I found this part really interesting:
"For dozens of oil producers, the plunge in oil prices is devastating. No major oil producer can balance its budget at prices below $40; according to the International Monetary Fund, with the exception of Qatar, every country in the Middle East requires at least $60, with Algeria at $157 and Iran at a whopping $390. The average Brent price of oil over the past month has been a hair above $20."
It's fascinating the cost of extracting oil is so high in Iran in particular, a country that is under constant sanction by the US. I wonder how much of the cost is due to the sanctions and disturbance in trade (ie Iran cannot import key technologies), and how much of it is because Iran's oil deposits is just "harder" to drill.
I think you might be reading that wrong. It isn’t that the cost of extracting the oil
is so high, but that the budgets of these countries depends on the price of oil being high. When the price drops, they can no longer cover their entire budget and will need to borrow or reduce their spending.
These numbers aren’t related to the cost of extraction (which is a different issue but is also variable between different regions).
>> When the price drops, they can no longer cover their entire budget and will need to borrow or reduce their spending.
And there is another angle to these numbers. They are the prices based on recent exports of oil. Iran isn't a silly country that requires $300 oil to break even. Their oil exports have dropped in recent years. That drop (sanctions) is a separate factor than oil price. If oil exports a halved, the break-even price doubles. But if oil prices climbed Iran would probably find a way to export more oil, decreasing its break even price to something more reasonable.
79% of their exports is unrefined crude oil. While exports are not always the whole story, in this case it is extremely relevant.
If Iran's economy was 99% domestic and 1% trade, (essentially autarkic) then it wouldn't really matter at all what the price of oil is, as Iran makes everything it needs for itself, whether that be automobiles, medical equipment, financial services, concrete, etc.
However, Iran is not autarkic and trade is about 50% of its GDP. In order to complete international trade it requires foreign currency. At the start of the year, Iran had $85B in foreign reserves, according to FRED anyways. It was expected to lose $15B this year, but that was supposed to be while exporting $30B of crude oil. If that $30B is now only $10B, then Iran could lose $35B of foreign reserves this year.
They can reduce domestic spending (potentially lowering quality of life for citizens), or they can spin up domestic industry to replace imports, or they can figure out how to increase the $$ value of their exports (potentially by refining the crude oil into higher value products, for example).
If they don't do anything, and the trend continues in a straight line, they'd run out of foreign reserves within 3 years. At that point, it would be very difficult for them to buy any of the imports they need and they'd face a venezuela-style situation where citizens would find it impossible to get whatever goods used to be imported.
In addition to everything you said, the compounding factor here is that sanctions 1) Make it harder for Iran to take advantage of foreign financial markets and 2) Make it harder for them to get the best value for their exports. Sanctions may not sound very bad but they’re economic warfare on a larger time scale. I felt the world was healing somewhat when the Obama admin eased sanctions on Cuba and got the Iran nuclear deal where Iran was offered a reasonable path to becoming a part of the global economic system. The current administration has completely butchered that and I suspect most Americans don’t understand how much damage it’s done to the region which will take years to repair.
> I felt the world was healing somewhat when the Obama admin eased sanctions on Cuba and got the Iran nuclear deal where Iran was offered a reasonable path to becoming a part of the global economic system.
I am not an expert on it, but it seems to me that while Iran may have been offered a "path" to join the global economic system, they were not mature enough to "play nice" in the global playground.
I am also not an expert on it, but I think you ought to read up on it some. Even after the US withdrew from the JCPOA, Iran continued to comply with the terms of the agreement until at least Feb-May 2019 [0, 1, 2]. Keep in mind that this is long after the US announced in October 2017 that they would not re-certify [3] that Iran was complying with the agreement and in May 2018 when the US withdrew [4] from the agreement. In the October 2017 briefing, President Trump mentions that Iran "has committed multiple violations of the agreement. For example, on two separate occasions, they have exceeded the limit of 130 metric tons of heavy water." I looked into it and found the relevant language in paragraph 14 of Annex 1 of the JCPOA [5]. From page 24 of the PDF:
"All excess heavy water which is beyond Iran's needs for the modernised Arak research
reactor, the Zero power heavy water reactor, quantities needed for medical research
and production of deuterate solutions and chemical compounds including, where
appropriate, contingency stocks, will be made available for export to the international
market based on international prices and delivered to the international buyer for 15
years. Iran's needs, consistent with the parameters above, are estimated to be 130
metric tonnes of nuclear grade heavy water or its equivalent in different enrichments"
Refer to IAEA reports [6] dated 26 February 2016 [7], 9 November 2016 [8] for the two occasions that are referenced. Iran's needs of heavy water were estimated to be 130 metric tonnes. Beyond that, they would have to sell and deliver the water to an international buyer. IAEA reports indicate that this is what Iran was doing. Paragraph 10 of the Nuclear section of the JCPOA contains more language relating to heavy water. From page 9 of the PDF:
"There will be no additional heavy water reactors or accumulation of heavy
water in Iran for 15 years. All excess heavy water will be made available for
export to the international market"
Again, it appears that this is in-line with what Iran was doing. Heavy water in excess of 130 metric tonnes was sold and delivered to international buyers. In addition to the 130 metric tonnes stored within Iran, heavy water was allowed by the Joint Commission to be stored outside of Iran, with some sources [9] calling this a loophole in the cap. Regardless of whether or not you believe that exceeding the 130 metric tonnes of heavy water constitutes a violation, there's a dispute resolution mechanism included in the JCPOA. See paragraphs 36-37 on pages 19-20 of the PDF. The US could have used this dispute resolution process to address concerns about violations of the agreement, but did not.
I will take your "path" to refer to the JCPOA. It should be clear that rather than Iran first stepping off this path, it was the US that did so. It was not after all processes set forth in the agreement were exhausted that the US left the agreement, but instead the decision is made in lieu of engaging in dispute resolution. Note that in the withdrawal briefing [4] President Trump made no references to violations of the JCPOA by Iran, but instead lists criticisms of the JCPOA itself. Given that the US did not utilize the dispute resolution mechanism process established by the JCPOA, and the fact that criticisms of the JCPOA greatly outnumber the Iranian violations of the JCPOA, it is my view that the withdrawal from the JCPOA by the US was not in response to Iran straying from the path.
There are a couple of other grievances that President Trump cited in his October 2017 [3] briefing, but I could find no support for them, and so I don't address them here.
I would add that, in order to spin up domestic industry or increase the value of their exports they need expertise and technology. Due to the sanctions that will not be easily available to them. This is really economic warfare.
Countries with both a large, long-term energy-export sector (that is, oil) and a significant high-end industrial base are ... rare.
The US and Norway come to mind. Few others.
The US was the first country to the oil game, Norway one of the last. And Norway's industrial capacity ain't tremendous, but does exist.
The UK had already fallen enough by the time North Sea oil came online, and its economic policy was sufficiently poor, that it didn't recover.
Most major industrial countries have, or had, a large coal resource. Japan being a notable exception.
Saudi Arabia, Venezuela, Russia (mostly), Nigeria, Iran, Libya, Indonesia: little industry.
Even in the US, oil states (Texas, Oklahoma, Louisiana, California, Alaska) tend not to be heavy-industry states (CA being the possible exception). Those were Michigan, Pennsylvania, New York, Ohio, Illinois, mostly, old rust belt.
People can choose to do that, or they can choose to save and invest the money. Norway's oil fund is around 1 trillion dollars.
>...The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund.
An increasing proportion of Norwegian spending is already covered by the revenues from the Oil Fund. This crisis has seen a near perfect storm of massive increase in welfare spending, massive fall in the value or the Oil Fund's assets and massive decrease in the price of oil (and hence the input for the Oil Fund). It will be very interesting to see what happens with the fund in the next 10-20 years.
EDIT:
To be clear I am glad the fund exists. It has been and is a much better way of using the natural resource bonus. However, I strongly suspect that Norway will use the entire fund cushioning the transition away from being an oil producer.
