Immediate pressure for Riyadh to use its vast spare capacity to pump more crude has faded somewhat as US crude has dipped back below $80 a barrel, after hitting $82 last week, its highest level this year.

But a Saudi government adviser, who asked not to be named, said the price had reached ‘the high end of our range’ and any further rise could prompt the kingdom to react.

‘Especially now that the global economic system is recovering, we don’t want to be seen as letting the oil price spiral out of control and affecting the recovery,’ he said.

The kingdom’s membership of the G-20 group of industrial and developing nations meant it had to be seen to be living up to its ‘new-found global responsibilities’, the adviser added.

Saudi Arabia, a US ally which sees itself as the guardian of Sunni Islam, has long competed with Shia  Iran, especially since the 1979 Islamic revolution toppled the pro-Western Shah.

Oil is at the heart of the kingdom’s regional clout.

‘Saudi Arabia derives almost all of its position in international politics from the fact it is the largest oil exporter,’ said Samuel Ciszuk of IHS Global Insight. ‘Without that, it does not matter whether Iran is strong or weak.’

Regarding Riyadh’s urge to shield the global economy by moderating oil prices, he said: ‘There might be an interesting confluence of interest. A lower oil price might weaken Iran.’

The Saudi government adviser acknowledged any extra pain for Teheran, which needs a higher price than Riyadh to balance its budget, would be a side benefit, but said Iran was already ‘unravelling’ under political and economic pressures.

‘So the urgency of (depressing prices) directly in an aggressive way has become secondary to our global responsibilities in the oil market,’ the adviser said.

ECONOMICS TRUMPS POLITICS

Valerie Marcel, an energy analyst for London’s Chatham House, also said Saudi Arabia would not put its quarrels with Iran above its economic interest in strong world demand for oil.

‘Saudi Arabia wouldn’t set its volumes policy on the expected impact on Iran,’ she said. ‘Its main concern is that a higher price will threaten economic recovery and future demand for oil. Certainly Saudi-Iranian relations are not good but the economic stakes are higher than politics in this case.’

‘Iran has been pushing for higher prices for a while now because of its own economic woes,’ Marcel added.

Saudi Arabia needs oil prices to average $51 to balance its budget in 2009, while Iran needs an average price of $91 according to International Monetary Fund estimates.

The Iranian parliament this month approved plans to phase out burdensome food and energy subsidies in what the government portrayed partly as an effort to make the Islamic Republic less vulnerable to any more sanctions over its disputed nuclear work.

It may be in Saudi interests to rein in oil prices, but it has raised its price aspirations this year, in fact bringing them closer in line with the needs of Iran.

In March, when it was more worried about the global downturn and oil prices were below $50, Riyadh said it was more important to nurture the world economy than to push oil to the levels it considered necessary to stimulate investment in new supplies.

By the time of OPEC’s May meeting, it was confident enough in a recovery to set its price aspirations at around $75 a barrel, arguing that this would not derail economic growth.

Since then, it has consistently said oil prices in a roughly $70-$80 a barrel range were good for both consumers and producers — encouraging investment and not crippling consumers.

A senior Arab diplomat in Riyadh said Saudi Arabia also had its own economic challenges at home that soaked up oil income.

‘The Saudi leadership, except for some self-styled hawks, is focusing more on deploying all the resources at hand to address growing domestic issues which could threaten the monarchy,’ he said. ‘Public spending is what’s keeping the country on its feet and 90-plus percent of the government’s revenues are from oil.’

The Saudis did not comment publicly when oil briefly hit $82, but OPEC Secretary-General Abdullah Al Badri said last week prices around $80 were ‘a bit high’ given a weak world economy.

He said the Organization of the Petroleum Exporting Countries might consider increasing output when it meets in December but only on condition inventories shrank, the world economy recovered more and prices continued to rise.

Iran took a sharply different view.

‘Under current conditions, requesting OPEC to increase its crude output in order to decrease the oil price would be an improper request,’ said its OPEC governor, Mohammad Ali Khatibi.