Oil's Collapse Is a Geopolitical Reset in Disguise

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.

For Iran, this is food, cars, durable goods & machinery, electronics, and textiles: https://atlas.cid.harvard.edu/explore?country=107&product=un...

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.

[1] https://fred.stlouisfed.org/series/IRNNXGOCMBD

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.

UK to Iran is not a great comparison because only 4.5% of UK's exports are crude oil. https://oec.world/en/profile/country/gbr/

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.

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?

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).

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.

A random bit of context with no obvious connection isn't much context. Context is more than a single given fact.

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.

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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.

Sure he may have done some things that are good, but he made many horrible decisions.

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.

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.

Yeah, I really needed a State Department analyst to tell me 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.

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.

Take a look at US consumption: https://en.wikipedia.org/wiki/Energy_in_the_United_States#Pr... https://www.eia.gov/totalenergy/data/monthly/pdf/sec1_7.pdf We still haven't reached 07/08 levels of energy consumption, of which 67% is nat gas/oil. I also read a while back that US households have steadily decreased their individual usage of energy post-2008, despite economic gains. I forget where, I think it was in an article about nuclear power plants.

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.

https://en.m.wikipedia.org/wiki/2020_Russia–Saudi_Arabia_oil...