• COMMENTARY: Will The Lifting Of Sanctions Against Iran Destroy OPEC?

    Within hours of the United Nations lifting sanctions against Iran, the Iranian government announced that they will begin shipping 500,000 barrels of crude oil a day with a target of 2,000,000 barrels by the end of 2017. According to the International Energy Agency (IEA), Oil Market Report at the end of 2015, the world was producing approximately 2,000,000 barrels a day in excess of demand. If China and other nations are headed for a slowdown then oil demand will continue to fall, creating increasing surpluses in addition to Iran’s supply.

    With Iran coming into the market with 500,000 barrels a day of new supply, which would mean they are bringing in approximately 182 million more barrels annually to the excess supply. If the world oil producers including OPEC don’t do something to cut into the excess supply then energy prices will stay around $30 a barrel, unless there is a major global economic recovery.

    The longer prices stay in the $30 range the greater the survival risk is to the OPEC nations because of the shortfall in revenue as a result that diminished oil prices bring to their coffers. The interdiction by the military forces attacking ISIL’s oil supply has forced the terrorist organization to cut in half the pay not only of the leaders but the foot soldiers too. With greatly diminished revenue ISIL is spending its bank account to pay its bills much like many other energy exporting nations.

    In December 30, 2015 The Guardian published an item titled “Recession, retrenchment, revolution? Impact of low crude prices on oil power.” In the article authors report IEA suggests that if oil prices stay down at these levels then Saudi Arabia will be bankrupt in five years.  I suspect that many of the other OPEC nations do not have the resources to hold out for five years.

    The OPEC nations are not prepared to give up their portion of the diminishing market that they already have to Iran. The most recent IEA numbers show that OPEC is pumping 31 to 33 million barrels a day. In a little over a year and one half assuming the pumping stays at the current level then Iran could be 7% of OPEC production.

    One has to ask, with so much excess capacity, who’s going to buy Iran’s oil?  As one of the leading state sponsors of terrorism it could use fear to take market share from other OPEC nations.  I do not think that’s going to happen initially, I do think that Iran will be like any company trying to acquire market share in an overcrowded market, I believe they’ll cut the price of their crude oil putting further pressure on OPEC nations to try and compete. Bloomberg reported that Flint Hill Resources, a refining unit owned by the Koch Brothers, said that they would purchase sour crude from North Dakota for $-0.50 per barrel. The landscape of suppliers of crude oil is going to change dramatically over the next few years.

    Dan Perkins is the current events commentator for the hill.com and the daily search.com.  He is the author of the trilogy on Islamic nuclear terrorism against the United States called the Brotherhood of the Red Nile.  He is a registered investment advisor with over 40 years of investment experience he is the cohost of his own radio show, “Two Guys from Verona” heard on W4CY radio.com and I heart radio.

    Dan Perkins

    Dan Perkins is a novelist who has written a trilogy on a terrorist attack against the United States. The Brotherhood of the Red Nile series is available at Amazon.com. Mr. Perkins book web site is www.danperkins.guru.

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