Iran and the Oil Scarcity Myth
UN-style diplomacy and sanctions aren’t working. In truth, they never had a chance. Tehran’s breakneck pace toward nuclear development – a program which, as the IAEA confirms, goes way beyond what is necessary for domestic use – has set the agenda. The Israelis are realists. They know the nuclear end game with Iran is fast approaching.
For Israel, survival is the issue. Meanwhile, the political and media angst in the West is intent on focusing only on fears of apocalyptic ‘consequences’; first, an ensuing ‘conflagration across the Middle East’ or even World War III; second of global oil prices rocketing to over $150 a barrel. In truth, the first is a non-starter, the second, if it were to happen, would only be a temporary phenomenon. Here’s why.
Western politicians and armchair liberals alike are not good at reading the ‘sub-text’ of Middle East political rhetoric. Nor do they, it seems, understand the nature of the recent fossil-fuelled global energy revolution that has drawn the potential sting of an Iranian – or even an OPEC – oil power play.
The over-hyped assertion we hear daily from Western observers is that an Israeli strike at Iran’s nuclear facilities could spark an apocalyptic global conflict. That rather assumes that Tehran actually has any real friends, other than Syria, in the region. It doesn’t. That simple fact was underscored recently when Saudi oil minister Ali Al Naimi, speaking at the biennial International Energy Forum conference in Kuwait, blithely announced, “Saudi Arabia and others remain poised to make good the shortfall, perceived or real, in crude oil supply.” Neither is Saudi alone in making the commitment. The minister from Riyadh was merely echoing a sentiment already expressed by the United Arab Emirates and Kuwait.
In the West we too readily forget the blood-stained 1,000 year enmity between Shia and Sunni Arabs. Iran’s leaders are Shia, much of the rest of the Middle East is Sunni. If Israel and the West are nervous about Iran’s nuclear-armed global superpower aims, Iran’s Sunni Arab neighbors are terrified at the thought of a nuclear-armed Tehran and its regional and global ambitions.
While a former Iranian Revolutionary Guard may currently hold the chair at OPEC, the organisation per se no longer wields the global clout it did when its members colluded in the 1973 global oil embargo; an embargo designed to influence Western opinion against Israel. Quite simply, Western fears over events in the wake of a potential Israeli strike do not stack up. Not only do Iran’s neighbors have the capacity to ramp up production should Iran’s oil ‘dry up’, but also the world is awash with oil. President Obama’s 22 billion barrels of ‘proved’ reserves comments should be taken with a pinch of salt. And even the 1. 2 trillion barrels of proven global reserves of natural gas liquids and crude oil estimated by the World Energy Council – about four decades’ worth at current rate of use – needs proper context.
Long gone are the days where peak oil alarmists had their own genre of literature, ran up massive book sales and attracted sensationalist headlines alleging the end of civilization as we know because the ‘oil is running out’. New technologies, new oil and, above all, shale oil and gas, have blown away all their ludicrous predictions. Shale oil prospects alone suggest that a minimum of 4.8 trillion barrels should be added to global recoverable reserves; production from oil sands another 6 trillion or more. Meanwhile, new exploration is also ramping up on all five continents.
And we get a breath-taking glimpse of the scale of newfound Western resources when we realize that Wyoming and its surrounding states alone are estimated to hold over 800 billion barrels, more than triple Saudi Arabia’s known reserves. According to industry consultants Wood MacKenzie, spending on oil and gas exploration hit a record $72 billion in 2011. That figure could well continue to rise during 2012 and beyond. Against this background, Iran’s share of global oil production is, according to the IEA, set to fall from 4.9 percent in 2012 to 4.5 billion barrels in 2015. It also explains why the European Union remains unconcerned by the embargo it has imposed on Iranian oil imports to the continent from July 1.
The willingness of regional ‘friends’ to cover any potential Iranian oil shortfall, is highly instructive. Not only does it further confirm that a strike on the Mullahocracy’s nuclear facilities would not cause mayhem in the global oil market, it would actually elicit, as we have said elsewhere, “an enormous collective sigh of relief from Riyadh to Amman to Cairo” – not just in Tel Aviv.