Save the OIL and the Wine (Revelation 6)

Khamenei backs suggestion to block Gulf oil exports if Iran’s sales stopped | World | thenews.com.pk

REUTERS

 

Khamenei backs suggestion to block Gulf oil exports if Iran’s sales stopped

DUBAI: Iran´s Supreme Leader Ayatollah Ali Khamenei on Saturday backed President Hassan Rouhani´s suggestion that Iran may block Gulf oil exports if its own exports are stopped and said negotiations with the United States would be an "obvious mistake".
Rouhani´s apparent threat earlier this month to disrupt oil shipments from neighbouring countries came in reaction to looming US sanctions and efforts by Washington to force all countries to stop buying Iranian oil.
"(Khamenei) said remarks by the president ... that ´if Iran´s oil is not exported, no regional country´s oil will be exported,´ were important remarks that reflect the policy and the approach of (Iran´s) system," Khamenei´s official website said.
Iranian officials have in the past threatened to block the Strait of Hormuz, a major oil shipping route, in retaliation for any hostile US action. Khamenei used a speech to foreign ministry officials on Saturday to reject any renewed talks with the United States after President Donald Trump´s decision to withdraw from a 2015 international deal over Iran´s nuclear programme.
"The word and even the signature of the Americans cannot be relied upon, so negotiations with America are of no avail," Khamenei said. It would be an "obvious mistake" to negotiate with the United States as Washington was unreliable, Khamenei added, according to his website. The endorsement by Khamenei, who has the last word on all major issues of state, is likely to discourage any open opposition to Rouhani´s apparent threat. Khamenei also voiced support for continued talks with Iran´s European partners in the nuclear deal which are preparing a package of economic measures to offset the US pull-out from the accord.
"Negotiations with the Europeans should not be stopped, but we should not be just waiting for the European package, but instead we should follow up on necessary activities inside the country (against US sanctions)," Khamenei said.
France said earlier this month that it was unlikely European powers would be able to put together an economic package for Iran that would salvage its nuclear deal before November.
Iran´s oil exports could fall by as much as two-thirds by the end of the year because of new US sanctions, putting oil markets under huge strain amid supply outages elsewhere in the world.
Washington initially planned to totally shut Iran out of global oil markets after Trump abandoned the deal that limited Iran´s nuclear ambitions, demanding all other countries to stop buying its crude by November.

DUBAI: Iran´s Supreme Leader Ayatollah Ali Khamenei on Saturday backed President Hassan Rouhani´s suggestion that Iran may block Gulf oil exports if its own exports are stopped and said negotiations with the United States would be an "obvious mistake".
Rouhani´s apparent threat earlier this month to disrupt oil shipments from neighbouring countries came in reaction to looming US sanctions and efforts by Washington to force all countries to stop buying Iranian oil.
"(Khamenei) said remarks by the president ... that ´if Iran´s oil is not exported, no regional country´s oil will be exported,´ were important remarks that reflect the policy and the approach of (Iran´s) system," Khamenei´s official website said.
Iranian officials have in the past threatened to block the Strait of Hormuz, a major oil shipping route, in retaliation for any hostile US action. Khamenei used a speech to foreign ministry officials on Saturday to reject any renewed talks with the United States after President Donald Trump´s decision to withdraw from a 2015 international deal over Iran´s nuclear programme.
"The word and even the signature of the Americans cannot be relied upon, so negotiations with America are of no avail," Khamenei said. It would be an "obvious mistake" to negotiate with the United States as Washington was unreliable, Khamenei added, according to his website. The endorsement by Khamenei, who has the last word on all major issues of state, is likely to discourage any open opposition to Rouhani´s apparent threat. Khamenei also voiced support for continued talks with Iran´s European partners in the nuclear deal which are preparing a package of economic measures to offset the US pull-out from the accord.
"Negotiations with the Europeans should not be stopped, but we should not be just waiting for the European package, but instead we should follow up on necessary activities inside the country (against US sanctions)," Khamenei said.
France said earlier this month that it was unlikely European powers would be able to put together an economic package for Iran that would salvage its nuclear deal before November.
Iran´s oil exports could fall by as much as two-thirds by the end of the year because of new US sanctions, putting oil markets under huge strain amid supply outages elsewhere in the world.
Washington initially planned to totally shut Iran out of global oil markets after Trump abandoned the deal that limited Iran´s nuclear ambitions, demanding all other countries to stop buying its crude by November.

Save the Oil and the Wine (Revelation 6:6)

Iran's exit from nuclear weapons treaty would pour 'rocket fuel' on oil market, says analyst

•  The U.S. exit from the Iran nuclear deal creates the risk that Iran will leave a 50-year-old U.N. treaty to stop atomic weapons proliferation, said RBC Capital Market's Helima Croft.
• An Iranian exit from the 1968 treaty would be like "rocket fuel" for oil prices and potentially spark an arms race in the Middle East.
• Analysts say President Donald Trump's decision to leave the separate 2015 Iran nuclear deal puts Saudi Arabia back in control of the oil market.

Tom DiChristopher | @tdichristopher

 

Oil market is ignoring the big Iran story, says strategist   13 Hours Ago | 02:59

The U.S. exit from the Iran nuclear deal creates the risk that Iran will drop out of a separate 50-year-old United Nations treaty meant to stop the spread of atomic weapons, according to Helima Croft, global head of commodity strategy at RBC Capital Markets.
Oil prices have recently surged to 3½-year highs, fueled the U.S. nuclear deal pullout and falling output in Venezuela. However, crude prices began tumbling last week after Saudi Arabia and Russia said two dozen oil-producing nations could soon ease output caps that have been in place since January 2017.
But fears of nuclear weapons proliferation in the restive Middle East could quickly reverse that drop, according to Croft.
An Iranian official threatened last week to pull out of the U.N. Treaty on the Non-Proliferation of Nuclear Weapons, which has sought to prevent the spread of atomic weapons since 1968. Iran signed the treaty that year, but the nation's leadership in Tehran is now in a standoff with the West over its nuclear program after President Donald Trump abandoned the 2015 nuclear deal and restored punishing sanctions on the Middle Eastern country.

