High Prices Do Not Help Oil-Producing Countries

The fall in oil prices seems endless. The entry of oil prices into the $40 range, while this figure is at the lowest level in the past six years, undoubtedly counts as an oil collapse. Black gold is sitting on black soil, and this unbelievable sitting can bring significant changes to the fate of the economies of energy-producing and consuming countries. Changes that some will benefit from and others will suffer losses. The current reality of $40 or $50 oil has plunged Iran's oil economy into a new nightmare. This oil nightmare, coupled with concerns over sanctions and previous restrictions, paints a tougher picture for the future of Iran's economy than ever before. This month's guest on 'Namagar' has been active in the energy sector for over four decades, holding a degree in petroleum engineering with a focus on reservoirs and enhanced oil recovery from Louisiana State University and the University of Southern California in the USA. Hossein Ibn-Yousef has advised major international oil companies such as Arco for over forty years. This energy expert and analyst currently manages an international engineering consulting firm in the oil and gas sector in the USA, focusing its consulting and research activities on oil fields in the Middle East, North Africa, and the Caspian Sea. In the following, you will read an interview with Hossein Ibn-Yousef about the state of the oil market in recent months. Mr. Ibn-Yousef, let's start this conversation with the fundamental question of how much of the recent unprecedented drop in oil prices you attribute to fundamental market factors and how much to political and other external factors? Hossein Ibn-Yousef: What is certain is that the disordered economic situation in the world, especially in the West, has been a very important factor and has completely affected other countries, including China and other oil-consuming countries, as we no longer see the economic growth we witnessed in previous years in China. Therefore, economic issues have been very, very important. Another point to consider is the rapid adoption of alternative energies, especially in recent years. This issue has also been very influential. Similarly, the exploitation of unconventional oil and gas resources, especially in the USA, including shale, has created a remarkable transformation in recent fluctuations. The level of this growth is so high that it has never been seen before. On the one hand, we should not overlook the significant scientific advancements and the increased capabilities that companies have had in the exploration, development, and production of oil and gas fields in deep waters, including the Gulf of Mexico, and the fact that most major companies had and still have the hope of being able to exploit the discovery of vast potential oil and gas resources in polar regions. These factors have indeed been influential in recent years. Another factor that I believe should be added to this set of factors is the optimal use of fuel. Currently, for example, both the consumption of cars has decreased compared to the past, and in buildings, due to the precision in the initial design and the restrictions that even governments have imposed in various sectors, whether in industry or in transportation and construction, has collectively led to a decrease in fuel needs. These are, of course, the economic aspects of the issue. As for the fact that some countries are trying to use all levers to achieve their economic and political goals, there is no doubt about that, and certainly, in the transformations we have seen in this market, part of it relates to the influence of political decisions that we have witnessed in various sectors and positions over the past few years. Some of them relate to various planning in the oil and gas sector and the guidelines that have been issued, issues of sanctions, tensions that exist in various parts of the world, especially in the Middle East or North Africa, wars that have occurred and are ongoing, and the upheaval that occurred in the Arab world, part of which was due to foreign interventions, all of these have come together to create a situation that we are witnessing its impact on the oil market and the transformations we are discussing today. Mr. Ibn-Yousef! There is a theory that has a hint of conspiracy theories in it, which claims that the increase in oil prices in previous years and the price of oil reaching over $100, and now the decrease in oil prices to less than $50 per barrel, both of these price fluctuations are the result of decisions made by the West, especially the USA. That is, proponents of this theory believe that when the USA and the West wanted to free themselves from their addiction to oil, they kept oil prices high to make investments in new energy production methods, alternative energies, and unconventional oil production, which you also mentioned, shale oil, economically viable. And now that these productions have reached an industrial stage, they no longer need oil prices to be so high for those investments to be justified; hence today, the US economy and the Western economy are facing cheaper oil with less dependence on oil. How much do you believe in this theory, and do you think that both the increase and decrease in oil prices can be the result of decisions made by Western countries, especially the USA? Although historical records show that there were people in various parts of the world who had a slight understanding of oil and made minimal use of oil in various sectors, especially in medicine, we truly owe the modern oil industry to the USA. That is, the discovery of oil occurred in America, and the development of oil resources started from here. More importantly, the market for this commodity was indeed created by Americans. Therefore, we are certainly indebted to the USA for the modern oil industry. Efforts in various oil and gas sectors over the past century and a half have mostly started from the USA. Until the mid-20th century, the USA was not only the largest consumer and producer of oil in the world but also the largest exporter of oil. With the discovery of oil and the development of oil fields around the world, this growth in the USA diminished, and even the USA, due to the rapid growth in oil and petroleum product consumption, practically became an oil importer and has faced