Oil: Saudi & US

Last year when oil prices were falling and threatened to reach lowest in the decade, everybody was blaming Saudi. Saudi officials went on the record asserting that “Stone age did not come to an end because we ran out of stones. Same is the case for Oil Age.” Fancy words to say Saudi is going to continue to pump oil and flood the market irrespective of the prices. Since new oil rigs had primarily opened up in America, they projected themselves as victims.

However this latest deal with Iran has raised some interesting questions:

  1. The deal primarily allows Iran to sell oil in the open market. In the short term the oil prices fell by $1.5-2 per barrel and are expected to go down even further. By adding a new oil producer, they essentially are sealing the fate of the new oil rigs that opened up in America.
  2. Most Middle East oil sells at Brent, but Americans sell at WTI price, which trades at $5-7 discount. The reason for this discount was American policy which prohibits export of unprocessed crude oil.
  3. Cheaper energy usually benefits mass production and long distance freight. So it benefits Chinese industry much more than it does to American economy.

Everybody at that time believed that new oil rigs, fracking, sand oils had caused a glut in the market. US from being an importer of crude has become an exporter of crude. What is worse that this transition happened in the winter season where the oil requirement for heating/furnace goes up substantially.

But if this was the case and oil lobby is really as strong as they are projected to be, then how did this treaty got ratified? Iran has a history of reneging from its promises, so I doubt if this has a long term benefits. However in the short term issues 1 and 3 got worse and issue 2 did not get resolved. I am sure there is a logical & strategic reason behind all this, but I know for sure that the reasons that were citied 6 months ago were all farce.

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