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Iran-Saudi rift punches new hole in OPEC unity

Paris – Escalating diplomatic tensions between Iran and Saudi Arabia have added fresh strains on Organization of Petroleum Exporting Countries (OPEC)’s unity as the cartel grapples with a common response to rock-bottom oil prices, experts said.

While it produces a third of the world’s oil, the group has struggled with crude values that have tumbled some 60 percent since mid-2014, falling below $40 (37 euros).

(Oil prices edged higher in Asia Wednesday, ahead of the release of a US stockpiles report, with investors also keeping an eye on a worsening diplomatic row between Iran and Saudi Arabia.

At around 0605 GMT, US benchmark West Texas Intermediate for delivery in February was up eight cents at $36.05 and Brent was three cents higher at $36.45. Both contracts closed lower on Tuesday.)

Crafting a new way forward has become yet tougher since Saudi Arabia executed prominent Shiite cleric Nimr al-Nimr at the weekend, triggering a sectarian standoff with Iran. “What’s happening at the moment between Iran and Saudi Arabia makes searching for a compromise even more difficult,’’ said Francis Perrin, president of Strategy and Energy Policy publications.

Gulf countries, led by top OPEC producer Saudi Arabia, refuse to cut production unless the oil-producing states that are not members of group agree to do the same. A cut would likely help prices climb.

Though the Saudis have thus far had their way, this unbending stance has been financially painful for the 13 OPEC nations, including Algeria, Venezuela and Nigeria, which draw most of their revenues from black gold.

For its part, Iran, the other pillar of OPEC, has no intention of curbing its production with the lifting of Western sanctions just on the horizon, which would allow it to resume crude oil exports.

“OPEC has no policy at the moment as it’s everyone for themselves,’’ said Ole Hansen, a Saxo Bank analyst.

‘’In the short term, there is no chance of an agreement within OPEC regarding production, and assuming there was some small chance, it has disappeared with the current crisis in relations between Saudi Arabia and Iran,’’ said Pierre Terzian, head of the Petrostrategies weekly.