"If they come to believe that the U.S. and the regional partners are pursuing regime change, I think we could get a very nasty Iranian response." -Helima Croft, RBC Capital Markets global head of commodity strategy

"I think this is the question the market is ignoring right now. I would watch very closely the Iranian announcement to pull out of the nonproliferation treaty," Croft told CNBC's "Squawk on the Street" on Tuesday. "If they pull out of the NPT, that would signal that not only are the Iranians going to resume their program, they're resuming it with a military option."
"And then it would become, I think, an arms race in the Middle East," she added.
In March, Saudi Arabia's Crown Prince Mohammed bin Salman said his country would obtain a nuclear weapon "as soon as possible" if Iran, the kingdom's archrival, developed one. Israel, which has recently engaged in open conflict with Iran, is widely believed to possess nuclear weapons already.
Iran came under international criticism in the early 2000s and was later sanctioned for its alleged research into nuclear weapons development while ostensibly pursuing a peaceful energy program. After years of diplomacy, Iran reached a deal with six world powers that lifted the sanctions in exchange for Tehran accepting limits on its nuclear program and allowing inspectors into the country.
Under the NPT, countries without nuclear weapons like Iran vow never to acquire them. The 2015 nuclear deal — negotiated with Britain, China, France, Germany, Russia and the Obama administration — subjected Iran to extra scrutiny in order to re-establish trust with the international community.

Atta Kenare | AFP | Getty Images

An Iranian military truck carries surface-to-air missiles past a portrait of Iran's Supreme Leader Ayatollah Ali Khamenei during a parade on the occasion of the country's annual army day on April 18, 2018, in Tehran.

 

But the pressure campaign now being waged by the Trump administration could push Iran to abandon both the nuclear deal and the NPT, Croft said. The European Union is trying to preserve the 2015 deal, but America's influence over the global financial system means many European companies may toe the U.S. line, despite the EU's efforts to shield them from far-reaching sanctions.
Iran's economy is already weakening, spurring protests over corruption in the banking system and other grievances. This year, Iran's currency has collapsed, and its uncertain how Iran will respond to the added pressure from a loss of international business, said Croft.
"If they come to believe that the U.S. and the regional partners are pursuing regime change, I think we could get a very nasty Iranian response," she said.
U.S. Secretary of State Mike Pompeo's first major speech last week drew speculation that the administration's policy is indeed to topple the nearly 40-year-old regime in Tehran. While Pompeo has sought to tamp down that speculation, the Iranians may not be convinced, said John Kilduff, founding partner at energy hedge fund Again Capital.
"They're like playing a game of Jenga, where you push the blocks out, because they're hoping for the regime to tip over," he told "Squawk on the Street" on Tuesday.
"And as much as European Union officials are trying to say that they want to have a workaround against these U.S. sanctions, all the companies, the banks and the oil companies, are all in the process of pulling out and saying we're not touching that with a 10-foot pole."

Saudis back in control

 

 

Helima Croft talks about Saudi Arabia and Russia's impact on the oil market   17 Hours Ago | 01:43

 

Both Croft and Kilduff said Trump's pullout has given Saudi Arabia the upper hand in the oil market. Trump essentially made a bargain to pull out of the Iran deal so long as the Saudis agreed to increase oil output to offset any price spike that resulted from the loss of Iranian crude supplies, according to Croft.
U.S. Treasury Secretary Steve Mnuchin recently told reporters the United States held discussions with "various parties" to pump more to offset falling Iranian exports, which could raise gasoline prices for American drivers.
"We're back hat in hand to the Saudis saying put more barrels on the market," Croft said.
"This is the issue, is that the U.S. cannot deal with a supply shock. We have to go back to countries that hold spare capacity. So when Venezuela potentially loses over the course of a year a million barrels, if we take off several hundred additional Iranian barrels, Saudi Arabia has to fill the gap."
While the United States is pumping about 10.7 million barrels a day — overtaking Saudi Arabia and closing in on top producer Russia — bottlenecks in western Texas will prevent American drillers from fully compensating for lost Iranian supplies, Kilduff said.
"If there's one thing this episode should tell us all, we are not the swing producer. Saudi Arabia is," he said. "They're more in control now than I've ever seen."

Save the Oil and the Wine (Revelation 6:6)

What Trump’s decision on Iran nuclear deal means for oil prices
President Trump said he would announce Tuesday whether he will scrap the Iran nuclear deal and reimpose sanctions, but the uncertainty over his decision has already been roiling the Iranian economy and international oil markets.
Since December, Iran’s currency has lost one-third of its value. Foreign investors, who have been jittery ever since Trump took office, have delivered only a fraction of their commitments. And while the Iranian economy has generated 600,000 jobs a year since the nuclear deal took effect in 2016, unemployment is running at an all-time high.
“There is a sense of panic among Iranians about what the future holds. Trump has absolutely exacerbated a sense of financial insecurity,” said ­Suzanne Maloney, senior fellow at the Brookings Institution.
The rising price of uncertainty has rippled through international crude oil markets as well. The price of West Texas Intermediate crude topped $70 a barrel Monday for the first time since 2014 amid fears that renewed U.S. sanctions would require international companies to buy less Iranian oil or face stiff penalties.
Oil experts estimate that renewed sanctions could take about 350,000 to 500,000 barrels a day of Iranian crude off world markets within months, a modest but meaningful amount. And more could be at risk later, potentially adding $7 a barrel to world prices, a Goldman Sachs report to investors said. Iran exports about 2.6 million barrels a day.
Big projects could be threatened, too, especially in the oil and gas sectors that suffered from underinvestment during the sanctions years. The French oil giant Total last July signed a 20-year deal with the National Iranian Oil Co., starting with a $2 billion project that would include 30 wells, two platforms and two subsea pipelines to boost natural gas production in Iran’s South Pars field. The China National Petroleum Corp. is a 30 percent partner.
But Total, whose chief executive was one of 15 European chief executives to dine with Trump on Jan. 25 during the Davos conference, has interests in the United States as well and would not want to violate U.S. law.
Under the terms of the Joint Comprehensive Plan of Action reached in July 2015, Iran agreed to intrusive inspections and limitations on its nuclear program. In return, the United States and its five major partners — Russia, China, France, Britain and Germany — agreed to remove restrictions on Iranian oil sales, lift certain financial limitations and clear the way for investments by foreign countries. Iranians celebrated noisily in the streets of Tehran after the deal was signed.
Iran’s oil sales jumped. Its exports of nonagricultural products doubled and its imports of nonagricultural products soared 12-fold.
For the United States, the deal meant that the White House would waive restrictions allowing international firms to conduct business — including oil transactions — through the Central Bank of Iran.
The current waiver expires Saturday. If Trump does not issue a new one, his administration would start asking oil traders and companies around the world — including in European countries that support the nuclear deal — to cut purchases, according to Richard Nephew, a senior researcher at Columbia University’s Center on Global Energy Policy. Nephew was a key part of the U.S. team that negotiated the Iran deal.
Since new sanctions under Trump would include penalties against any company doing business in the United States, European refiners would be likely to comply. They account for about a quarter of Iranian exports. Refiners and traders in Asia, however, could end up getting bargains.
“I’ve talked to more than enough companies — they understand what the sanctions environment will look like and what will be asked of them by the U.S. government,” Nephew said. “And so they are already looking ahead to see whether they need to make reductions. And presumably those that don’t intend to comply, they’re licking their chops at what kind of discounted oil they may be able to get from Iran.”
Before reaching a deal with Iran, the Obama administration pressed oil companies into making “significant” cuts in purchases, usually about 20 percent, every 180 days. Iran’s oil sales were reduced by more than 1 million barrels a day.
The flood of U.S. shale oil that began in 2009 easily offset the loss of Iranian exports. Saudi Arabia, Iran’s rival and a leading critic of the nuclear deal, also pledged to make up any loss of Iranian production. Crude prices remained low.
Now, however, cuts in Iranian exports would have more effect. Political turmoil in Venezuela has lowered oil exports. Global oil demand is rising thanks to faster economic growth. Global inventories of petroleum are lower than they’ve been for nearly four years. And so far the Saudis, eager to drive down inventories further, have not offered to make up for Iranian crude taken off the market.
The reduction in Iranian oil exports would also hurt the Islamic republic at home. Crude oil and petroleum products make up more than 60 percent of Iranian export revenue and a large proportion of the state budget.
Iran has some room to deal with a decision by Trump to undercut the deal. Djavad Salehi-Isfahani, professor of economics at Virginia Tech, said in an email that “it will take a while for sanctions to get as bad as they were in 2013, when Iran’s oil exports hit a low.”
There is a United Nations process that would take two or three months to unfold. European leaders might challenge secondary sanctions on their companies and, he added, even 1.5 million barrels a day in oil exports would generate about $40 billion a year in revenue. And Iran has built up cash reserves.
The biggest cost of a change in U.S. policy could be political. Trump could end up weakening the hand of Iran’s moderate president, Hassan Rouhani, who supported the deal.
Salehi-Isfahani wrote recently that “if Rouhani ever held the key to the door of prosperity, as he was fond of saying in his 2013 presidential campaign, he failed to locate the keyhole in time.”

