Iran or no Iran, there will be oil

If, as looks increasingly likely, conflict over Iran’s nuclear ambitions is approaching, two things are clear: Shia Iran’s Sunni ‘friends’ will not stand with them and, Iran or no Iran, there will be oil

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The sun is a long way from setting on the global oil industry
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Peter C. Glover
On 28 September 2012 15:25

The hand-wringing public angst of politicians and pundits alike contemplating Israeli military action against Iran’s nuclear facilities is overblown, and for two reasons. Firstly, Iran’s neighbours in the Middle East are fast-revealing where their true loyalties lie – and it isn’t with Tehran – and secondly, Iran’s oil power is already declining.

Speaking at the biennial International Energy Forum conference in Kuwait in mid-March, Saudi oil minister Ali Al Naimi offered this commitment over Iranian oil exports: “Saudi Arabia and others remain poised to make good the shortfall, perceived or real, in crude oil supply.”

Right there, in that single sentence, is the bottom line which should allow Western politicians to rest easy on two counts. First, over the potential loss of Iranian oil in the wake of an Israeli strike; second, over the oft-repeated myth that a “conflagration across the Middle East” would ensue.

The Saudis were offering assurances in response to a direct request from the United States. But in the willingness of the Saudis and others to make such a commitment we can read plainly enough that Shia Iran does not actually have any real Sunni Arab friends, not least when Iran is on an ideologically-driven, potentially nuclear-powered, mission.

OPEC may currently be chaired by a former Iranian Revolutionary Guard, but that will not mean its constituent members will allow themselves to be cajoled into another 1973-style oil embargo should Iran be attacked.

OPEC members understand well enough that such an action would be more than likely to trigger a political re-appraisal over energy in the West – one that would see Western public opinion swing behind fast-tracking domestic shale gas and oil developments that would be in anything but the best interests of OPEC members. And the threat to OPEC isn’t just coming from shale gas and oil.

According to the World Energy Council, global proven reserves of natural gas liquids and crude oil stood at 1.2 trillion barrels in 2010, around four decades at current usage. New technology, new discoveries and high oil prices are reviving previously abandoned prospects.

With shale oil pitching in a further 4.8 trillion barrels – around a century and half of oil at current usage – and oil sands around 6 million barrels more, hardly anyone is in the business of ‘peak oil’ scare-mongering these days. 

While it will likely take up to ten years or so for some recent large discoveries, such as Repsol’s recent massive 22.8 billion barrels of oil and gas in Argentina’s Vaca Muerta shale prospect (doubling current reserves), to be fully developed, other discoveries are already in the pipeline. US shale oil prospects are now coming online as fast as shale gas has. And if President Obama loses the White House in November, US shale and offshore development is likely to grow exponentially.

Equally, President Obama’s bizarre Keystone pipeline decision has had the effect of incentivizing Canada to actively pursue sales in overseas markets that will also potentially offset Iranian supplies, especially to Europe.

Major offshore discoveries from Norway to Israel, and from Angola to Brazil – not to mention vast shale prospects in China and India among others – all suggest now would not be a good time for the Middle East producers to alienate global customers.

Even so, for a country with the world’s second largest oil reserves, Iran’s oil market ‘clout’ is already draining away. According to the International Energy Agency (IEA) Iran’s share of oil production is set to fall from 4.9 in 2010 to 4.5 percent in 2015. Meanwhile, even with enormous shale oil development in prospect around the world, oil exploration budgets everywhere are ramping up for another bumper year.

According to industry consultants Wood MacKenzie, spending on oil and gas exploration hit a record $72 billion in 2011. It looks as if that figure will be exceeded in 2012. Shell is increasing its spending on exploration by 35 percent this year. BP is also doubling its exploration drilling capacity during the year.

Saudi Arabia produced around 10 million barrels of oil per day in February this year. It is likely to match that in March. At March’s IEA conference in Kuwait, one Saudi insider told the Oman Times there were no plans to increase supply in the months ahead. But that belies the fact that Saudi, Kuwait, and the Arab Emirates certainly have the joint capacity to ramp up production to help match an immediate Iranian shortfall.

In the US, President Obama’s anti-fossil fuel policies and rhetoric persist. But energy is fast rising to the top of the political agenda. While Obama maintains that oil drilling in the United States won’t “fix gas prices” (meaning petroleum prices at the pump), he is up against a powerful argument from his political opponents: the US is potentially awash in oil.

It is breath-taking to realize that Wyoming and neighbouring states alone are estimated to hold more than 800 billion barrels, more than triple Saudi Arabia’s known reserves. All of which goes a long way to explaining why the European Union appears bullishly confident of finding alternative oil supplies when it stops buying Iranian oil on July 1st.

The Mullahocracy in Tehran understands well enough that nuclear, not oil, is the way to go to achieve that which it most craves – a seat at the superpower top table.

Whether sanctions could have worked is a moot point. In truth, they never really had a chance. Iran’s ‘rush to nuclear’ dictated timing. And, as a host of recent reports, including one from the IAEA, have made clear, time is running out if the world’s leading terrorist-sponsoring state is to be stopped.

But if, as looks increasingly likely, conflict over Iran’s nuclear ambitions is approaching, two things are clear: Shia Iran’s Sunni ‘friends’ will not stand with them and, Iran or no Iran, there will be oil.

Peter C Glover is the International Associate Editor, Energy Tribune and a writer & author on international affairs. For more: www.petercglover.com

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