Saudi Arabia is increasing significantly its investments in core oil and gas assets in a move aimed at maintaining its position as the Opec kingpin and the world’s largest oil exporter, whilst also containing Iran’s regional influence, analysts believe.

State-owned Saudi Aramco announced massive profits in its annual earnings report on Sunday and said it plans to spend between $40 billion and $50 billion this year, marking a return to levels of capital expenditures not seen for several years .

Cyril Widdershoven, a leading Middle East energy sector analyst, told Upstream that Saudi Arabia’s plans for increased capital investments might be targeted towards downsizing Iran’s regional influence.

“Officially this could be the main strategy, as Iran’s current position is under discussion,” he noted.

The backdrop to these concerns are improved expectations for the US to agree to a new nuclear containment deal, allowing Iranian oil back onto global markets.

Iran’s oil industry and exports have been targeted by US sanctions since 2018, when then-president Donald Trump withdrew the US from a 2015 Iran nuclear deal.

Widdershoven said that “renewed access for Iran to global markets, without sanctions, would be a potential threat to market share” for Saudi Arabia.

He added that Saudi Arabia appears to be worried about where and at what time additional barrels from Iran could be headed, once US sanctions are removed.

Iran's rapprochement

Widdershoven described Riyadh’s concerns about an Iranian rapprochement with the West as relating to “a potential disruption of current market stability, a weakening of Opec’s internal power situation and a possible Iranian oil and gas glut”.

Iran sits on the world’s fourth-largest oil reserves, but its output has dwindled since the imposition of US sanctions.

The nation pumped 2.4 million barrels per day last year and has plans to increase output to 3.8 million bpd, once sanctions are lifted.

Iranian Oil Minister Javad Owji said in televised remarks at the weekend that the government plans to raise production capacity of crude and condensates to 5.7 million bpd from a current level of under 4 million bpd, but he gave no time frame, according to Reuters.

However, Vandana Hari, the chief executive of Vanda Insights — a Singapore-based provider of global oil markets macroanalysis — told Upstream that she does not “necessarily see Saudi upstream investment boost is directly linked to the prospect of Iranian oil being freed from US sanctions”.

“But I definitely see Riyadh becoming increasingly concerned about Iran strengthening its proxies in the region, especially Yemen’s Houthi rebels,” she noted.

Yemen's Iran-aligned Houthi group attacked Saudi refining and water desalination facilities over the weekend, the latest in a string of missile and drone attacks.

Diversified Saudi economy

Saudi Arabia’s higher capital investments are also based on the assumption that it needs higher oil revenues in the coming years to diversify its economy, Hari noted.

Aramco presently has an oil production capacity of almost 12 million bpd, but is producing far below capacity, due to Opec+ quota restrictions.

The country wants to increase its production capacity to up to 13 million bpd by 2027 and also invest heavily in domestic gas-based projects to free up spare crude export capacity in the long term.

Responsibility for Houthi attacks

Saudi Arabia this week warned it cannot be held responsible for any potential shortage in global oil supplies caused by the Houthi attacks on its facilities.

The country’s state-run news agency, SPA, quoted an unnamed official from the Saudi Foreign Ministry as saying that attacks by “Iranian-backed terrorist Houthi militias” could cause major disruptions in the oil markets.

The warning came one day after the latest cross-border armed drone and missile attack, blamed on Houthi rebels, was launched against Aramco facilities in Jiddah, Yemen.

The US also condemned the most recent attack on Saudi oil and gas facilities.

"We condemn the weekend attacks on Saudi Arabia by the Iran-supported Houthis and will continue to help Saudi Arabia defend its territory," US Secretary of State Antony Blinken said in a social media post.

While the Houthis have made multiple attacks aimed at Saudi oil and gas facilities in recent years, analysts note that Saudi Arabia has stepped up its own rhetoric when Iran is closer to negotiating a nuclear deal with the Western powers, and this is not seen as a coincidence.

US plays down Iran deal prospects

The US State Department this week said an agreement on the Iran nuclear deal is neither imminent nor certain and added that Washington is preparing equally for scenarios with and without a mutual return to the full implementation of the nuclear accord.

A State Department spokesperson warned that the US is prepared to make “difficult decisions” to return Iran’s nuclear programme to its limits under the nuclear deal.

Saudi Arabia and Iran have said in the past that they believe mutual talks can ease tensions, but have downplayed expectations of a significant breakthrough.

However, the two nations continue to stand on opposite sides in the war in Yemen, where a Saudi-led coalition has been fighting against the Iran-back Houthi movement for almost eight years.