Save Iranian Oil and the Wine (Revelation 6:6)

Trump set to kill the Iran nuclear deal and it could ‘propel’ oil prices skywards

Sam Meredith

 

The Iran nuclear deal is on the brink of collapse, yet oil traders continue to underestimate the impact of a fast-approaching supply shock.
A dramatic uptick in oil prices in recent weeks has partly been driven by mounting expectations that Donald Trump will soon pull out of the 2015 accord. The U.S. president must decide by May 12 whether to restore penalties on one of the world's biggest oil producers.
"President Trump's will-he-or-won't-he antics over Iran have been dominating the oil headlines of late… (But) any lingering hopes that the agreement will be amended to suit Trump's demands have now evaporated," Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.
"A knee-jerk reaction can be expected whenever a formal announcement is made. After all, market participants will not want to miss the boat for a new era of Iranian sanctions," he added.
Bringing back sanctions on Iran could wipe out up to 1 million barrels per day of Iranian crude supply, which Brennock said could be enough to "propel oil prices towards $80 a barrel."

'Insane' pact

Trump, a fervent critic of the seven-party agreement, has long threatened to walk away from the landmark deal unless its European signatories and Congress reconcile his concerns.
The former New York businessman is thought to be unhappy about key aspects of the "insane" pact. He has complained the deal does not restrict Iran's nuclear activities for long enough and fails to stop the country's development of ballistic missiles.

 

In response, Iranian President Hassan Rouhani has said Trump has "no right" to renegotiate the deal and accused him of "maliciously violating" its conditions.
On Thursday, Iran's foreign minister also warned the Trump administration that it would not seek to renegotiate a 2015 nuclear deal with world leaders. In a message posted on YouTube, Mohammad Javad Zarif said Tehran would also be prepared to reject any ratification of the deal.

What next for oil prices?

Brent crude, the global benchmark, briefly surged beyond $75 a barrel at the start of the month — its highest level in more than three years.
"I think for the rest of the year we are going to see $70 a barrel. But, honestly speaking, given the fundamentals… I think that there is more of an upside in the oil price than a downside right now," Rainer Steele, chief executive at OMV, told CNBC's "Squawk Box Europe" on Thursday.
When asked how he felt about the Trump administration's upcoming Iran deadline, Rainer replied: "I'm like all the others — just sit and wait for what is coming. But, honestly speaking, it is not turning to the better."

Alongside tensions regarding the Iran nuclear deal, another major driver of crude futures in recent months has been the ongoing international effort to try to clear a global supply overhang. The OPEC-led agreement, which came into effect in January 2017, has already been extended through until the end of this year — with producers scheduled to meet in June to review policy.
The output controls have widely been viewed as a success, with crude futures soaring in recent days to highs not seen since late 2014. Brent crude traded at around $73.65 on Friday morning, up 0.1 percent, while U.S. West Texas Intermediate (WTI) stood at $68.45, unchanged from the previous session.

Save the Oil (Revelation 6:6)

Oil jumps 1%; fighting shuts output in Iraq's Kirkuk

Libby George

5-6 minutes

---

Oil prices jumped 1 percent on Monday as Iraqi forces entered the oil-rich city of Kirkuk, taking territory from Kurdish fighters and briefly cutting some crude output from OPEC's second-largest producer.
"We’re seeing increased geopolitical tension in the Middle East providing support in the market today, namely in Iraqi Kurdistan, and some uncertainty around Iran," said Anthony Headrick, energy market analyst at CHS Hedging LLC in Inver Grove Heights, Minnesota.
Iraq's Kurdistan briefly shut down some 350,000 barrels per day (bpd) of production from major fields Bai Hassan and Avana due to security concerns. Iraq launched the operation on Sunday as the crisis between Baghdad and the Kurdish Regional Government (KRG) escalated. The KRG voted for independence in a Sept. 25 referendum.
Brent crude futures were up 62 cents or 1 percent at $57.79 per barrel at 11:02 a.m. (1502 GMT). U.S. West Texas Intermediate (WTI) crude was up 36 cents or 0.7 percent at $51.81 per barrel.
The government said its troops had taken control of Iraq's North Oil Co, and the fields quickly resumed production. The KRG government said oil continued to flow through the export pipeline, and it would take no steps to stop it.
Still, the action unsettled the market. Some 600,000 bpd of oil is produced in the region, and Turkey has threatened to shut a KRG-operated pipeline that goes to the Turkish port of Ceyhan at Baghdad's request.

