The New Year has got off to a turbulent start with oil prices at nearly 12-year lows and a deepening crisis in the Persian Gulf involving two of the region's key producers.
Brent crude futures are currently languishing below $35 per barrel and earlier this week sank to $32.16, the lowest level since April 2004.
In theory, a major row between Saudi Arabia and Iran -- which together account for some 13 million b/d of global oil output -- should send prices soaring.
But there appears to be little concern about future supply at the moment because of ample supply and brimming stockpiles. Indeed, oil supply is more likely to increase than contract in a conflict that could well become the front line of the ongoing battle for market share, a battle that not only pitches OPEC producers against non-OPEC suppliers but also against each other.
Relations between Saudi Arabia and Iran, respectively the leading Sunni and Shi'ite powers in the Middle East, have been fractious for some time.
The latest crisis, the worst since the late 1980s and sparked by Saudi Arabia's execution last Saturday of a prominent Shi'ite cleric and the subsequent attacks by Iranian protesters on Riyadh's embassy in Tehran and consulate in Mashad, comes as Iran prepares to boost crude output and exports following the expected lifting of international sanctions in the near future.
Assuming the sanctions are lifted, Iran will be working to regain the share of world markets it lost to other producers after tightened sanctions in 2012 slashed its crude exports to just 1 million b/d from previous levels of 2.2-2.3 million b/d.
In particular, Tehran will be looking to sell the bulk of its extra barrels into Asia, the main source of global oil demand growth but also where competition between producers has intensified alongside rising supply.
Saudi Arabia has long been the leading supplier to this key region, but its status is being challenged by other suppliers both inside and outside OPEC such as Iraq and Russia.
It could be argued, though, that the biggest challenge comes from Iran, with billions of barrels in untapped reserves that could be developed in the future, and, in the nearer term, the potential to supply several hundred thousand barrels per day of additional oil in the coming months.
That challenge has been looming since last July, when Tehran reached a deal with six world powers to curb its nuclear program in exchange for the removal of sanctions.
So it was already likely before last weekend that Saudi Arabia would continue to prioritize production and market share over price.
Now, in a conflict that analysts in general do not expect to become a military one, Saudi Arabia's strongest weapon against Iran may be oil, and it may not be long, therefore, before we see official Saudi crude output numbers turning upward again.
Meanwhile, the tension between Riyadh and Tehran Gulf continues to ratchet up.
Saudi Arabia has cut diplomatic ties with Iran, as have Bahrain and Sudan, while other Gulf allies of the Saudis countries have recalled their ambassadors.
Iran has accused Saudi warplanes of attacking its embassy in Yemen, where Saudi deputy crown prince Mohammed bin Salman has been overseeing a series of military strikes against Houthi rebels. It has also banned the sale of Saudi goods.
Both Saudi Arabia and Bahrain have halted flights to and from Iran, and Bahrain says it has caught a terror cell linked to Iran that was plotting attacks.
Foreign ministers from the six Gulf Cooperation Council countries -- Saudi Arabia, Kuwait, the UAE, Qatar, Oman and Bahrain -- were to meet in emergency session on Saturday, January 9, to discuss the situation.
Both Iran and Saudi Arabia are founder members of oil producer group OPEC, but the most serious spat between Riyadh and Tehran since the l980s will have little or no impact in the short term on policy. That's because OPEC doesn't really have a collective policy based on what each member country wants.
Its current policy -- freewheeling production aimed at clawing back market share from non-OPEC producers in general and upstart shale oil producers in the United States in particular -- was handed down by Saudi Arabia just over a year ago.
At that point, late November 2014, oil prices were still in freefall and some OPEC members wanted to cut production in hopes of halting the plunge.
Saudi Arabia, however, made the point that cutting output would merely result in OPEC relinquishing further market share to rising non-OPEC supply. And because it can outpump anyone else in the group, Saudi Arabia was able to push through its market share strategy.
Ostensibly, by rubber-stamping the 30 million b/d that had been in place since 2012, the November 2014 decision maintained a notional limit on the group's crude output -- "notional" because there were no individual country quotas distributed under the ceiling and therefore no mechanism to enforce discipline. Not that discipline was an issue.
The whole point of the market share policy -- and it appears to be working -- was to drive high-cost non-OPEC supply out of the market.
The outcome of OPEC's most recent meeting, on December 4, was the removal of even a notional limit on output, as ministers failed to agree a number for the ceiling.
Only a few OPEC countries have been able to achieve what might be seen as significant increases in output, and Saudi Arabia has been the highest achiever in this respect, pumping out nearly 1 million b/d in extra barrels between late 2014 and mid-2015, according to its own official data.
Since June, when the kingdom told OPEC it produced a record 10.564 million b/d, Saudi Arabia has scaled back production, though it continues to produce in excess of 10 million b/d.
Saudi Arabia's market share strategy has had a profound impact on the economies of its fellow OPEC members and also on its own. The kingdom has vast financial reserves but it has been drawing them down at such a rate that the International Monetary Fund warned warned in October that they would be depleted in less than five years if oil prices remained low.
The past year has seen major changes in Saudi Arabia. King Salman took the throne after the death of King Abdullah, appointed his 30-year-old son to the roles of Deputy Crown Prince and Defense Minister and also put him in effective charge of the oil sector.
The long-standing chief executive of state oil company, Khalid al-Falih, was appointed health minister but also given the chairmanship of Aramco, a role until then held by oil minister Ali Naimi.
And the surprises are still coming. On Thursday, the young prince said in an interview with the Economist magazine that the kingdom was considering a public share offering in Saudi Aramco, which on Friday confirmed it had been studying "various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the company's shares and/or the listing of a bundle its downstream subsidiaries."
Such a move would have been unthinkable just a few months ago. The kingdom, the world's top oil exporter, has largely kept its oil sector off limits to foreigners.
The prince, meanwhile, has discounted the likelihood of a military conflict between Saudi Arabia and Iran. A war between the two countries would be "the beginning of a major catastrophe in the region," he said. "For sure we will not allow any such thing."
