Dubai (AFP) – With Washington ready to stem Iran's oil exports, OPEC heavyweights Saudi Arabia and its partners are ready to increase supply, even if market conditions remain uncertain, analysts say.
The renewal of sanctions against the Islamic Republic comes at a time when there have been substantial supply disruptions in several producer countries, and US President Donald Trump wants to prevent an increase in oil prices.
Analysts expect Iran's oil exports, which reach around 2.5 million barrels a day in normal times, to drop by one to two million barrels a day when sanctions come into effect on November 5.
This should weigh on an already strained market.
Defaults in Libya, Venezuela, Nigeria, Mexico, Angola and others forced OPEC and non-OPEC producers to abandon agreed production cuts and increase supply in June.
"We are in a very important phase for the oil market," the International Energy Agency said in a September report. "Things are getting closer."
– Free capacity in Saudi Arabia –
Saudi Arabia is the only manufacturer with significant spare capacity of around 2 million Bpd, which can be used to compensate for the loss of Iranian supplies.
The kingdom was scrutinized after Saudi journalist Jamal Khashoggi – the former critic of the royal court – was killed in his country's consulate in Istanbul in October.
As relations between the West and Riyadan worsened over the murder of the Washington Post, Saudi Arabia said it had no plans to impose a retaliatory oil embargo.
Saudi Arabian Energy Minister Khalid al-Falih said his country, which increased production by 700,000 to 10.7 million barrels a day in October, said it was ready to ramp up production to 12 million barrels a day.
"We have sanctions against Iran and nobody has any idea what the Iranian export will be," he told Russian news agency Tass last week.
In addition, Libya, Nigeria, Mexico and Venezuela had potential declines, indicating uncertainty over US shale oil production.
Falih said the kingdom could focus on its huge strategic reserves of around 300 billion barrels to meet global demand.
Anas al-Hajji, an oil expert based in Houston, said the decline in Iran's exports was difficult to predict but expected "less than what most analysts talk about."
"The Iranians have perfected their game of sanctions and there will be a black market for Iranian crude," Hajji told AFP.
The neighbors of Saudi Arabia, the United Arab Emirates and Kuwait, can increase their production as needed by up to 300,000 barrels per day.
– "It is not sustainable" –
Kuwaiti oil expert Kamel al-Harami said he had doubts that Riyadh could sustain 12 million barrels a day over a longer period of time.
"It's very unlikely … you've never made sustained eleven million bpd … it's not sustainable," Harami said.
OPEC is constrained by low spare capacity in a tight market, threatened by unplanned downtime, low investment and unpredictable geopolitical turmoil.
The Iranian officials rely on the unstable market conditions to beat US sanctions.
"Trump is trying to cut Iran's oil exports as well as prices, and they can not go together," Iranian oil minister Bijan Namdar Zanganeh said in late September.
Tehran sold oil to private customers for the first time on 28 October to counteract the impending return of sanctions.
Some estimates show that Iran's crude oil exports have already fallen by one-third since May, and even traditional Chinese and Indian companies have stopped buying.
Hajji said he believes the market is well supplied and that Saudi Arabia does not have to exceed 11 million bpd production.
"They (Saudi) have a capacity of 12 million bpd, but it is not necessary for Saudi Arabia to use all its spare capacity," he said.
"People forget that demand in the first quarter is down from the fourth quarter, and the IEA expects a drop of one million bpd," Hajji said.
Oil prices, which rebounded from below $ 30 a barrel to a four-year high of over $ 86 a barrel in early 2016, fell to around $ 75 due to fears of weaker global demand.
Oil prices eased on Tuesday as the market eased concerns over potential supply disruptions following Falih's pronouncements suggesting continued high output.