 

Renewed worries over U.S. sanctions against Iran also drew attention. On Friday U.S. President Donald Trump on Friday refused to certify that Tehran was complying with the accord even though international inspectors say it is.
Under U.S. law, the president must certify every 90 days that Iran is complying with the deal. Congress now has 60 days to decide whether to reimpose economic sanctions on Tehran.
During the previous round of sanctions, roughly 1 million bpd of Iranian oil was cut off. Analysts said renewed sanctions were unlikely to curtail that level of exports, yet they warned it could still be disruptive.
Cuts to U.S. drilling rigs, and an explosion overnight at an oil rig in Louisiana's Lake Pontchartrain, also boosted prices.
Oil consumption has been strong, especially in China, where the central bank governor said the economy is expected to grow 7 percent in the second half, defying widespread expectations for a slowdown.
Sources said China was offering to buy up to 5 percent of Saudi Aramco directly, a move that could give Saudi Arabia more flexibility as it plans to float the world's biggest oil producer on the stock market.
(By Julia Simon; Additional reporting by Libby George in London, Henning Gloystein in Singapore; editing by David Evans and David Gregorio)

Save the Oil and the Wine (Revelation 6:6)

Oil geopolitics risks: Kurdistan, Iran, Venezuela

 

Elena Holodny

Wall Street's top oil watcher says there are three geopolitical headwinds that might be "coming to a head in October" — and they could have implications for oil markets.
The three risks come from uncertainty surrounding Iraq's Kurdish region, the nuclear deal with Iran, and the ongoing crisis in Venezuela, according to RBC Capital Markets' Helima Croft.
Here's an outline of her arguments why those three regions are something oil watchers should keep an eye on:

1. The Kurdistan region: Last week residents of the Kurdistan region in Iraq voted in a non-binding referendum on independence. It was "met with harsh rhetorical responses from opponents and is sparking fears of a substantial supply shut in," according to Croft.
2. The nuclear deal with Iran: US President Donald Trump called the Iran deal "one of the worst deals ever negotiated" and repeatedly vowed to rip up the agreement. "President Trump will have the opportunity to make good on his pledge to decertify Iran on October 15, a decision that could set in motion a process that could lead to Congress reinstating the extra-territorial sanctions that prohibited investment in Iran's upstream sector and compelled countries to reduce their Iranian crude imports," Croft said. "Even if Trump has an 11th hour change of heart, new sanctions for non-nuclear transgressions are likely looming and they could deep-six the deal."
3. Venezuela: The White House has previously said it could up economic pressure on Maduro's government. "New US sanctions will undoubtedly make it more difficult for the national oil company, PDVSA, to maintain current levels and meet its debt obligations," said Croft.

In short, geopolitical risks look like they might be coming back for some oil producers. And even if they manage to avoid "full-blown crises," Croft argues they will continue to "face considerable turbulence."

FAMINE: Save the Oil and the Wine (Revelation 6)

Famine in Africa and in Yemen
South Sudan, Nigeria, Somalia and Yemen have been facing famine conditions since February 2017. A total of 20 million people are threatened by food insecurity brought on by armed conflicts and the climatic impacts of El Niño. The SDC, which already operates in these four countries, has released additional funding to deliver emergency aid and to expand its development assistance activities.
The situation is especially serious in South Sudan where almost five million people are already facing hunger. In Nigeria too, over five million people have no food security and suffer from malnutrition. In 2015 and 2016, the Horn of Africa was hit by a major drought which was exacerbated by El Niño, causing serious crop failures and livestock losses. Since then, more than 11 million people in Ethiopia, Kenya and Somalia are suffering from serious malnutrition.
Consolidation of current activities
Switzerland responds to provide aid for people suffering from famine. On 24 February 2017, Swiss Humanitarian Aid made an additional CHF 15 million available from its reserves for humanitarian emergencies to help countries severely affected or threatened by famine. This new contribution is in addition to the SDC’s current activities [in Nigeria, South Sudan, Somalia and Yemen]. It has also carried out and supported various projects in these regions for a number of years, in particular aimed at fighting food insecurity, improving means of subsistence, access to water and sanitation and protecting civilians. Experts from the Swiss Humanitarian Aid Unit (SHA) are also deployed in the field on behalf of the UN agencies and the SDC.
In anticipation of this looming catastrophe, the SDC regularly stepped up its efforts in the above-mentioned countries and provided a budget of CHF 48 million at the beginning of the year. The new funding therefore takes its contribution to humanitarian operations and development cooperation activities in Nigeria, South Sudan, Somalia and Yemen to CHF 63 million in 2017. Switzerland also contributed CHF 5 million to the UN’s Central Emergency Response Fund (CERF) for 2017 to enable it to fund emergency action in these countries.
Support for the World Food Programme’s operations
The central partner of Swiss Humanitarian Aid in the global fight against hunger is the World Food Programme (WFP), to which it gave CHF 69 million in 2016, its biggest contribution to any UN humanitarian organisation. Switzerland is not only a major donor to the WFP but also an important partner in the secondment of experts.
Swiss Humanitarian Aid regularly seconds members of the SHA to the WFP. In addition to its financial commitments, Switzerland is active in coordinating donors in the field. As a member of the humanitarian teams for these countries and as chair of the donor coordination groups in Somalia, Switzerland is involved in ensuring the efficient use of resources, crisis-response coordination and other activities.

The Third Seal: Famine (Revelation 6:6)

How a famine happens: The tale of South Sudan Just what went wrong in the world's youngest country?

Last month, UN agencies declared a famine in parts of South Sudan, making it the first country since Somalia in 2011 to be declared famine hit. The world's youngest nation is in the throes of a civil war that has not only created one of the pressing global internal displacement and refugee crisis, but also actively precipitated the famine.

As pictures of jubilant celebrations in the streets of its capital, Juba, were splashed across global newspapers a day after the country’s birth in 2011, few would have imagined that the country would be reduced to such a sorry state a mere six years later. Independence was seen as a great victory for the people, who for generations were brutally oppressed by the Arab-dominated north Sudan.

What went wrong? The answer lies in the violent, decades-long freedom struggle waged by the people of South Sudan, power lust among its principal leaders and the commodity that has made and unmade nations—oil.

***

There is an old Sudanese proverb, “When god made Sudan, he laughed.” Meant to refer to the incredible riches and beauty of the land, the country's violent history imbues it with dark irony.

