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Iran Blames Saudis for Slide in World Oil Prices
by John M. Curtis
(310) 204-8700
Copyright
January 1, 2015
All Rights Reserved.
Rejecting calls to drop current oil output Nov. 27,
Saudi Arabia ignored calls from the Organization of Petroleum Exporting
Countries to stop the slide in world oil prices.
Petroleum exporting powers under U.N. sanctions, like Russia and Iran,
have seen their currencies and stock markets hammered, turning growing economies
into recessions. Oil prices peaked
July 11, 2008 at $147 per barrel, giving former GOP presidential nominee Sen.
John McCain (R-Ariz.) fits before handing President Barack Obama a decisive
victory Nov. 4, 2012. Back then,
the U.S. mortgage meltdown created a global financial crisis, plunging the U.S.
and global economies into recession.
Since taking office Jan. 20, 2008, the Dow Jones Industrials rose from
7,800 to Wednesday, Dec. 31’s close at 17,823, driving U.S. unemployment to
six-year lows of 5.8%, adding 10 million jobs since March 2010.
Today’s slide in oil prices directly relates to Saudi Arabia refusing to
cut production, creating today’s worldwide oil glut, driving Wednesday’s close
to $53.92 per barrel. Economies
like Russia and Iran can’t turn a profit at today’s reduced prices, nor can the
Canadian and U.S. oil-shale industries turn tar-ands into profitable crude oil. Iran complains the loudest because
the mullah-based government led by Supreme leader Ali Khamenei continues to
alienate Western governments on their controversial nuclear program. Faced with tough U.N. sanctions,
Iran’s its own worst enemy, causing more unnecessary economic distress. Russia under President Vladimir
Putin has done the same thing, violating Ukraine’s sovereignty and territorial
integrity seizing Crimea March 1.
Putin’s move cost Russia billions in U.S. and European Union sanctions, refusing
to give Ukraine back the Crimean peninsula.
Pleading with Saudi Arabia to cut oil production, Iran finds a cold
shoulder because the Kingdom wants to capture back market share lost to Russia
and other minor oil producers.
While Iran complains about Saudi’s market manipulation, the Canadian and budding
U.S. oil-shale industry has the most to lose with low oil prices. With oil around $50 a barrel, the
oil fracking industry loses profitability.
Oil fracking entrepreneurs in the U.S. and Canada hoped for high oil
prices to justify Wall Street’s investments in oil funds. Former PIMCO Bond Fund co-CEO
Mohamed El-Erian, now the chief investment advisor at global financial firm
Alllanz, sees the Saudi’s move to regain lost market share for the foreseeable
future. Unliike el-Erian’s
forecast, some petroleum analysts see oil prices rising to a more sustainable
price of around $80 a barrel by the middle to end of 2015.
El-Erian sees macroeconomic
global trends, including the slowdown in China and India, has contributing to
the prolonged drop in oil prices.
“Oil prices will be lower, making shale-oil production less attractive for
investments, which are necessary to keep oil-shale production growing,” said
Commerzbank’s Carsten Fritsch, concerned that the fracking industry would be
impacted in Canada and the U.S in 2015.
Much of oil’s recovery in 2015 depends on growing demand in China and
India, both facing economic slowdowns.
Even with a cut to Saudi oil production, lower global demand would still
keep the price of oil at five-to-six-year lows.
“If Saudis does not help prevent the decrease in oil price . . . this is
a serious mistake that will have a negative result on all countries in the
region,” said Iran’s Deputy Foreign Minister Hossein Amir Abdollahian, urging
the Saudis to cut production.
Russia and Iran blame the U.S. for today’s drop in global petroleum
prices. Instead of recognizing the
global economic slowdown and slowing demand, Russia and Iran prefer to blame
Wall Street for trying to destroy their economies. With the constant drumbeat of
anti-U.S. propaganda in Russia and Iran, it’s no wonder that ordinary citizens
blame the U.S. for their economic woes.
Iran and Russia wants Saudi to cut oil production to boost global oil
prices but ignores what el-Erian sees as global macroeconomic trends driving
down demand for fossil fuels. Lower
oil prices should force the Canadian and U.S. oil-shale industries to reduce
their costs to make products more competitive in world markets. Unlike the Saudis that have low
production costs, the U.S. and Canadian oil-shale industries cost more to
extract and refine oil products for global sales.
Iran’s public remarks that Saudi Arabia could bring down global oil
prices by cutting production don’t jibe with el-Erian’s analysis that global
macroeconomic factors continue to drag down oil prices. Slowing economic trends in Europe
and Asia also undercut the demand needed to boost global oil prices. However OPEC acted in the past, the
Saudis see no need to push for more Iranian, Russian or any other global oil
producer. El-Erian believes that low oil prices help Saudi Arabia regain lost market share, driving
oil-exporting countries like Iran and Russia into insolvency. Oil exporting counties have been
worried for years about the growing global trend toward more fuel-efficient
vehicles. With electric and
hydrogen fuel-cell cars becoming a reality, consumers will require less fossil
fuels in the future. Lower global
demand for oil could be a future trend hard to reverse.
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