Noticed a drop in prices at the gas pump of late? After approaching or even topping $3 a gallon for gasoline, the prices have steadily fallen in recent weeks; stations here in Minnesota had it at $1.89 per gallon over the weekend. The decline at the pump comes from an unexpected glut in the market, and some OPEC producers had hoped to force a round of production cuts to bolster crude prices. However, Saudi Arabia announced today that it had 3 million bbls/day of spare capacity, and it intends to start using it.
...
This will hurt those producers whose efficiency cannot match the Saudis, which primarily means Iran and Venezuela. It's doubtful that the Saudis care much about Hugo Chavez and his determination to nationalize the Venezuelan energy industry, but the Saudis care a great deal about Iran and its radical Shi'ite mullahcracy. The Iranians have a big economic problem at the moment, and their only hope is to keep oil prices high enough to cover their gaps. If oil prices continue to drop, it slices off most of the margin the Iranians can capture from oil sales, their only export of any significance.
It also frees the Western nations sanctioning Iran to conduct an agressive pressure campaign. The Iranians thought that they had more leverage than the West as a major oil producer, although Iranian exports only account for a small percentage of global commodity trading (around 5%) -- and that share gets smaller and smaller. The Iranians have had to use more of their shrinking production for domestic purposes, meaning that the lower prices have an exponentially crippling effect on their economy.
It would be nice to believe this was exactly what is happening. It seems too often the Saudi interests have been so narrowly focused that they ignore regional developments to their future dis-service.
Keeping a few petrol dollar from Chavez is just a bonus.
No comments:
Post a Comment