Known to be home to valuable materials such as ebony and ivory since the 25th century BC, it had been a major trading partner of Egypt since Biblical times. In the following centuries, it saw the rise of Christianity, which gave way to Islam in the wake of Arab invasions.

Over time, the northern region, famed for its gems, saw the settlement of Arab miners and merchants. The area was laid claim to by the Ottomans in the early 19th century, and subsequently, by the great European powers, particularly the British, after the opening of the Suez Canal.

All through this, the nomadic tribes of South Sudan were taken captive by the merchants and sold, forming the crux of the Arab slave trade from the horn of Africa. Samuel Baker, a British explorer in 1862, vividly noted the role the slave trade played in the keeping Khartoum going as a bustling town. The British, who ruled Sudan jointly with the Egyptians, focused primarily on maintaining power over the north. Little interest was paid to the south, where the missionaries were allowed to operate freely.

While the British and the Egyptians finally ceded control in 1956, the prospect of Arab-led domination of the south, which comprised mainly Christians and tribes following traditional beliefs, led to a massive revolt in 1955, a year before the formal declaration of Sudanese independence.

This bloody uprising, known the first Sudanese civil war, lasted 17 years until 1972. After maintaining a fragile peace accord for a decade, Sudanese government’s declaration of the country as an Islamic state under the Sharia law sparked the descent into chaos again.

The second Sudanese civil war, led by the Sudan People’s Liberation Movement and its military wing, the Sudan People’s Liberation Army, lasted 22 years until 2005, making it among the longest civil wars of the modern era.

The cost of the two wars was brutal—more than 2.5 million people, about one-fifth of the population, died of fighting, famines, disease and displacement.

The southern faction, led mainly by the Dinka and the Nuer, raged internal fratricidal wars as well. However, the all-consuming need to fight for independence pushed the conflict to the backburner.

International pressure on the Sudanese government and the mounting costs of war led to a comprehensive peace agreement being adopted in 2005, which promised a referendum to the people of South Sudan after a period of six years. In 2011, when the referendum was held, the south overwhelmingly—98.83%—voted in favour of secession. On 9 July 2011, the world’s newest country was born.

As celebrations went through the night in Juba, the newly anointed capital, there was an outpour of diplomatic euphoria. “It is a reminder that, after the darkness of war, the light of a new dawn is possible,” said then US president Barack Obama, granting the newly formed country immediate recognition.

Yet South Sudan—with its ethnic divisions, chief among them between the Dinka (~35% of the population) and the Nuer (~16% of the population), dependence on oil to sustain the economy (about 60% of the GDP and 95% of government revenues), minimal infrastructure and high levels of militarization—was prone to falling into a conflict trap.

In July 2013, Riek Machar, the deputy president and a member of the Nuer tribe, was dismissed by Salva Kiir, the president and a member of the Dinka tribe, on charges of plotting a coup. Efforts to disarm the Nuer presidential guards suspected of being close to Machar led to the outbreak of hostilities.

Dinka soldiers ran amok in Juba and reportedly indulged in mass slaughter of Nuer civilians. The Machar camp retaliated and, soon enough, the country was in a state of civil war.

Since the outbreak of hostilities, the fight has often centred on oil, leading to large-scale displacements in the two oil producing regions of Unity and Upper Nile.

The human toll of the civil war has been punishing. According to data from the UN High Commission for Refugees, Upper Nile had about 140,000 registered refugees, followed by the Unity region where the count stood at about 100,000. However, the total number of internally displaced people is an order of magnitude higher at 1.85 million (one-sixth of the population) as per the UN Office for the Coordination of Humanitarian Affairs.

The Unity region, which is Nuer dominated and the home of Riek Machar, has been at the forefront of this violence. It alone accounts for about 45% of the total internally displaced population.

While the world’s attention has focused on Syria and the concerns of leaders of Europe and the US, the horn of Africa, among the poorest regions in the world, is facing a particular strain by catering to almost a million refugees, mainly arising from South Sudan and Somalia.

Ethiopia has borne a lion’s share of this burden, hosting close to 750,000 refugees, making it the fifth highest refugee destination in the world.

The human toll of the war in South Sudan has been compounded by the economic consequences which has been disastrous for the country.

Its oil production, the lifeblood of the economy, has seen a precipitous decline. From a high of half a million barrels of oil production per day in 2011, South Sudan now pumps a quarter of that at 130,000 barrels per day.

With the government's resources rapidly drying up, exchange rates have deteriorated sharply, sending prices soaring and the economy into a tailspin (see chart below). The hyperinflationary conditions have ensured basic necessities are either unavailable or simply unaffordable to the locals.

Large-scale displacement due to conflict has worsened the impact of soaring inflation. Unity, Upper Nile and Jonglie (another critically affected province) contain 40% of the country’s total cropland.

With the population almost entirely dependent on agriculture, large-scale displacement has wreaked havoc in local ecosystems and the agricultural economy, affecting supply and access.

The geographic, economic and political conditions have created the vortex that has thrown South Sudan towards this man-made famine.

As seen in this figure, the situation is grim across the country, with 100,000 people in Unity state facing starvation due to famine. Close to a million are on the brink of a famine and almost half the population, 5 million, is at crisis levels of food insecurity and worse.

***

The declaration of famine is not a straightforward act. It is made collectively by multiple parties: the affected country’s government, agencies of the UN and the Famine Early Warning Systems Network, set up by the US government in 1980s to collect and analyse data from various sources.

Given the multiplicity of parties, there are always multiple viewpoints to contend with. Moreover, the declaration itself contains political undertones and implications. Countries often find it hard to outlive the international stigma of a famine. A case in point is Ethiopia. Famine in 1980s and its media coverage has saddled the country with a misplaced reputation of mass poverty, even though it is presently the fastest growing economy globally.

The second challenge is that of data itself. Officially, famine is declared when the following three criteria are met:

• At least one in five households face extreme lack of food

• Thirty per cent or more of the population suffers from acute malnutrition

• At least 2 in every 10,000 people are dying each day

Given the specificity of the requirements and challenges of data collection in an unstable region, UN agencies and the country's government have to be convinced that the situation has indeed escalated enough to deserve worldwide attention. This happens to be the case in South Sudan. The fact that famine has been declared implies that people have already started dying of starvation.

The response has been on expected lines, with relief agencies stepping up their involvement. WFP (the World Food Programme) has been airdropping supplies in affected areas, the Food and Agriculture Organization is giving survival kits and Unicef has set up hundreds of feeding centres to cater to kids facing malnutrition using ready to use therapeutic foods such as peanut-based wonder snack Plumpy’nut.

