The End of the 'Oil Era' is Approaching

The continuous decline in oil prices in global markets and the challenges faced by oil-dependent countries like Iran in finalizing their budgets for the upcoming year have been the subject of analyses and commentaries published this week in the economic sections of newspapers and websites. A summary of several notes and analyses published in Persian-language publications on this topic is presented below: The End of the Stone Age and the Oil Era. 'The End of the Oil Era' is the title of a commentary written by Hojjat Ghandi, an economist for the newspaper 'Donya-e-Eqtesad'. This professor at Washington and Lee University in the U.S. begins his analysis by noting the more than 60% drop in oil prices over the past six months, stating: 'Many experts attribute the decline in oil prices to the shale oil revolution in the U.S.' He further discusses shale oil, mentioning that 'the volume of shale extraction in the U.S. exceeds four million barrels per day, which is more than the production of any OPEC member country except Saudi Arabia.' Another point emphasized by Ghandi is the differing estimates of unconventional oil reserves, with some estimates suggesting that unconventional reserves could be up to ten times greater than conventional reserves. Ghandi also points out the differences in investment cycles for shale oil and conventional oil, stating that 'the investment cycle for shale oil is short. For conventional oil, the time from the start of investment to extraction is about five years.' However, he notes that 'the investment cycle for shale oil is about 60 days, which he compares to investment in the bottled water industry.' In another part of his commentary, Ghandi refers to demand in the oil market, arguing that the entire decline in oil prices is not solely related to abundant production and supply, but that investments in higher efficiency products that consume energy have led to a decrease in demand for oil. In conclusion, the professor writes, 'There is a saying in oil circles: 'The end of the Stone Age was not due to the end of stone.' In fact, humanity still uses stone, but stone has no place in economic, political, and geopolitical calculations.' Ghandi envisions the fate of oil as akin to that of stone, emphasizing that 'the end of the oil era will not coincide with the end of oil. Rather, at some point in the future, oil will no longer play a role in economic, political, and geopolitical calculations.' Jamshid Pejvakin, an economist and professor at Allameh Tabatabai University, in a note for the newspaper 'Teadoll-e-Eqtesadi', refers to statements made by Ali Tayebnia, the Minister of Economy, who said that the price of oil in the next year's budget should be adjusted to $40 per barrel. He describes this statement as correct, writing, 'It is possible that the price of oil may rise to around $50, but the likelihood of oil prices averaging in the seventies next year seems very unlikely.' This public sector professor also emphasizes that with the current budget bill figures, which are based on a $72 oil price, 'we will have a budget deficit of between 25 to 30 trillion tomans for next year, and we must quickly identify the source of this deficit.' According to Pejvakin, 'We need to see if the government can increase its other revenues or if it must reduce expenditures to compensate for the shortfall in oil revenues.' He also stresses that reducing government expenses should not be interpreted as cutting development expenditures, as he believes that reducing development budgets 'could create more serious problems.' Pejvakin recommends that 'reducing current expenditures should be prioritized.' The former head of the Competition Council suggests that to reduce government costs, 'we should examine the components of the current expenditures of ministries and government organizations and cut unnecessary expenses of these entities.' Pejvakin considers economic reforms and ending incorrect economic practices as essential for the current state of Iran's economy and believes that the government must undertake serious structural reforms with the help of the best experts to compensate for the shortfall in oil revenues.