Resource: The Political Economy of Oil in the U.S.‐Iran Crisis: U.S. globalized oil interests vs. Iranian regional interests

Notes: The Political Economy of Oil in the US-Iran Crisis: US globalized oil interests vs. Iranian regional interests

 

• This is an oil system characteristic of the Global Era. If the U.S.- Iranian confrontation today is indeed “all about oil,” it is necessarily “all about oil” in a new and different manner than were the U.S. and British conflicts with Iran of the latecolonial era, a manner that we must carefully explain.
• The U.S. motivation in confronting Iran pertains to the international oil market security system. Its aim is to not permit Iran— given its prodigious oil and gas producing potential—to assume its natural role as a powerhouse energy producer without providing irreversible guarantees that it would not use this position and the wealth that will come with it to undermine the international oil market security system, especially the present balance of power in the Gulf Region enforced by the U.S.
• With the Revolution of 1979, the Iranian national movement finally re-expelled the IOCs and the oil and gas sectors were renationalized. The National Iranian Oil Company (NIOC) took over full operation of the country’s fields.
• This sudden loss of Iranian oil from the market during the Revolution was, in fact, the basis of the world’s Second Oil Shock
• Sanctions: Iran’s continuing in force since 1995. Precisely as intended, they significantly reduced the ability of these states to maintain or expand their oil production capacities
• In 1995, Iran’s then-President Rafsanjani attempted to open the country to foreign direct investment (FDI) and a U.S. company, Conoco-Phillips, was to receive the first contract to develop offshore oil. As can be seen in Figure 17, Iranian production suffered in the Revolution and especially during the Iran-Iraq war. Since the war, the Iranian national company (NIOC) had recovered a portion of the lost production capability; but this increase looked to be reaching an asymptote, and NIOC was not capable of launching new projects.
• And, these sanctions were rather effective. Iran’s production today is only a bit above two-thirds what it was at its high point under the shah before the Revolution (Figure 17). This suppression of Iran’s production potential has paralleled a significant increase in its population and in domestic consumption of petroleum. In Figure 17, the lower of the two lines represents Iranian domestic consumption, while the upper line represents production. The difference between the two is the amount of oil Iran has to export, which has clearly suffered under sanctions. In fact, the calculation in Figure 17 shows that Iran no longer exports significant oil to have an “oil weapon.” Iran now exports only 2.3 mb/d; but IEA members’ SPRs, including commercial stocks, total about 4.5 billion barrels. This means that there is enough oil in the SPRs to replace Iranian exports for over 4.5 years.
• Figure 13: Iranian per capita real income from oil exports passed $1000 per capita in 2005 for the first time since 1985; Figure 14 shows was maintained into 2008. However, the rapid fall in price due to the global economic crisis in June 2008 threatens a return to oil-income hardships for Iran if it cannot increase production significantly
• So too, Iran has not been able to develop large scale gas projects under sanctions, even though it is the world’s second largest holder of proven gas reserves (Figure 16). Iranian has had shortages in the winter for cooking and heating, and Ahmadinejad has reportedly distributed heavily subsidized gas, especially to rural areas.

Presented at the New School Study Group on the Economics of Security, co-sponsored

by the Graduate Program in International Affairs, The New School, and the New

America Foundation, October 16, 2009

Copyright 2009 by Thomas W. O’Donnell