President Kiir has promised unimpeded access to humanitarian efforts to ensure that supplies reach the ones in need. Yet, the humanitarian agencies are nowhere close to reaching their target of $1.6 billion to provide lifesaving assistance to an identified population of 5.8 million. The conflict itself shows no sign of abating, with Riek Machar, currently exiled from South Sudan, continuing to direct opposition forces remotely from South Africa.

Amartya Sen in his seminal work Development as Freedom made a powerful argument that functioning democracies do not see famines due to the pressures of electorate faced by democratic governments.

The idea went on to change the prism through which famines were viewed. An example in India illustrates the contours of this argument. Bihar faced a situation of food shortage in 1966. Monsoon failure led to harvest season yields being only 50% of what was estimated.

In response, the government declared a state of famine. Keeping in mind the general elections scheduled for the next year, the government and the state machinery mounted an impressive response.

Large-scale feeding, income-assistance programmes and work-for-food initiatives were undertaken. At the end of it, a major catastrophe was averted and the number of recorded deaths stood at about 2,300, a remarkable achievement for a poor and relatively nascent state.

In 1974, political upheavals faced by the Awami League in Bangladesh, following the initial years of independence, led the economy into a decline and caused a sharp spike in in prices of basics. Flooding in the same year led to massive food shortages, and eventually, famine was declared.

Multiple coup attempts were made and, by 1975, Bangladesh was under a martial law. Limited state capacity, low levels of accountability, and political instability led to an insufficient response which resulted in a loss of about 40,000 lives from starvation and famine-related diseases.

State capacity and functioning political system in a way, proved to be the ultimate differentiator. As conflict continues unabated in South Sudan, its leaders have the choice of the path they want to lead their country towards. One hopes that the right choice is made soon. Millions of lives hang in the balance.

Save The Oil And The Wine (Revelation 6:6)

3 Reasons Why Saudi Arabia Will Keep Oil Prices Low

Feb. 28, 2016 5:41 PM ET

Summary

Last week Saudi Arabia, Venezuela, Qatar, and Russia reached an historic agreement to cap oil production at mid-January levels.

Absent an improbable cut in global production, oil prices will stay low as the current glut lingers on.
One of the reasons Saudi Arabia orchestrated a drop in prices was to challenge the nascent U.S. shale revolution.

Coupled with sanctions wreaking havoc on the Kremlin’s budget, the longer Saudi Arabia can keep prices down, the more it will compound Russia’s economic pain.

Saudi Arabia is also using low oil prices as a means of upending on its traditional rival, Iran.

Last week Saudi Arabia, Venezuela, Qatar, and Russia reached an historic agreement to cap oil production at mid-January levels. The pact – the first between OPEC and a non-OPEC member in 15 years – aims to halt the precipitous fall in oil prices that has wreaked havoc around the world.

While news of the deal sparked some optimism, any bullishness quickly faded as reality began to set in: the deal will not take a single barrel off the market. Absent an improbable cut in global production, oil prices will stay low as the current glut lingers on.

The decision to freeze rather than cut production seems counterintuitive; producers have been under incredible financial strain, with some seeking assistance in a bid to keep their economies afloat. But for Saudi Arabia, the chief architect of the current crisis, there are several reasons for keeping prices low. These include: halting the U.S. shale revolution, making Russia pay for its Syria incursion, and undercutting Iran and Iraq.

With these strategies now beginning to bear fruit, Riyadh will resist calls to cut production. Moreover, without OPEC cooperation, other producers will also pump at near record levels, desperate not to concede market share. Low oil prices will therefore continue, at least for the foreseeable future.

Countering the U.S. shale revolution

One of the reasons Saudi Arabia orchestrated a drop in prices was to challenge the nascent U.S. shale revolution. The next few years will see the U.S. set to become the world’s largest producer, while reports also suggest its shale output could double from 4 to 8 million barrels per day by 2035.

This may seem insignificant; the IAE forecasts worldwide demand at around 96 million barrels this year. But analysts claim that even a 5% cut in global output – around 4.8 million barrels – would raise prices by between 50 to 100% today. So, shale will almost certainly heap downward pressure on prices in the long term.

Just as important, the limited time and money needed to construct wells mean they can be capped on and off relatively easily. This provides Washington a flexible lever to balance price shocks and weakens Saudi Arabia’s influence as a “swing” producer.

Not surprisingly, Saudi Arabia has plotted shale’s downfall. With the high costs of shale production, Riyadh figured a dramatic fall in prices would drive these new players out of business, thereby preserving the status quo.

The strategy has produced mixed results. Despite dozens of companies going bust, many have proved resistant, tightening belts and digging in their heels. Slowly, however, these companies are succumbing to market forces, with a wave of bankruptcies expected this year.

While many doubt Saudi Arabia’s ability to hold off the shale revolution indefinitely – especially since procuring shale is becoming much cheaper – the House of Saud is unlikely to cut production soon, given the relief it would offer its U.S competitors.

Reacting to Russia’s incursion into Syria

Vladimir Putin’s incursion into Syria in September last year has changed the facts on the ground, entrenching Bashar al-Assad’s regime and diminishing the influence of Saudi Arabia and other Gulf nations. Whereas Assad’s rule had looked shaky at the war’s start, Moscow’s involvement now all but ensures his survival.

Furthermore, as Russia continues to strike at opposition rebels, many of them sponsored by Saudi Arabia, Riyadh’s clout is beginning to fade. Moreover, as its influence in Syria wanes, so too will its role in further peace talks and discussions about the country’s future.

Dismayed at what they perceive as U.S. inaction in the face of Russian aggression in Aleppo and other flash points in the north, Saudi officials are becoming increasingly frustrated. Though the de facto OPEC leader is unlikely to get involved militarily without Washington’s consent, keeping prices low is one way to hurt Moscow’s fragile economy.

Coupled with sanctions wreaking havoc on the Kremlin’s budget, the longer Saudi Arabia can keep prices down, the more it will compound Russia’s economic pain. In fact, Russia’s finance minister, Anton Siluanov, recently claimed that the country needs $82 oil to balance the budget, with many analysts claiming that a default is now a possibility.

That might not change Putin’s calculations in Syria, but low oil prices will at least serve a costly reminder that Russia’s actions come with consequences.

