices.

Then there is the potential of oil sanctions against Iran coming back on the table should the Iranian response to Saudi moves get out of control. That would certainly mean higher oil prices.

That sounds like a win-win situation for Saudi Arabia.

Wall Street didn’t buy the story, at least in today’s trade in the oil market. After an initial spike, crude oil traded lower to close nearly unchanged for the day.