Countries under sanctions, obviously, cannot choose what to spend their money on.
If you impose sanctions you are essentially government planning another country.
I agree with the article's principal point that this is very likey to go horribly wrong somewhere soon. Prevention is better than cure. Even from a purely selfish viewpoint.
Norway stands as an obvious counter example; they’ve invested a huge amount of their oil money into a sovereign fund, and have a fairly robust economy too.
As I just commented elsewhere in thread,[1], the US is an exception. But there are multiple factors:
1. The US ceased being a net oil exporter, and began importing oil, in 1950, over 70 years ago.[2]
2. When the US was an oil exporter, both global oil use and industrial capacity were far lower than today, and cargo shipping costs much higher. The US was among the early industrialised nations (with the UK, Germany, France, and Italy, generally), all (save Italy) with major coal reserves. For the US to meet industrial demand it largely needed to self-provision.
3. WWII.
4. Even within the US, oil-producing regions and industrial regions tended to be quite distinct.
Norway became an oil exporter quite recently (major production largely coming online in the 1990s), and its economic and industrial policy has been excellent. The UK similarly, though it's arguably been hindered by a legacy industrial system as well as its role as a major finance centre (another form of Dutch disease).
2. With fracking, over the past 5 years or so, the US has exported ... some petroleum-based products, mostly lease condensate and natural gas liquids (NGLs), very light fractions of petroleum. This is unsuitable for motor fuel (its octane rating is too low, and much is sold to Venezuela and Canada, effectively to make their tar-like oil more soluble. This is likely a tem-orary circumstance.
I agree that America is unique, but the presence of several examples of oil exporting nations avoiding Dutch disease proves that it’s not a guaranteed process, even if it is a likely outcome.
Heck, the fact that America setup an industrial economy while being an oil producing nation is a fascinating counter example to Dutch disease.
There's little in economics which is absolutely determinitive, and for a study whose formative work is titled An Inquiry Into the Nature and Causes of the Wealth of Nations, there's remarkable little by way of a generally accepted theory of national prosperity and decline, as leading luminaries will freely admit (Tony Atkinson and Paul Krugman do so here: https://youtube.com/watch?v=3l6E3mUNW70&t=38m53s).
There are several powerful mechanisms, however, of which Dutch Disease / resource curse is one. (There's also Twyla Tharp's wonderful "Whom the gods wish to destroy, they give unlimited resources.")
Understanding how it does apply, and why, and where it doesn't, is useful. I've pointed at mitigations for both. exceptions you note, though you don't appear to consider them.
Paper, pen, and ink are useful in communications. But neither paper, pens, or ink do this exclusively, nor by themselves. The blank page, the one uniformly covered in ink, or the one scribbled on at random, communicate nothing. This doesn't mean paper, pens, and ink useless. Markings made according to rules of recognised charactersets, words, spelling, grammar, reference to existing facts, references, and concepts, logic, narrative, metaphore, nuance, and culture ... may succeed in communicating something. Occasionally truth.
Theory of political economy operates similarly. Beware those offering blank pages, spilt ink, random scribbles, or writing lacking, or ignoring, coherence or correspondences.
That’s a fair argument about the level of services that the Norwegian government can offer its citizens, but the size of the country has little to nothing to do with how wisely the use the proceeds of natural resources.
Iran's oil is not expensive to extract. These aren't marginal break-even prices on each barrel of oil...rather they're how much their current oil production would have to be sold for in order to balance their national budget, which includes defense and healthcare and whatnot.
Countries typically "go bankrupt" in a practical sense (with very noticeable real-world effects on the local citizens) when their foreign reserves run out.
Why can't they just take loans like most Western countries do to balance their budget? The UK has been running at a deficit (£55 billion in the last budget) since 2002.
Based on my back of the napkin math, the UK would need to export it's oil (yes, the UK is a net exporter of oil) at $350/barrel to cover that.
> Based on my back of the napkin math, the UK would need to export it's oil (yes, the UK is a net exporter of oil) at $350/barrel to cover that.
In a vacuum this isn't really a good-faith argument. It can be used to illustrate limited concepts, as another user did in this thread, but it's not really a valid point in general for anything. That's because the question of "what price of oil does [country] need?" only makes sense for countries where the supermajority of their GDP is based on resource extraction.
Second, trade only makes up 30% of the UK's GDP, meaning it can and does better leverage its domestic production to meet domestic needs.
Lastly, the UK has not been nearly as dependent on exports to balance foreign reserves as Iran is. Due to its uncommon status as a global financial hub, I think it has other ways to ensure it can continue to finance trade.
> Why can't they just take loans like most Western countries do to balance their budget?
Who, exactly, is going to loan them money?
If Iran were a person they'd have a sub-600 credit score while seeking a no-documentation car loan. Nobody in their right mind is going to loan them money for non-predatory rates.
When we talk about a country taking out loans, we're frequently talking about bonds and, if you're not the US, actually talking to banks via the IMF.
Are you going to buy Iranian bonds? Consider the following:
- Which asset(s) do you think Iran will use to pay you back? Keep in mind that their largest asset - oil - has a rocky track record.
- Loans are more likely to be paid back by a stable government. How stable do you expect Iran to be over the next 10-30 years? How likely is another Arab Spring?
- Taking the above into account, what kind of interest rate would be adequate? Is it higher than the Iranians are likely to pay? How much higher is it than they can afford right now?
Ah, so it's the ol' "Our unit price is our running costs divided by our unit sales" trick. Fine in a seller's market but guaranteed to fail in the face of competition.
But is their ability to produce or sell refined vs unrefined oil effected by the sanctions? Maybe not directly; maybe in how they're able to access funding for infrastructure, for example?
Partially. The USA offers some of the best technology for extracting and refining oil, but no US citizens or companies can offer their expertise to Iran. However, most oil companies are international and have headquarters in multiple countries - so quite a few large oilfield service companies can do business with Iran as long as they don't cheat the system to provide USA-based services.
Schlumberger, a French/Texas/Dutch/UK company, earned themselves the largest international sanctions fine ever for skirting the rules. It wasn't illegal for them to work with Iran, even though they are headquartered in Houston, TX. However, they used US-based personnel and assets and now are barred from doing any business with Iran as part of the penalties.
So Iran does find it difficult to get some of the latest technological advantages. That said, their geology doesn't demand super high tech solutions to extract oil. And they could be using 1960's technology to refine their oil into higher value products but they simply aren't, for reasons I don't understand.
The details of the sanctions have changed a lot over the past 10 years. Between 2013 and 2016, sanctions were globally supported and it was extremely difficult for Iran to sell its oil. Now it's just a few countries embargoing Iran, so Iran seems to be able to sell nearly as much as it wants, presumably at near-market prices.
> Iran seems to be able to sell nearly as much as it wants, presumably at near-market prices.
Not really. I am no expert, but my understanding is that US sanctions bar Iran from accessing any financial services by US institutions or in US dollars. Apparently, they have jurisdiction to enforce that if a transaction uses US dollars. Unfortunately for any country who provokes the ire US, currently USD is the only real option for international trade. Thus, even if Iran sells its oil, it cannot get access to the funds it generates. Some European countries tried to create an alternative for the global financial transaction system specifically for Iran to be able to sidestep the sanctions. It would have had serious limitation, e.g. allowing Iran to only purchase food and medicine. But even that has not been successful. Only a single transaction has been done using the new system so far.
"currently USD is the only real option for international trade"
I think you have conflated currency matters with sanction matters. I will attack that here, but much of your point stands.
My points here: international business tends to be done in USD only because it is convenient, and no business ever failed to happen due to that convention.
International trade tends to happen in terms of the USD because USD is convenient. Factors: (1) The world's largest economy does its business in USD; (2) There are many large lenders in the US and (3) There is a free and liquid FX market for USD.