Undercutting Iran and Iraq

Saudi Arabia is also using low oil prices as a means of upending on its traditional rival, Iran. True, the Saudi economy is heavily reliant on oil, with shipments accounting for 90 percent of its export earnings and 80 percent of government revenues. But it still enjoys a favorable financial position over its adversary across the Persian Gulf, with greater reserves and a smaller debt ratio. Meanwhile, Iran needs higher oil prices to break even.

In terms of regional influence, therefore, Saudi Arabia is likely to keep oil prices low in a bid to outlast Iran. Eventually, Riyadh hopes the financial pressure will mean Iran is unable to maintain its proxies in Syria, Yemen and elsewhere.

Having made huge military and diplomatic strides recently, which includes a recent nuclear deal with the U.S., Tehran may be forced to adopt a less expansive foreign policy, allowing the Saudis to reconfigure alliances in the region and regain much of their lost influence.

Similarly, Riyadh sees low prices as a means of further destabilizing the impotent Shia regime in Iraq, which has been an Iranian ally since the overthrow of Saddam. The alliance between the two has stoked Saudi fears of a coming “Shia Crescent”, with Saudi Arabia’s rulers keen to ensure Iran’s neighbor remains bitterly fragmented. As an added bonus, in the longer term, continued instability may also mean Iraq is unable to develop its remaining oil reserves.

Man Refuses To Save The Oil And The Wine (Rev 6:6)

  
From Venezuela to Iraq to Russia, Oil Price Drops Raise Fears of Unrest

By CLIFFORD KRAUSS and RICK GLADSTONE
AUGUST 24, 2015

Oil, the lifeblood of many countries that produce and sell it, appears to be rapidly turning into an ever-cheaper economic curse.

A year ago, the international price per barrel of oil was about $103. By Monday, the price was about $42, roughly 6 percent lower than on Friday.

In oil-endowed Iraq, where an Islamic State insurgency and fractious sectarian politics are growing threats, a new source of instability erupted this month with violent protests over the government’s failure to provide reliable electricity and explain what has been done with all the promised petroleum money. In Russia, a leading oil producer, consumers are now paying far more for imports, largely because of their currency’s plummeting value. In Nigeria and Venezuela, which rely almost completely on oil exports, fears of unrest and economic instability are building. In Ecuador, where oil revenue has fallen by nearly half since last year, tens of thousands of demonstrators pour into the streets every week, angered by the government’s economic policies.

Even in wealthy Saudi Arabia, where the ruling family spends oil money lavishly to preserve its legitimacy, the government has been burning through roughly $10 billion a month in foreign exchange holdings to help pay expenses, and it is borrowing in the financial markets for the first time since 2007. Other Arab countries in the Persian Gulf that are dependent on oil exports, including Kuwait, Oman and Bahrain, are facing fiscal deficits for the first time in two decades.
While the price has been declining for months, forecasts have always been hedged with the assumption that oil would eventually stabilize or at least not stay low for long. But new anxieties about frailties in China, the world’s most voracious consumer of energy, have raised fears that the price of oil, now 30 percent lower than it was just a few months ago, could remain depressed far longer than even the most pessimistic projections, and do even deeper damage to oil exporters.
“The pain is very hard for these countries,” said René G. Ortiz, former secretary general of the Organization of Petroleum Exporting Countries and former energy minister of Ecuador. “These countries dreamed that these low prices would be very temporary.”

Mr. Ortiz estimated that all major oil exporting countries had lost a total of $1 trillion in oil sales because of the price decline over the last year.

“The apparent weakness in the Chinese economy is radiating out into the world,” said Daniel Yergin, the vice chairman of IHS, a leading provider of market information, and the author of two seminal books on the history of the oil industry, “The Prize” and “The Quest.”

“An awful lot of producers who enjoyed good times were more dependent on Chinese economic growth than they recognized,” Mr. Yergin said. “This is an oil shock.”

Although the price drop has most directly hurt oil exporters, it also may signal a new period of global economic fragility that could hurt all countries — an anxiety that already has been evident in the gyrating stock markets.

The price drop also has become an indirect element in the course of Syria’s civil war and other points of global tension. Countries that once could use their oil wealth as leverage, like Russia, Iran and Saudi Arabia, may no longer have as much influence, some political analysts said. Iran, which once asserted it could withstand the antinuclear embargo of its oil by the West, appeared to have rethought that calculation in reaching an agreement on its nuclear activities last month.

Of course, lower oil prices confer economic benefits, too. The average American household, for instance, buys 1,200 gallons of gasoline every year. And gasoline, on average, has sold for most of this year by roughly a dollar a gallon less than in 2014.

But even while lower oil prices stimulate economies of consuming countries, a protracted decline carries many unanticipated consequences — starting with the economic weakness in developing countries that buy increasing amounts of goods from the United States and others in the industrialized world.

A supply glut has been evident for some time, driven partly by a vast increase in Saudi production and a growing energy self-sufficiency in the United States, which was once heavily reliant on Middle East oil.

Saudi Arabia not only is producing a record amount, but also is increasing the number of rigs drilling for future production. And its Gulf allies, the United Arab Emirates and Kuwait, are following suit. Even with the turmoil wrought by the Islamic State, Iraq’s production has jumped nearly 20 percent since the beginning of the year.

The surge in production may seem counterintuitive, since lower prices can cause self-inflicted economic wounds and potentially incite more political and social trouble. But all the exporters in the Middle East are struggling with each other to protect Asian markets, now that the United States is using much less of their oil.

The Gulf states, said Sadad I. Al-Husseini, former executive vice president of the Saudi Aramco oil company, “don’t want to take on the role of oil price regulators because the market is far too big and too political for them to manage it.”

Had these producers curtailed their production late last year, he said, “a flood of new oil supplies from the U.S., Canada, the deep offshore and other basins would have continued to undermine the oil markets, and prices would have collapsed to where they are now in any case.”

The global glut is likely to worsen if the nuclear deal with Iran is approved, potentially releasing as much as one million more barrels onto the 94-million-barrel-a-day global market in a year or so.
Iran’s oil minister, Bijan Namdar Zanganeh, has made no secret about his country’s intentions. “We will be raising our oil production at any cost, and we have no other alternative,” he was quoted Sunday in Iran’s state-run news media as saying.

The big change in recent years has been the surge of United States oil production, adding more than four million barrels a day to global supplies. But in recent months the oversupply has been driven primarily by the Saudis, who have flooded the market in what economists regard as a deliberate attempt to drive down the price so that other high-cost producers can no longer compete — most notably the Americans.

Still, production in the United States has not declined as much as foreseen by the Saudis, who thought the price of oil would stabilize at about $50 a barrel. Now it may be headed to $30, the lowest level since the 2008 global economic recession.

