The Obama administration, which has so frequently spoken from every possible side of its mouth on energy, has now done it again.
The nuclear deal announced last week will lift economic sanctions on Iran, likely in the next six or so months, and allow it to flood the global market with oil. How much, and when, is a matter of some disagreement. Last month, the Iranian oil minister said the country could start exporting 400,000 barrels per day relatively quickly, and 600,000 more bpd after about six months. That’s probably optimistic.
Goldman Sachs has put the number at 200,000 to 400,000 bpd next year in addition to somewhere between 20 million and 40 million barrels now in floating storage. A consensus is emerging among analysts that the first Iranian oil will hit the market in 2016, and total anywhere from 300,000 to 700,000 bpd.
Output estimates aside, there is also a question as to how fast Iran can ramp up production. Many believe it will need from $50 billion to $100 billion in foreign investment in order to return to pre-sanction levels.
But regardless of volume and timing, there’s no doubt Iran is going to start exporting, and that will impact the global market, and the effect won’t be good. Do the math:
Iran has 158 billion barrels of crude, the fourth-largest reserve in the world. It wants to ship into a market that is already oversupplied by roughly 2.5 million bpd. Something has to give.
It will likely be prices.
The Energy Information Administration has forecast that crude prices could drop $15 per barrel once Iran re-enters the market. If drillers think profits are tough at current prices – which were just under $60 last week – then it’ll be even tougher to make money when they’re at $45.
All of which brings me, at least from the perspective of domestic energy policy, to what is the most contradictory aspect of the nuclear deal – and one of the more glaring examples of this administration’s contradictory policies.
I have written before about the absurdity of the current ban on exports of U.S. crude, a law that is more than 40-years-old and archaic in terms of both intent and relevance. That absurdity is compounded by the fact that the White House is willing to allow Iran – a country whose interests are not exactly in alignment with ours – to sell its oil internationally while denying the same opportunity to U.S. producers, who have created jobs and generated revenues across the nation.
To paraphrase Sen. Lisa Murkowski, the administration seems to find it acceptable to lift sanctions on Iranian oil exports while keeping them in place on U.S. producers. That’s just ludicrous.
Then again, maybe I shouldn’t be so surprised.
After all, this is an administration whose Treasury secretary once said that low oil prices are a “net positive.” And the president himself went to Brazil a few years ago, promised U.S. “technology and support” to help develop its oil reserves, and said that when the country was ready to start exporting oil, “We want to be one of your best customers.”
In other words, they think it’s okay to support the energy industries of other countries at the expense of our own. Well, it’s not. And the sooner Washington comes to that conclusion an ends the export ban, the better.