this problem for years and still does. However, with all the resources available to the USA, both in technical and economic and financial sectors, it has been able to continue these activities and find appropriate solutions to reduce this level of dependence, which it has indeed been successful in. Regarding production from shale or unconventional sources, it should be emphasized that while these vast resources may be more abundant in the USA than in other parts of the world and their type and quality may be more suitable and accessible, this work has not been done easily. Truly remarkable efforts in various technical, economic, and political fields have come together to achieve this success. Financially, it has also been very costly. It is not something that we can think has been done with a few pennies. So far, more than $1.4 trillion has been spent in this area. Therefore, this should not be underestimated, and their efforts should not be disregarded. I cannot imagine this as merely a conspiracy. This has been a comprehensive effort that has taken place in this country and has had successes. However, its limitations are also significant. The situation is such that we do not have a long history of producing this type of oil, and we do not have enough information about the problems that may arise over time in producing from these types of oil and gas layers, and it requires time to see how production from these fields declines and whether these resources can be economically viable in the long term or not, and these transformations have indeed occurred in recent years. Let us not forget that we previously witnessed a rapid increase in prices in the 1970s. Then, in part of the 1990s, the increase in prices continued. Therefore, I do not believe in conspiracy in that sense. Saudi Arabia and oil-producing countries in the Middle East are, at least for Iranian audiences, the main culprits in the recent fall in oil prices. In your opinion, could Saudi Arabia and other oil-producing countries in the Persian Gulf have prevented the fall in oil prices by cooperating with Iran and other countries like Venezuela in the last OPEC meeting, which advocated reducing production ceilings? Does OPEC today have the capacity to control the market in such a way that we do not witness this extensive drop in oil prices? I do not think so. The reality is that no country in the world may have the experience of Saudi Arabia in playing with production levels and its impact on oil prices or lack of impact on oil prices. In the 1970s, they made decisions and quickly increased their production capacity. In the 1980s, although prices at the beginning of that decade rose sharply due to the Iranian revolution and the Iran-Iraq war, which had removed a significant portion of the region's oil production from the market, by the middle of the 1980s and at the height of the Iran-Iraq conflict, prices were dropping so rapidly that they had to quickly reduce their production levels, ignoring their production capacity of over ten million barrels per day and bringing their production down to less than two million barrels per day. Nevertheless, prices fell sharply and even dropped below the levels they had seen in the past few months, falling to around seven or eight dollars per barrel. Therefore, Saudi Arabia's experience is not insignificant in this regard. The reality is that they hold about a quarter of the world's proven conventional oil reserves, and the emergence of competitors, whether in conventional oil or unconventional oil, or the share that alternative energies are gradually gaining from this global energy basket, means losing market share, and losing market share and its importance is undoubtedly difficult for the Saudis, and they had to do this. If Iran had the capacity of Saudi Arabia, it would certainly support the idea that if there is to be a reduction in production to stabilize prices, countries like Russia, which is now the largest global producer, should also participate in this production cut. Mexico should help too. Norway should help. The USA should not allow this rapid production growth to continue. Of course, the USA's excuse is that we do not intervene. The government does not make decisions in this regard, and thus companies take these risks and invest, and if there are benefits in this work, companies also share in those benefits. However, Mexico cannot easily say such a thing because for decades, control of all production programs has been in the hands of their national oil company. Or in the case of Norway, it is true that private sector activities have expanded, but the government also has decision-making power and a national oil company, and they can make major decisions. This burden should not solely rest on OPEC member countries, and since others do not provide this support, OPEC is forced to act independently. Of course, it should be noted that financially, Saudi Arabia has suffered and continues to suffer the greatest loss. That is, a reduction in income of up to $200 billion a year is not insignificant, and there are few countries in the world that can bear such a reduction in their income levels. Why should OPEC really be the only one to do this? Why shouldn't others help? If there are to be benefits in this work and a price increase occurs, why should Russia sit back and let all the pressure be on OPEC members, and they only benefit from the price increases? We currently have problems among OPEC members. The idea that this problem will be solved at the global level and that there will be broad cooperation between producing and consuming countries is part of a utopia that unfortunately we will not reach anytime soon. With the explanations you provided, it can be concluded that oil-producing countries, whether they are members of OPEC or producers outside of OPEC, are unable to adopt a common strategy in the face of falling prices, and this event is unlikely to occur. Knowing that oil production in each of the producing countries has different operational costs, if we want to reach an average price for oil producers that represents the threshold of tolerance or stopping point for these price declines, where is that? In which price range of oil will oil producers, both OPEC members and producers outside this organization, come to a common conclusion that they need to address the oversupply in the market?