Many companies reduce their friction by working in USD. They borrow some money in USD and then spend some money in USD, and thereby avoid paying a fee to their bank's FX desk. Instead of managing a complex risk situation between their home currency and a dozen others, they concentrate it into a simple risk situation of their home currency vs USD.
Iran could put oil in ships, and send it to China. China could put gold in ships and send it to Iran. Or - far more easily - Iran could price its transaction in terms of New Zealand dollars, and the two parties could make adjustments to a ledger in a tax haven.
The USD conventions is akin to the role of English as lingua franca. It's convenient., or China
The other part of your point is that US sanctions are harsh and far-reaching. No arguments against that here. Would I trust billions of dollars to a tax haven bank, or in countries with a strong rule-of-law tradition? Also, any time you want to spend substantial money in the developed world, the other party is going to need evidence that it is not sanction affected.
I think the issue with USD is more entrenched than the role of English language. As I said, I'm no expert. I've just read some articles like this:
> The power of U.S. sanctions lies in the use of the U.S. dollar in most international transactions. A foreign company that sends its proceeds from trade with Iran through an international bank would likely face sanctions because part of it would be conducted in dollars.
Iran had a 69% decrease in oil exports (In terms of barrels exported) between 2018 and 2019, as a result of US sanctions [1]. I don't think refined vs unrefined is the biggest issue, given that a reduction in quantity would be hard to recover in terms of quality.
Indeed, a 70% drop in exports would be difficult to recoup.
However, for sake of understanding: currently about 4-6% of global oil and gas is used to produce plastics. This represents about $600 Billion in total market value.
The total global crude oil market is about $1,800 Billion if oil is $50/bbl.
So it seems that you get roughly 5x higher revenue on a barrel of oil turned into plastic than sold in its unrefined state. Probably much more if oil is $20/bbl.
Plastic is pretty far away from "Refined vs Unrefined", refining adds about $10-20 of value per barrel [1]. At Iran's volume, that is billions of dollars, but not a 5x in revenue.
I was referring to my statement earlier in this thread:
> And they could be using 1960's technology to refine their oil into higher value products but they simply aren't, for reasons I don't understand.
"Refine" was used loosely, but the bulk of the plastics market are still relatively simple products that don't necessarily require extremely high technology to produce. It's still a cutthroat commodities business, but producing a little plastic has the potential to add a lot of dollars.
You can see this happen in Saudi Arabia over the past decade. They worked with Dow Chemical to produce the "Sadara" plant - a very large refinery and chemical plant. Crude oil made up over 80% of Saudi's exports from 2010-2014. The first phase of Sadara began selling product in 2015, and the final major piece (of 26) was commissioned in 2017.
When Sadara opened its first phase, crude oil dropped from ~80% of export dollars in 2014 to just 55% in 2015.
So yeah, opening a chemical plant can massively change your export profile. Now, this data includes a huge drop in oil price after 2014 so it's not entirely fair. But is is reasonably fair vecause it wasn't just oil prices that dropped - chemicals+plastics dropped up to 50% as well. Their $ value in exports stayed constant despite the price drop, indicating a large surge in export volume.
And this is largely driven by the construction of a single integrated refining facility.
> "Refine" was used loosely, but the bulk of the plastics market are still relatively simple products that don't necessarily require extremely high technology to produce. It's still a cutthroat commodities business, but producing a little plastic has the potential to add a lot of dollars.
Injection molding and most other plastics manufacturing methods are much more sensitive processes than combustion which means that the commodity is much less fungible and much more logistics sensitive than fossil fuels. It's pretty common for a manufacturer to pay 2-10x market price for plastic pellets because of repeatability. Few would risk the repercussions to buy unrefined crude from Iran at a discount and there's certainly no one who;'s going to do it at $200 a barrel.
Indian refineries used to import Iranian crude and then sell some of processed oil back to Iran but those refineries have significantly scaled back their imports because of US sanctions.
I had a similar question about this quote, so I did a bit of research and wrote a separate comment [1].
Most of the change in Iran seems to be as a result of US sanctions significantly cutting the amount of product exported. They were in the $60-70 a barrel range prior to these sanctions, like most of the Middle East. I actually think this piece is awful, as it leads us to believe things like "Iran doesn't have the expertise" or "Iran has harder to access supplies". In reality, Iran just needs to export oil in a world without restrictive sanctions to reach parity with the rest of the region.
This is dramatic, but from on POV it's also overplayed, because virtually every national economy is in the same straits now. Massive government deficit spending everywhere has been keeping furloughed and damaged economies ticking over in the hope that they can somehow be brought back to life in the near future.
From another POV the world was on a mad debt-fuelled spending spree, and a lot of the spending was either useless or downright destructive.
Oil is in the middle of that. An oil economy has been an obvious strategic stupidity since the oil shocks of the 70s. But instead of switching to renewables as soon as possible, there was a political decision to double down on instability and to protect the supply - and also provide "social" spending on militarism - with expensive resource wars.
The world has basically been run like a frat party for the last sixty years or so. Now it's waking up to find the house is on fire, the rent is due, and the landlord is waiting outside with some "friends" to have a quiet word.
In general, generating electricity as close to where you need it is a better idea (because of loss from transmission).
They are not completely reliable for backup, which I think is an under-appreciated point, but nuclear can provide any backup necessary (which i suspect wouldn't be as large as you might think).
point is that they need backup from either nuclear, coal, oil or gas to be reliable, but the very people who want more renewable is normally against nuclear.
Wind and solar is less than 1% of the worlds energy consumption and not expected to be more than 3-4% in 2030 exactly because its not reliable and the more renewable you build the more expensive it becomes as it need one of those or multiple backup sources mentioned above to be reliable.
It's funny how this is brought up again and again. Actually the one energy form that needs the most "backup" (a very imprecise word) is nuclear. Because nuclear is very slow to adjust you need either massive overproduction and somehow "dump" this when you don't need it (the reason why Belgium had all their highways brightly lit, I remember being amazed by this when we travelled during the night between countries) or what you call "backup" from e.g. gas.
If you have a large enough modern grid (and that is not the case right now due to massive underinvestments) renewable good power 100% with very little overproduction (you obviously need capability i.e. overcapacity). There have been several studies on this (some are mentioned here https://www.vox.com/2015/6/9/8748081/us-100-percent-renewabl...)
Those studies are nothing but wishful thinking and I would challenge you to point to exactly where they prove it's possible in anything but theory. If it was that easy Germany or Denmark would have done them already.
There is a world of difference between being able to produce energy when you want it and then having to wait for the right conditions so it is being brought up again and again because it's a relevant difference. France has no problem making it work.
Please point me to the storage technology that works at scale and economically. We are not even close to having anything that can do that. Furthermore the reason why oil, gas and coal and to a lesser extent nuclear are so crucial for a modern infrastructure is that they can transported and move around.
On top of that especially oil, but also gas and coal and to a lesser but extent but still important contribution the dual usage of those sources makes them superior and foundational to all the other things. You can't even make windmills or solar without the use of oil and coal.
So downvote me all you want. Renewables aren't even close to being serious contenders to anyone who want to live in modern society.
I don’t know this for certain, but I have a feeling much of the price of extraction comes from accrued debt. Most of these companies - especially the smaller ones with less liquidity - probably financed significant portions of their operating expenses.
I agree. There’ll be a lot of bankruptcies and burned investors, but could be plenty of ongoing production after that all gets wiped out in a chapter 7/11.
> She was an assistant to Paul Bremer in the Coalition Provisional Authority. She was Senior Director for Iraq at the United States National Security Council.
Around that time, Bremer decided to bar former ba'ath officer from either serving the new military or getting pension. That decision almost single-handedly created the backbone of the terrorist networks that would become ISIS.
People from that admin should be shunned from any published analysis but failing that, I am happy that forums like this allows us to augment their biographies.
