The developing conflict between Saudi Arabia and Iran, prompted by the Saudi execution of Shia cleric Nimr al-Nimr and subsequent retaliation by Iranian hardliners on the Saudi Embassy in Tehran, has triggered a deepening crisis in already poor relations between the two regional powers, threatening oil supplies.
Initial effects on oil prices from the increased tension between Iran and Saudi Arabia have so far been limited. The fracas, however, raises the likelihood of instability in Saudi Arabia, particularly in the Eastern Province, which produces over 9 million barrels per day (mbd) and where Shia secessionist sentiment is strongest. An unexpected event or provocation could prompt a chain reaction, bringing Tehran into an open war with Riyadh and its allies. Such a conflict would immediately place more than 11 million barrels per day of global oil supply at risk, putting significant upward pressure on prices worldwide.
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