The energy market has been drawing some comfort from repeated comments by Saudi Arabia – the world’s largest crude oil exporter – that it stands ready to boost its out output to compensate for any shortfalls if Iranian shipments are cut in response to U.S. and European sanctions.

As the chart below shows, both Iranian and Saudi output has been relatively stable in both absolute and relative terms over the last decade or more. The International Energy Agency has forecast exports might fall by somewhere between 800,000 barrels to one million barrels per day in the second half of this year. At that level, it appears within the bounds of possibility that Saudi Arabia can pick up the slack.

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There is a wild card, however. Back in January, Iranian media outlets reported that Iran’s OPEC governor had warned the country’s Arab neighbors that Iran would view any ramp up in production to compensate for lost production in the wake of an Iranian embargo as an unfriendly act. That means that Saudi Arabia will have to carefully juggle a variety of strategic, diplomatic and commercial considerations when the time comes to make its decision.

If Iranian supplies do fall under an embargo, IMF head Christine Lagarde warned crude oil prices could soar another 30%, with potentially grave consequences for the still-fragile economic growth worldwide. Crude oil prices are trading at about $105.45 per barrel.

 
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