On the other hand, I have yet to see a Bloomberg article not about finance that was not misinformed. Those about tech especially are pretty bad, and every time I dug a bit around their geopolitical analysis, I was pretty underwhelmed.
> Around that time, Bremer decided to bar former ba'ath officer from either serving the new military or getting pension. That decision almost single-handedly created the backbone of the terrorist networks that would become ISIS.
This isn't true. The Ba'ath party had already largely lost its Arab nationalist identity and become progressively more and more Islamist after the first Gulf War.
Saddam announced the "return to faith" campaign[0] in 1993 (which he publicly hinted at by writing Allahuakbar on the Iraqi flag in 1991) and by the time of the second 2003 invasion, Ba'ath party loyalists were already beheading suspected prostitutes in the streets.
What created the backbone of ISIS is a culmination of things - mostly around the collective, ongoing punishment of the Middle East. Arab nationalism was challenged in every direction by the West, country-based nationalism was challenged in every direction, and then the US put on a surprised pikachu face when the only thing left was religious identity.
> The Ba'ath party had already largely lost its Arab nationalist identity and become progressively more and more Islamist after the first Gulf War.
That's not so much the point the parent comment was making, I believe. Mostly that by making sure the previous military and political leaders would not be allowed to play any role in the future and not get pensions, they'd obviously have zero incentive to work with the new regime/administration/whatever.
On the other hand, they had plenty of incentive to work against it, which they then did. They may have gone full Arab nationalist if that had been an option, but to be funded in the middle east in a war against the US and Shiite-aligned governments, you'll look to the Saudis, and that pretty much only leaves Wahabi fundamentalism as your rally-cry.
Exactly. Actually, it created an incentive to join the insurgent.
Picture that: your skill is to organize soldiers and military operations but the only local and legal employer refuses you and denies you any pension. Did they really think they would go beg in the streets rather than join the militias in dire need or organizational advices?
If your objective is to engender low-level conflict that will justify billions of military dollars for decades, destabilising the country and fostering insurgency is a feature, not a bug.
I think this is splitting hairs over who gets credit. Remember that Congress needed to raise the money and the taxpayers needed to pay it.
From a practical standpoint, usually some credit is given for leadship to the one who gets a program off the ground. It seems fair in this case that GWB gets credit for that. You can also look at later people over a longer span of time and give them credit/blame for maintaining and administering it, as well (or letting it stagnate, like his pandemic plan, unfortunately).
The main point here is that the GWB presidency was not black and white. I think he was a good person and made many good decisions and one really bad one. Quite possibly, with a different VP, he would be a lauded and dignified president, and a lot of things would be different.
Or, if his pandemic plan had been maintained, and bore fruit today (that is showed benefits in fighting coronavirus), it may have redeemed his presidency entirely.
I’m not sure anything I can say will convince you that he had any but evil intentions.
But consider at the time, the United States had just suffered an unprecedented terrorist attack, the conventional wisdom (and much intelligence) was that Iraq held chemical weapons and finally the United States was engaging the Iraqi military on a regular basis as the sole enforcer of the UN sanctioned no fly zone. I won’t argue that the Iraq War wasn’t a mistake. It was, but it was made in good faith and largely, I think, out of fear.
I remember quite well when the US administration was displaying a parade of outright lies for months and months whose only purpose was to justify a war.
He was a warmonger. His aides and his vice president stood to make tons of money out of that war.
Pandemic preparedness is one of the simplest thing in the world: have trained personnel, listen to a few epidemiologist expert when it comes to quarantine, make sure a few of the incredibly cheap and easy to manufacture protective equipments are available.
The GWB admin still had the level of competence to organize something like the last Iraq war so it made sense it could have pandemic preparedness which is orders of magnitudes easier.
I don't think the US public really realize how incompetent and dumb the current administration looks from abroad.
As a huge critic of Bush and the disaster that war caused, I'm no fan of Bremer.
But O'Sullivan came to Iraq via the State Department, and Rumsfeld didn't want her there, which seems to indicate that perhaps she wasn't as insane as the Rumsfeld/Wolfowitz/Cheany neo-con people.
In anycase, I think this article makes a good basic point: lots of countries are going to be in deep trouble with this oil price.
The point of analysis pieces often isn't to share new information, but instead is to share that fact that information is now very important.
Also I for one didn't realise that most of Saudi support in Congress had eroded enough in favor of the US industry to the point where is was now (to quote) "a sharp increase in hostility from members of the U.S. Congress who in the past appeared to appreciate the multifaceted relationship between Riyadh and Washington"
That's for analysis such as "Saudi support amongst crongressmen is eroding" that you need to remember that the author is nowhere near competent enough to be trustworthy on that.
>She is Jeane Kirkpatrick Professor of the Practice of International Affairs at Harvard Kennedy School and a board member of the Belfer Center for Science and International Affairs at Kennedy School.[2] She is a member of the board of directors of the Council on Foreign Relations,[3] where she was previously an adjunct senior fellow, and the North American chair of the Trilateral Commission.[4]
Jeff Skilling could probably give some real fantastic advice on business and finance, particularly structured products, operating, etc. That's not to say you'd want to FOLLOW the advice, but it would likely increase your knowledge or insight into something.
His failure was in ethics. THAT might be something you'd not want to look towards him for.
It's very useful to separate the two.
In this instance, an expert's read on a situation is interesting and informative. You just might not want to take his policy recommendation.
The problem is that motivated experts, especially unethical ones, generally feel no compunction about analyzing things in ways biased towards their recommendations. Jeff Skilling would surely describe some frauds to you as just a normal, slightly complicated structured product.
Their "Industry" is selling political agenda and influencing governments for corporate benefit. Seems successful.
> geopolitical disaster
"disasters" are profitable (for those able to benefit from corruption). And enable western/democratic governments to get away with violating their citizens. PATRIOT Act for instance. Read 1984 for background of how "fear of attack" and "security" is used to keep the masses in line.
You seem to be not distinguishing between the effort to start that war and the effort to manage and end it. Specifically, Rumsfield's opposition to her involvement would seem to speak well of her in that regard.
As fascinating as hillary, brian williams, jessica lynch, pat tillman, etc war time fiction peddled by the media. Pretty much every nonsense you read in the papers during war is bound to be a lie or highly exaggerated.
The first casualty of war is the truth after all. Last I checked we've been in a neverending period of war.
Please expand on Pat Tillman. He does not belong on that list. This is the same man that as soon as the war moved from Afghanistan to Iraq was quoted as saying “this war is so fucking illegal.”
Full disclouse: I knew him personally… mostly from a distance. It was disgusting seeing the likes of Senator John McCain try to capitalize on his death. That doesn’t mean he wasn’t the man depicted in Jon Krakauers’ book.
You are misunderstanding my point. My issue isn't with the individuals, my issue was with the war time "stories" made up by the military/news.
Pat Tillman was killed in friendly fire. But the story we got initially was that he was killed by the enemy.
"Lieutenant General Stanley McChrystal approved the Silver Star citation on April 28, 2004, which gave a detailed account of Tillman's death including the phrase "in the line of devastating enemy fire," but the next day he sent a P4 confidential memo warning senior government members that Tillman might actually have been killed by friendly fire"
Between the Kennedy School and the law school, it seems like everyone I hear about coming out of Harvard these days is stupid and/or evil in some profound way.
I read O'Sullivan reports and some of her works in my student years.
First, I have no idea how she got her scholarly titles when her writing is so incoherent, and devoid of line of though. Some times she outright descends into polsci technobabble, and I loose her. She is not a scholar, but a person who went to school and bullshited her way to the degree with every mean and way, in hope to get a cushy government job.
Second, for a portion of her writing making sense, her vision of reality is a laconic polsci101 recital, and carbon copy of her mentors views, without a iota of extra thought. The reality of politics is that shit happens, the reality of war is that you don't improve global stability by starting one. Her works state that it can be otherwise.
