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Iran deal could spell trouble for OPEC, Mideast

DUBAI, United Arab Emirates, Dec. 6 (UPI) -- Iran's expected return to full oil production after several years of U.S.-led sanctions over its nuclear program will sharpen its feud with its longtime rival, Saudi Arabia, which will have to cope with Iraq's mounting output as well, while the United States moves toward self-sufficiency.

If the landmark interim agreement reached in Geneva Nov. 24 expands into a more lasting deal, Iran can be expected to go all-out to restore its lost market share, sharpening the friction with Saudi Arabia at a time when the Middle East is on a knife-edge over a potential region-wide conflict between the two branches of Islam these states represent.

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Iran's full return to the market could take as long as two years, as production is restored and foreign investment sought to upgrade Iran's antiquated oil industry to counter the declining output from mature fields that have been on the slide since the 1970s.

Iranian oil minister, Bijan Zangeneh, served notice at the annual meeting of the Organization of Petroleum Exporting Countries in Vienna Dec. 4 that Tehran doesn't plan to waste any time.

He pledged to drive up production if sanctions are lifted and implicitly called on Saudi Arabia, which has been making billions by covering the loss of Iranian and Libyan production over the last couple of years, to cut back its output to accommodate Tehran.

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"When member countries, after limitation, return to the market, other members understand that they should open the doors ... and not fight with him," Zangeneh declared.

Iran's oil exports, its economic lifeline, has been cut in half, falling from 2.5 million bpd in June 2011 to 1.2 million bpd in September, the International Energy Agency in Paris says.

The text of the Geneva agreement shows the United States and its European allies pledged to "pause efforts to further reduce Iran's crude oil sales," easing pressure on China and other Asian states, Iran's main customers, to cut their imports.

Oil analysts say a gradual end to sanctions should unlock around 800,000 bpd of global supply by 2014, rising over time if the negotiations don't break down.

That will push down prices from their current level of around $100 a barrel, which will not please the Saudis or their OPEC allies.

The Financial Times reported Zangeneh underlined that in Vienna by threatening to trigger a price war, warning that it would boost output even if that pushed down prices.

"We will not give up our rights on this issue," he said.

Such rivalry has raised concerns the confrontation between Iran and Saudi Arabia over who will be the paramount regional power -- overlaid with a 1,400-year-old religious schism between Islam's Shiite and Sunni branches -- could escalate.

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The war in Syria has essentially become the main battleground in this confrontation, and the Sunni Saudis see the Geneva agreement as a surrender to Shiite Iran that will leave Syrian President Bashar Assad, Iran's ally, in power.

"America's rapprochement with Tehran is a dramatic upset in the region's alliance system at a time when the Shiite Muslims led by Iran are locked in an epic struggle for Mideast dominance with a Saudi-led bloc of Sunni regimes," observed British commentator Ambrose Evans-Prichard.

Iran and Saudi Arabia have long been bitter rivals within the OPEC cartel, which controls a third of the global oil market. That rivalry will intensify if the door is opened for potentially significant foreign investment in Iran's decrepit oil industry.

Iran has reserves of 157 billion barrels and 1,046 trillion cubic feet of gas.

"In the oil and gas business that's what a prize really looks like," observed analyst Nick Butler.

"In time, the development of those resources will change the world oil and gas market, putting real pressure on OPEC and on prices," he noted.

"For now, the issue is access and as the Iranians will well recognize drawing in foreign companies is a very effective way of creating international allies as the nuclear negotiations continue.

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"If the alternative was a major military strike against Iran's nuclear facilities, with the risks of triggering a wider conflict, perhaps negotiations were the only serious option for Washington.

"But now that there is a possibility if success, those negotiations create a dynamic of their own -- a dynamic in while the balance of power shifts in Iran's favor."

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