Monday, November 25, 2013

Iran Nuke Deal Could Cut Crude Prices by $13 a Barrel Over Time

The oil/commodity/economic ramifications of a successful outcome of the Geneva agreement announced over the weekend could be huge.

Experts speculate that crude prices could plummet as a result of increased Iranian oil output owing to a lifting of sanctions--a good thing for the West in general and for non-oil-producing developing nations. A $13 per barrel price cut is possible over time.

But Saudi Arabia, which regards Iran as a menace to be isolated, even without nuclear weapons, could retaliate against a perceived betrayal by the United States by temporarily flooding the market with oil in order to halt the U.S. shale oil and gas boom. Bakken oil costs about $80 to produce; the price of U.S. crude could decline to below $85, according to some analysts. (American consumers with no direct stake in the Bakken could be forgiven for welcoming such a "betrayal" if it results in lower gas prices at the pump.)

Russia, which is allied with Iran's ally, Syria, and has basically supported Iran throughout the nuclear standoff, would ironically suffer from increased Iranian oil production. Iran's America-bashing ally Venezuela would also suffer, ironically. Barring assured government support, so would the push for alternative and renewable motor transport fuels, from CNG to biodiesel. (Producers of biomass and bio-coal as coal replacements would not be affected, except in a positive way should burning natural gas for electricity generation no longer seem economical with rising gas prices resulting from production stoppages and slowdowns.)

Head-spinning speculation fueled by a diplomatic achievement that some see as a cave-in, others as a worthwhile attempt to preserve the peace…. This much is certain: it's all going to get more complicated in the coming months.

Read more.

POSTSCRIPT: Foreign Confidential editor-at-large André Pachter asserts the Obama administration is aiming high--at a Grand Bargain with Iran that would give U.S. energy companies access to Iran's immense oil reserves, enlist Iran as a pacifier of the Middle East and Central Asia and prevent Tehran from getting too close to Moscow.

President Obama entered the White House in 2009 seeking a rapprochement of this sort; but he was rebuffed by the Iranian regime. Iran's current foreign minister, Javad Zarif, is a Grand Bargain advocate, Pachter reports. So the Obama administration, to the dismay of Israel, Saudi Arabia and other Gulf states, believes the time is ripe to revive the initiative.