My criteria for a politician who knows his onions, is caution. Above all is caution, and an understanding that whatever he or she does returns threefold if made in error. Anybody claiming a clear, logical, rational picture of the world has never worked a day in job where his life depends on it.
> People must stop decrying types like McNamara, Kisinger, Dulles as some kind of "smart calculating types." They were top idiots at the apex of power, and their coming was a prelude to what America got itself in now.
Every big name "strategist" USA had since the WW2 I can name was a big joke, and such types will keep coming unless people will start calling things their real names. The "geopolitical technobabblers" should not allowed to sit in high posts.
In this case, I think there can't be a better way than to pull her early works, and her academic writing for everybody to see.
That seems to be a common disease of old money institutions - caring about self perpetuating themselves with illusion of merit instead who is actually the best fit for the job. See the goalposts on rails of the Ivy League to try to keep out "model minorities" like their physicals, analogies specifically designed to not be in the high school literature canon but among New England old money, the extraciruculars requirements, and more. The game is all about blending the wheat and their chaff.
EDIT: THE FOLLOWING DATA IS WRONG. (I foolishly misread a chart. Leaving this up for continuity, but the numbers are completely off.)
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Less than a third of Harvard students come from a household with income greater than $100,000/year. Almost half the students come from households with income between $30,000 and $75,000/year. One in six students comes from a poor family.
Harvard is firmly middle class. The data simply doesn’t support the argument that Harvard admissions is some old money New England conspiracy.
Oh shit. You’re right. I googled “Harvard demographics” and got a nice chart from US department of education. I just looked at it again, and it looks like it’s data for _all_ students in the U.S. Sorry to the OP. I was wrong. I’ll edit my posts in a minute.
Isn't that practically poverty level on HN? That's like one person making $100K and a spouse making $68K. Don't entry level SWEs make as much by themselves these days? Plus stock options. And ping pong tables.
In SF, maybe. In most places, hardly. And keep in mind that entry level SWEs usually don't have kids that are at the age of heading off to Harvard, so they'd earn that income for a decade or two. That would probably put them somewhere in the range of the average income with their dividends alone.
You seem to start with a tone of disagreement about something, but overall seem to be agreeing with what I said, that in context, around here, $168K is not very much, especially when it, on average, would be more than one earner.
Why do you tell me to "keep in mind" essentially the very point I was making?
And way more than 1/6th of America is part of a 'poor family'. Old money is vastly over-represented in Harvard, and even more vastly over-represented in the backbone of the institution.
EDIT: THE FOLLOWING DATA IS WRONG. (I foolishly misread a chart. Leaving this up for continuity, but the numbers are completely off.)
---
No. Only 25% of households in the US have annual income between $35,000 and $75,000. About one in five families in the US is below the poverty line. So middle class students are over represented at Harvard. Students from poor families are only slightly underrepresented, and considering that household income and academic achievement are correlated, it’s actually a testament to their efforts to have socially conscious admissions. The facts do not support your argument. On this you are simply wrong.
Their purpose wouldn't be a monopoly but maintaining their disproportionate influence niche from family status. It is to get the legacies in. Regardless of the rightness of my assessment it wouldn't be a conspiracy as it isn't illegal.
It is legal to influence the instituions themselves with money as they have ownership of all resources involved. The admissions scandal demonstrated the difference quite well. Of course the admission has other unspoken reasons for wanting them - contacts for tbeir network and their own pride and flatrery about "cultural worth". Stupid human social trick stuff of skewed priorties.
It's useful to understand the biases of an author when reading an article. We all have them, and no media is free from them. It contextualizes a piece, and it's information I found useful to my understanding of the piece.
I agree, but at the same time, it could also introduce a bias and prejudice into your perception of the article. This would be especially true if you already had strong feelings and opinions about the author. Maybe the ideal way would be to read it without any knowledge of the author. And then go back and reread it after knowing who wrote it.
And what better way to find out who wrote it than to scan the comments after reading the article? In all seriousness, I don't see how wilful ignorance on the first-read through is some ideal analytic strategy.
Double blind studies help with biases during data collection, not during analysis. It doesn't matter if you have the perfect double blind clinical trial for diabetes medication if you measure efficacy using body thetans as a proxy when you get the results back.
Reading news articles or analyses is in effect a metastudy and doing it double blind is pointless - a metastudy requires an analysis of the provenance of the information in order to weigh the results from multiple sources.
Reading an article is different than a double blind test. Reputation exists because it is critical shorthand when dealing with other humans. It's not always right. It's not always useful. But it shortcuts a lot of preamble.
Also, most geopolitical problems aren't simple analytical problems. There isn't a 'right answer' that one can divine by approaching the space with an emotionless evaluation.
Especially in complex "human" problems like geopolitics where every action has 5 re-actions, some of which are only apparent 5 years later. When there aren't scientifically right answers then deceit can become an important part of the field. See - all politics.
Pretending that there is no deceit in political writing and that it's in any way objective seems completely naive.
You know the expression let the chips fall where they may? Well this is just stating "here are the chips." i.e the author is knowledgeable in the field and either is offering expert opinion or expert manipulation.
A third option, which I consider most likely, is that this piece is doing both. The author most likely believes in what they are saying and are trying to manipulate things in a certain direction. There is noting wrong with this, and I think understanding the bias is merely a more effective way to gain more from reading this.
no idea what modded means. That's a fair point. so you're saying that maybe the author doesn't know they are being manipulated despite being an expert -- that's also possible!
> the author doesn't know they are being manipulated despite being an expert
Actually I meant the author was aware of his view and is being both manipulative while fairly forwarding his agenda. Your option would be a fourth possibility? Which would make sense since any two binary outcomes will give a 2x2 sample space for a total of 4 outcomes.
People are really optimistic in the industry. I am active in petroleum circles and many are convinced that this is another temporary downturn and we'll always need oil.
All I see is public sentiment turning against fossil fuels and an inevitable death for 90% of the industry as we move away from petroleum. We only use something like >20% of raw petroleum for plastic and medicine and such. And the price curve is not linear, so the oil necessary to satisfy the first 20% of today's demand is probably priced some absurdly low number, my gut says less than $20.
It feels like our entire geopolitical system is crumbling. A vulnerable state had been brewing for a long time. Coronavirus was the trigger. Perhaps the american hegemony was not sustainable, or recently became such. For those unaware, petroleum really does factor into a lot of worldbuilding that we do in the middle east. Major shifts in oil markets typically mean major shifts in geopolitics.
5 billion people on planet earth living in poor countries do not care about the negative effects of oil. They are making quite a lot more money and want to buy cars.
If the last 30 years was about the rise of China, the rest of the century is going to be about the rise of 'the rest of the world'.
Pre 2000 it was as if these places didn't exist - they had no money. Just people in huts.
But now they want Hondas and iPhones and there are a lot of them.
The US was 1/3 of the world economy, but less than 10% of it's population. Not it's like 22% of world economy.
This is the 'macro macro' thing that will be the biggest driver of everything.
The entire global economy is grinding to a halt and we may be sitting on top of a global depression for years to come.
Those 5 billion are going to have to wait. Also, it may be harsh but if history is any indication, these people are unlikely to gain access to oil themselves - which means they're dependent on probably their neighbors (developing countries probably are sensitive to shipping/deliver charges) which means that their demand is subject to international sanctions if, say, G20 decides to wean the globe from petroleum. So if the west decides no more fossil fuels, these people will likely stay in huts until they stumble upon reserves in their country (unlikely) or find another civilization-sustaining energy source.
You think oil dependence will last forever? Also with the rise of the internet, you don't think people in developing countries are likely to give preference to renewables if the price is within reach? Everything's getting cheaper.
No, they will get the oil, and low prices will only expedite that.
Nobody, not the entire EU/West and certainly not anyone else is going to say to poor Africa and Asia: 'you can't use Oil', moreover, nobody is going to send troops to Nigeria to stop exports, or embargo Indonesia and Pakistan or wherever from receiving oil.
It's like telling 5 billion people they can't use tapped water or water wells that they have to 'figure something out'.
It's a non-starter.
The only shift will be economic - either Oil is too expensive - or - in some situations, solar might be cheaper. Which it will be, but for the most part, there is no end in sight to oil.
If there is a magic leap in solar and battery tech, and China pumps out super cheap electric cars that can be re-fueled cheaper than gas and there's enough sunlight, that would work. But that's not in the cards.
If half a year ago someone would tell me that the entire world will be shut down because of some kind of a flu, I wouldn't even consider this: it's a non-starter. And yet here we are.
I can easily imagine a mind shift amongst current world powers that will be strong enough to reduce fossils usage to half of existing levels. And since they have all means to enforce this on developing world, I wouldn't dismiss this possibility.
Yes, we could invent some magical technology tomorrow that solved all of our energy problems, but lacking divine intervention - there is no foreseeable path in which the Oil stays in the ground.
Telling the 3rd world they must stay poor because 'we already used up all the Co2 emissions' is not going to work. Saudi Arabia, Nigeria, Iran, etc. etc. will sell Oil to willing buyers.
> Telling the 3rd world they must stay poor because 'we already used up all the Co2 emissions' is not going to work.
Why not? To sell oil you need massive and fragile infrastructure in place: pipelines, storage tanks, terminals, etc. This infra can be easily controlled. As soon as world powers decide that the damage done to the planet outweighs economic effects of cheap energy, they can easily impose global limit on oil trade. Which can be enforced by both economic and military means.
The shift from coal catapulted.. it took years. First, technology had to shift to oil as a commodity beyond oil bunkers for battleships. Second, the nation states had to get out from ruinously bad national oil deals which also led to the Pahlavi regime, hatred of the British in Iran, the CIA and other bodies. This was not a catapult. It was a long slow dangerous and corrupt slide.
Despite being very much an apologist for and champion of the oil industry, Daniel Yergin's The Prize is outstanding.
Vaclav Smil's Energy and Civilization and books on energy transitions gives a mostly energy-physics and technological bacground on the coal-oil transition (and ag-coal previously). Manfred Weissenbacher's Sources of Power adds in some of the political dimension.
Mexico is planning to build a new refinery, while oil is key it is also important to mention which countries have the technology to process this extra oil into products. Mexico depends on US technology to do this for their gas. Once they built the new refinery this no longer going to happen. Something important to consider for our balance sheet and American workers
The author links to data [1], which states that Iran needs $319 / barrel oil to balance its budget. Between 2018 and 2019, this number jumped from $67 (In line with the rest of the region) to $244.
I feel like this statistic was trotted out and means something different from what I'd casually read it as.
Iranian exports fell significantly between 2018 and 2019 [2], it seems because of the fallout of the Iran nuclear deal and resumed sanctions [3]. There was a 69% decrease (1800 units to 570 units), which, means the calculated number would be ~3x higher, or about $211 a barrel. Which means the "statistic" doesn't really tell us what we think - that Iran can only profitably produce oil at >$200 a barrel - but that US sanctions have crippled Iran's ability to use oil as a primary source of national income.
To be fair, I'd love to see the author do the math on US oil. Actually, I'll take a stab at it. If the US tried to balance its physical budget (Let's say $984B in 2019 [3]) based entirely on increasing the price of current US oil exports (770,000 barrels a day [4]), how much would the price of oil need to rise?
770,000 barrels a day * 365 = 280M barrels of oil
$984B/280M barrels of oil = $3,514
The US would need to make an additional $3514 per barrel of oil to balance its physical budget, which is an increase from $63 a barrel to $3,577 a barrel.
Can you imagine a journalist writing this as a supporting figure? "US, implied to be a failing state as it is the largest number here, requires $10,000 a barrel oil to balance budget". Yes, that statement is a bit biased, but I'm willing to defend that this is how the US media most often interfaces with Iran.
One critique I would expect is along the lines of "Iran is more dependent on oil for its economy". Iran's GDP is 23% oil [6], whereas the US is around 8% [7]. I think the story still stands out as a bit insane, even if we adjust for "Expected contribution by GDP %", which would still put us well-north of $1,000 a barrel oil.
I don't mean to state that this is my fully-formed opinion, yet, but I think it is worth discussing these either (A) misleading (B) uninterpretable without far greater work "data facts" actually add little value to the story, and instead (seem to) further a narrative. This is in opposition of the traditional scientific approach, where we state our expectation and validate or invalidate that conclusion, with the author being expected to prove instead of just say something with "QED" implicitly attached. This critique, now, seeks to be a more general one: Data-driven media seems be misunderstood as a narrative where the data is in the driver's seat -- in reality it has let anyone ride shotgun as long as they get along with the driver.
There are definitely some ideas worth talking about here. But at the end of the day, Iran will be facing a foreign-reserve crisis in three years if it can't find ways to balance the national budget. It probably has 3 years at current rates to improve the situation before it faces difficulty importing goods essential to its economy and welfare.
That's true in a global context, and I think warrants a discussion. I expect, however, in this article that the discussion would be accompanied with the obvious related fact: this statistic is mostly caused by US geopolitical policy by decreasing the number of barrels which can be exported.
A US writer supports the header "Prepare for more fragile, or even failed, states and the risks that can accompany them.", with these facts. I find it quite disingenuous, I'd be happy to discuss that if we disagree.
The language makes people (Some of them even in this thread) think that there is something intrinsic to Iran as a state, rather than just US geopolitical policy causing chaos for banana republics and oil adversaries of the US. Overall, the fact isn't linked at all to oil's current collapse (Which is the article's context), as Iran is still in a horrible spot even if the price doesn't collapse.
Pretty much. As soon as we all get moving again, the demand is going to ramp back up to previous levels; higher in some cases as industries work harder to fill backlogs. It's not like all the oil-consuming things have disappeared in two months.
News I've read in the UK over the last week includes BA laying off a quarter of its staff and stopping flights from Gatwick, Rolls Royce laying off 3,500 staff, Airbus contemplating layoffs. These people put their money where their mouth is and they don't see a quick recovery.
There's a thing I don't understand and could use some explanation.
Didn't this same thing happen at a lower level in 2014, when Saudi Arabia pumped a lot of oil to international markets to bankrupts American shale oil producers? And didn't the price go back up after some time when the Saudi government couldn't afford breaking up OPEC?
Why can't the same thing happen now? The price and supply of world oil is almost completely controlled by Saudi Aramco, and there's nothing preventing them from increasing the price in the future.
1. It takes time to adjust to demand changes and they're hoping covid19 restrictions ease in a reasonable time frame and demand goes at least partially back.
2. Russia started flooding the market prior to this to disrupt the saudis and US oil producers. Cutting production would need their collaboration or they've ceded market share and influence to Russia.
They can flood the market for as long as they have foreign reserves. Over the last several years, Russia has steadily reduced its budget's dependence on oil revenues, and bolstered foreign reserves/gold. They probably do have enough foreign reserves/gold to outpump the Saudis and drive the price so low that the Saudis start burning through their own reserves.
And I believe Putin has a stronger grip over his own people than MBS, so in a race to the bottom I think Russia could definitely come out "on top".
I really dislike the article's mention of "balanced budget" oil prices, it distracts from more salient arguments when presented alone. For proper analysis, the author should have provided more numerical data, like foreign/gold reserves, budget comparisons (historically, and across countries), etc.
>> Demand will come back after the pandemic is over.
Man, I go back and forth with myself/other people over this all the time. I think there's a significant risk that energy consumption will be lower in the temporary short- and mid-term futures, and slight risk that energy consumption will also be lower in long-term future.
With that said, I think global outlook (for oil consumption) over the next 5 years is not good for developing economies. Their economies will suffer until developed economies recover and stimulate their under-developed economies. However, long-term population growth in SE Asia and Africa will demand greater energy consumption and I believe economic growth in these regions will be the primary drivers of greater oil consumption. That's because renewable energies will be much, much more expensive than non-renewables (until we tax the hell out of them) and developing economies must pursue the most cost-effective alternative.
Sorry, for the long response, I just love this shit.
5 eyes are more of client states than partners at this point. That's not to say they have no utility, far from it, I think they are very potent. It's just that 'partner' is not the right word to describe them. I say this mainly because they don't seem to have opinions about foreign policy other than the one set by the USA. A better example of a partner in my opinion would be Germany, or France. As for NATO, The only countries that need it are the USA, UK and the Eastern European countries. For western and southern Europe, NATO seems like a gym membership they haven't gotten to canceling. That's not to say member states are not partners or friends of USA, just that they know they can create something better for the current reality. Change was always inevitable, but GWB and Trump might have accelerated it to reckless speeds.
My country, New Zealand, is in the 5 eyes. Other than intelligence, we have very little military interaction with the USA. Apparently they won't even allow us to buy high tech gear because we ban US Navy nuke ships from visiting. We are a long way off from being a client state.
I haven't been able to find a nice breakdown of the reasons behind the price decrease that wasn't driven by reduced demand.
So my understanding is that SA increased production because it couldn't get Russia to limit its output? So they crashed the market with the hopes to bend them to their will. If so are they basically signalling that they can survive such conditions but Russia can't? Or what's going on here
It's times like these that I really wonder where all the oil peak guys are who you used to see crawl out of the woodwork whenever anyone talked about oil. Now they're suddenly quiet.
They used to predict doom and gloom due to an oil shortage, but what we got instead was doom and gloom and an oil glut. Where are they now?
Hubbert peak oil theory seems to not really hold water in retrospect. People try to say the peak is just delayed as we're finding more oil reserves or because there's been a big switch to renewables. I think his models assumed a very different metrics for oil supply and distribution that don't seem to apply today. This podcast from a few years back goes into a lot of it: https://youtu.be/0wlNey9t7hQ
The theory has two parts - first the specific curve. Production left the curve, so that was probably wrong. The other part is the too-obvious-to-argue observation that we are using a substantial fraction of a non-renewable resource and it is going to run out. It doesn't tell a comprehensive story but discoveries vs consumption [0] of crude says we are going to run out shortly. That part is still hard to challenge.
We'll see if the shale gas boom is sustainable. The oil prices required to make it profitable are not comfortable. It isn't obvious to me what the 'new technology' here was beyond prices being very high in 2010. We'll be using a lot less oil at those prices.
Yeah the situation shifting on you does that for models without a proper metamodel that includes shifts over time for extraction capabilities a discovey which are both challenges in themselves lacking future knowledge. Sadly we aren't up to Terrahertz processors for instance.
When you have a complex system, simplistic projections should be held suspect. The more confident the presenter, the higher the degree of skepticism. This framework has served me well.
Peak oil is inevitable, given the fact that it’s a finite resource. But what its advocates failed to consider was how quickly free markets innovate when the price incentive is high enough.
> It's times like these that I really wonder where all the oil peak guys are who you used to see crawl out of the woodwork whenever anyone talked about oil
They are still around. Now they just rebranded themselves as "green energy advocates".
> They used to predict doom and gloom due to an oil shortage, but what we got instead was doom and gloom and an oil glut. Where are they now?
Check out yesterday's thread. A few of them there. Now, instead of saying high oil prices is good for green energy, now they are saying low oil prices are good for green energy. Don't bother pointing out the flaw in their logic or you'll get flagged.
I really appreciate this piece as there's a lot of the world of oil I don't understand.
One thing I don't understand is, why is it favorable for OPEC not to cut supply? Is it they want to crush all non OPEC based producers? Or are their buyers forced to buy at a particular price so they don't care if they keep producing?
Many of the oil producing countries are nearly entirely reliant on oil sales for their economies and national budgets. Something like, yes, you could optimize month to month prices with high cooperation cutting equitable amounts. But.
For some states it's like agreeing to starvation, no matter what they do prices are too low to pay the bills. Many of them only maintain their power because of oil money. And for some, losing money now means they can bankrupt or seriously disrupt their competition meaning they will make more money over a longer period.
So if you're starving there's a strong motivation do cheat. Everybody else cuts production, prices go up, and you sell everything you can to take advantage.
And remember we're talking about price fixing cartels here. Illegal in much of the world. Opec cuts would mean North American profits, because we obviously don't participate.
It is, as the author writes, now much more likely for some of these oil states to fail completely. Revolutions, civil wars, regional wars. States which had leverage over the US because of oil are seeing that evaporate with this oversupply and price crash.
And longer term, but not that far out is both some of these countries running out of oil and oil demand worldwide tending much much much lower as oil is phased out as an energy source. These oil countries see the impending permanent decline in oil demand and the immediate future is their chance to extract as much as they can out of their natural resource which each year will become less valuable and less relevant.
ArsTechnica / Wired has a good article out about just that question. One reason that isn’t economic (and there are many economic factors a play here too) is that if you stop pumping oil, you can potentially damage the well. This would make it more difficult to reopen the well in the future when the prices improve. This also tends to affect smaller producers with fewer wells and thus more risk of one of them is damaged.
(This is related to why haven’t wells shut down in response to the drop in price, as opposed to simply producing less oil from existing wells.)
The was posted yesterday and the comments there are good. The top comment is from deblacquiere, someone who seems to understand the industry and disagrees with the article and it’s conclusions. Most the comment section is quite informative.
Isn't another solution to just let the oil go into the ground, and stop worrying about destroying earth? I can imagine Trump getting rid of all environmental regulations. How likely is that? (I'm on the environmental regulations side of course, but I'm quite worried that this will be the logical next step).
Sure but how will that make money for the well operator? I understand what you're saying, but what actual legal/political/economic framework are we talking about?
Right now the operators have to pay for the storage as far as I know. The game is not about making money, but at least not losing. That's why I'm afraid that some people would rather make an environmental disaster than to pay for a company to store the oil. But of course I don't know anything about the oil industry.
OPEC did try to strike a deal to reduce oil production earlier this year, but the deal was dependent on agreement with a Russia, the largest non-OPEC producer. However Russia refused to agree, because they want lower prices in order to kill the US shale oil industry. This would have meant that if OPEC had cut production Russia would have benefited hugely. As a result OPEC decided to increase production, to try and force Russia back to the negotiating table.
Because individually it does not work. If you cut and oil price does not go up as much as your cut percentage wise you actually lose revenue. And your competitors who don't cut benefit from any price rise. It is not easy to maintain a price cartel.
From my understanding, over the last decade, shale has become a force to be reckoned with in North America (US, Canada). This is seen as a competitive threat to other global energy producers. Saudi Arabia and Russia both have sufficient cash reserves to be able to just dump a glut of crude oil on the market at "fair market value" and exist with the depressed prices and are ok with making no money to basically completely dominate the market once tons of highly levered US upstream and downstream oil producers die off with this ongoing period of non-existent demand.
I think that is possible but.... what is the end game?
The oil is still there, they ability to extract it exists... so company A goes out of business, but once the countries tire of shooting themselves in the foot and prices rise, Company B will just extract it.
At best they spite company A, but didn't change much.... maybe they make a few bucks while company B ramps up.
And that all assumes other nations play along... that is not common.
Economic warfare - end game is causing economic harm to the US and its interests. If everyone loses their jobs in the energy industry in the US, that forces the US to buy oil from foreign entities. The US energy industry cannot exist beyond 3-6 months with sub 20 dollar oil prices.
I grew up in an area where oil had been found decades ago. There was mini oil rush and then ... it was discovered to be not as accessible as initially thought. Suddenly the rush was over.
It was a very fast boom and bust.
For a good 20 years I saw bumper stickers that said something like "Please God give us another chance, we won't screw it up this time." It was a very midwestern sort of self blame for a thing that wasn't anyone's fault.
Decades later... they got their shot again and the boom lasted quite a bit longer, until recently.
Once prices rise again it becomes profitable to extract again....and all Russia got were their own losses... and if other nations don't play along, maybe more losses.
Ultimately Russia can't stop the US from having a supply of oil anymore than the US can stop Russia.
that's true but the oil is still there and the extraction tech perfected. Maybe the existing players go bankrupt today but when prices come back up someone else will get a loan and turn the wells right back on. Fracking and the other technological breakthroughs have put a price ceiling on oil below which OPEC can afford.
I think it is more challenging than you expect. This tactic has likely skuttled or delayed any development projects in the works. Future investors will be more cautious if they think the market can drop out at any time
But that's nothing new. Oil prices totally collapsed in 1998 and then rebounded several years later. Investors are aware of that possibility and plan around it.
The oil rights are owned by specific companies. You can't just drill wherever you want - these oil/mineral rights are owned and can be resold, but it's not as easy as you describe.
Oil price is down because SA and Russia have a disagreement. Russia want to produce more barrel.
On top of that, the Covid19 happened.
Some theorized that SA and Russian pumping more oil was a plan to kill USA's fracking and shale industry. I'm just hoping it'll force us to move toward renewable so we won't be dependent on these countries.
Saudi Arabia has been producing around 10.5 million barrels per day fairly consistently-ish for the last 5 years. If anything it's a bit lower over the past 12 months vs the 60 month average: https://ycharts.com/indicators/saudi_arabia_crude_oil_produc... So that theory is right out, imo.
I'd investigate what you're reading that gave you the impression that Russia and SA increased production drastically in order to tank USA. It's likely the sources are providing misinformation.
The disagreement between Saudi (representing OPEC) and Russia which lead them to increase production was just a few months ago, so you won’t see it’s consequences in oil production numbers for the last few years. It was widely reported in the media.
Production for the month of March is published and does not show a significant increase. Again, its likely that the sources you follow are providing misinformation - not just about this, but about other things as well.
More generally, I follow oil news quite closely (as I work in the sector, and I have worked in Saudi Arabia specifically). These types of claims are "widely report in the media" constantly every year, although it is interesting that there's a Wikipedia page about this year's events. I personally wouldn't trust that version of events, as it only narrates changes in price without addressing movements of the supply/demand curve. I consider volumes of supply and demand to be more narrative for fungible commodities than statements of price alone.
As all these price movements happened after China's enormous quarantine and reduction in road traffic in February, I'd posit that the falling prices are a result of concrete reduced demand, rather than hand-wavey price adjustments.
Saudi can't adjust price lower globally single-handedly, the next marginal sales will happen at the market price. This wikipedia article doesn't seem to see that. The only way Saudi can reduce the price for its competitors is by supplying more oil to the global market.
Certainly recent price movements have mainly been driven by a dramatic fall in demand, but price drops in late March were also partly driven by Saudi announcements of production increases following they and Russia announced the breakdown of talks.
This is all so recent that it’s entirely possible they have reversed course already, absolutely. However this isn’t some wacko conspiracy theory, it’s based on the explicit statements of these countries governments all over the mainstream media.
There are too many producers...OPEC only produces 30% of the global oil supply. The USA has proven that it can ramp up to meet large shortage in global supply very rapidly with fracking. And there are _thousands_ of oil companies in the USA, so it's difficult to collude with all of them.
Basically, OPEC needs a situation where they can reduce supply by 10% and get more than 10% increase in price. Otherwise they may increase the price, but still lose revenue overall. Over the past two decades they've tried this many times, but it hasn't worked. Russia and the US always increase production enough in response to keep the rise in prices relatively low.
As oil is generally an inelastic commodity, they may be able to reduce their production by something appalling, like 2/3rds reduction. Then they would need, and probably actually get, a global oil price 3 times what it was previously in order to maintain revenue. However, previously that meant an oil price of $180-300/bbl which would in turn cause a global recession and reduce demand. Even if oil is very inelastic, at some point people would stop driving/flying/using energy.
So really, there was no longer any way for OPEC to function as a cartel. The US effectively broke the cartel when it succeeded at being the new "swing producer" able to ramp up and down production in <6 months to meet global needs. This was all due to fracking and horizontal drilling.
OPEC has been trying to work with Russia to establish a new "OPEC+" that might control enough market, but it's incredibly difficult to keep all players honest. And impossible in a coronavirus market where demand is down so much (no one is flying even with nearly free oil).
Lastly, the US is starting to consider joining OPEC+. It's not something I previously thought was possible, because there's not one national petroleum company in the USA to negotiate with, there's thousands or tens of thousands of oil companies to negotiate with (some are just mom+pop oil companies which own two wells on an old plot in Pennsylvania, for example).
This would effectively be the US joining OPEC+ to artificially prop up the price of oil (and thus, subsidize the government budgets of Russia, Iran, Saudi Arabia, and other oil producing nations with American consumer's wallets). It does not seem to be a policy in serious contention, however. I don't expect the USA to follow through on these ideas.
Basically, OPEC needs a situation where they can reduce supply by 10% and get more than 10% increase in price. Otherwise they may increase the price, but still lose revenue overall.
That would only be true if you had a zero cost of production (and OK in Saudi Arabia's case, they nearly do). A decrease in volume decreases both your costs and revenue, but an increase in price goes all to revenue.
So if, for example, at the current oil price you had a margin of 25% (eg. $15/barrel cost of production and $20/barrel price), you only need a 2.8% increase in price to balance a 10% drop in volume. Even SA's ~$5 production & transport costs still means an 8.3% increase in price balances a 10% drop in volume.
Hugely appreciate this addition. Do you have a good public resource showing current production & transport cost by country or by play? And/or a public list of breakeven prices to eventually earn back capex on new wells? I used to have these charts but haven't kept up.
The light crude people in the US are the main reason the US doesn't have a revenue-neutral carbon tax or similar. I kind of doubt they want the implications of them going away -- though everybody else might.
the dollar is too strong, it means you get less for your production ( barrel of oil) than you used to. so little, that you might not be able to feed the people in your country that pump the oil.
a strong dollar creates problems for the entire rest of the world. this is how the king of the throne applies coercive force to the 'developing world'. because their own currencies are even that much shittier, so they CHOOSE to rely on the dollar. because...it's far more useful than trying bilateral trade ( oil for food) , which isn't so easy, using a currency is far better, and if you think it's not, try bilateral trade, see what happens. in the rare cases that it may work, you'll have the u.s. navy knocking at your door too!
Recently, one of the most famous russian movie directors, who's also very close to the government (and also heads a "copyright protection" agency that gets 1% tax on all writeable media - because they could be used, to, you know, pirate movies) said in his own TV show, on state television, that Bill Gates wants to implant chips into people to earn crypto. In general, state media is full of conspiracy theory level of propaganda - with aliens, lizard people and secret world government.
Is this the best you can come up with? This is not Russia demonizing the US. This is conspiracy theory coming out of tinfoil hat public from everywhere including US.
This sounds like an opportunity for someone to kickstart a whole new post-petroleum industry.
How? Use the sun, wind, tide, nuclear, geothermal, space-solar, anything, to produce electricity, in order to crack hydrogen from water, and jumpstart the hydrogen economy. And will also need to begin mass production of fuel cells to get it cheaper.
This proves that the world does not need oil, if an alternative energy source can be harvested.
And along the way, it can possibly topple the biggest superpower on the planet. As well as effectively neutering the major countries with massive petroleum reserves.
I can only think of one player that can achieve such a monumental task. And even then, I doubt that they are that bold.
It's fascinating the cost of extracting oil is so high in Iran in particular, a country that is under constant sanction by the US. I wonder how much of the cost is due to the sanctions and disturbance in trade (ie Iran cannot import key technologies), and how much of it is because Iran's oil deposits is just "harder" to drill.