The Saudis, the most important member of OPEC, have resisted calls by other members to reduce output. The result is that nearly all OPEC members, who together control much less of the global market than they once did, are pumping more oil.

“We are witnessing competition between member states over market share, and most of these countries are dependent on oil as a primary source of income,” said Luay Al-Khatteeb, a nonresident fellow in foreign policy at the Brookings Doha Center. If prices do not recover to the $60 a barrel level, he said, “and countries in the Arab region continue to rely on oil revenue heavily, we could see decades of decline.”

David L. Goldwyn, who was the State Department special envoy and coordinator for international energy affairs in the first Obama administration, said that if the Brent global oil benchmark price stays below $45 a barrel, that is “a red flag for stability issues across the oil producing world.”
“The hemorrhaging of government budgets reliant on oil will force dramatic cuts in spending or dangerous increases in borrowing, if not both,” Mr. Goldwyn said. “The countries without significant foreign exchange reserves are most at risk, and they include Nigeria, Angola, Algeria, Venezuela and Iraq. The countries which need to sustain investment to maintain political legitimacy need to be worried, and that’s Brazil, Russia and even Iran.”

Meghan L. O’Sullivan, director of the Geopolitics of Energy program at Harvard’s Kennedy School, said she was most immediately concerned about the impact of extended low oil prices on Iraq.
“Not only is fighting ISIS an expensive endeavor, but many of the political deals that need to be done to keep different groups supportive of the Iraqi government require money to sustain,” she said.
But Ms. O’Sullivan expressed a longer-term worry about possible miscalculations by Saudi Arabia, on both the duration and magnitude of the oil price drop.

“With a burgeoning population looking for jobs, education and health care every day,” she said, “the expensive social contract between the royal family and Saudi citizens will get more difficult, and eventually impossible, to sustain if oil prices do not recover.”

Save The Oil And The Wine (Revelation 6:6)

The nuclear deal is mostly about oil

Peter Schiff – Euro Pacific Capital | July 27, 2015

The recent nuclear non-proliferation agreement between Iran and the U.S. has created a firestorm debate in the Middle East and both sides of the Atlantic. While the deal is supposedly all about nuclear power and nuclear bombs, its practical implications are all about oil. But the conclusions we should make about its impact on the energy sector are far from clear. A ratification of the deal would allow Iran to make lucrative long term production and distribution contracts with foreign energy firms. However, freely flowing oil from Iran would add significant new oil supply into the world markets, disrupt U.S. plans to become an energy exporter, and could potentially put further downward pressure on prices.

The U.S. Energy Information Administration (EIA) reports Iran’s proven oil reserves as the fourth largest in the world, at 158 billion barrels, or about 10% of the world’s crude oil reserves. It also has the world’s second largest reserves of natural gas (Oil & Gas Journal, January 2015). But as a result of the series of sanctions laid on Iran by the United States and the United Nations for Iran’s failure to abide by nuclear inspections, which have essentially blockaded the nation, these reserves have done little good for the Iranian economy or the theocratic Muslim government that holds the country in its tight grip.

The IMF estimates that Iran’s oil and natural gas export revenue had been $118 billion as recently as 2011/12. But by 2012/2013 revenues fell by 47 percent to $63 billion. Revenues declined another 10 percent in 2013/14 to $56 billion (Islamic Republic of Iran, Country Report, April 14, 2014). By May 2015, Iran’s daily oil production had fallen from 4 million barrels in 2008 to just over 2.8 million barrels.

It goes without saying that the removal of the sanctions regime will allow Iran to resume exports at levels seen in the past. And if Iran is true to its word, and that its nuclear program is indeed focused on the development of nuclear power plants, then it is likely that its domestic demand for fossil fuels will fall, thereby allowing for even greater exports.

The first issue regarding Iran’s new oil flow is how easily will it be able to reestablish its former customer links and sell its oil, regardless of increased production. Having destabilized the Middle East by killing Saddam Hussein, the U.S. may wish now to leave the areas’ nations alone to sort out the resulting mess. Into this void we can be sure that the Chinese and Russians will stride forcefully and deliberately.'

Even if Iran is successful in regaining former customers, and selling down its inventory, how quickly can its production be increased? The Iranian oil infrastructure has been neglected for years and Iran needs to rebuild it desperately. Fortunately, Western expertise in energy development is by far the most advanced, which will give Western interests a leg up on Chinese and Russian rivals. But Chinese cash and strategic support may prove decisive.

Reuters reports that, in the opinion of 25 economists and oil analysts, Iran could be able to increase its oil production by up to 500,000 barrels a day this year and reach 750,000 a day by mid-2016. This will add to a current global oversupply of some 2.6 million barrels a day.

Meanwhile, as the price of oil remains relatively depressed, production wells in the U.S. and other producing nations, planned and established when oil prices were much higher, are drifting off stream. Finally, there is increasing evidence that recession may be felt internationally, reducing at least the rate of growth of oil demand if not the absolute level of demand in some countries.

Today’s oil market faces a global supply overhang and price weakness. Iran’s new oil production and exportation is not likely to come on line for at least a year or two, provided the treaty is ratified. But when that oil does start to flow, the new supply could add to downward price pressures. However, the amounts are unlikely to greatly affect the totality of the global marketplace and by that time whatever inflationary effects there may be of continued monetary expansion in America and Europe should act as a stronger force pulling prices upward.

In total then, the return of Iran to the global energy market should have a beneficial effect on the global economy, both in pushing down prices and providing lucrative development work for oil companies around the world. However, the economic aspects of the deal are largely insignificant in comparison to the geopolitical ramifications.

President Obama’s nuclear arms deal leaves open to debate whether Iran will become a nuclear power within the next decade, if not earlier. Unleashing a nuclear arms race in a highly unstable area of the world would render oil supplies sourced from there considerably less secure and unattractive, possibly even at lower prices, to consumer nations, including the 500 million strong EU.

The deal will also threaten the longstanding alliance between the United States and Saudi Arabia. The implicit arrangement between the two countries has always been that the Saudis would direct the lion’s share of its oil exports to the United States in exchange for American support of regional Saudi security interests. Shiite dominated Iran has always been one of Sunni-led Saudi Arabia’s top concerns. If the U.S. and Iran drift closer together, Saudi Arabia will surely seek other partners who are more supportive of its interests.

No one knows what such a Middle East will look like. But given the volatility of the region, change is unlikely to be pretty.

Save The Oil And The Wine (Revelation 6:6)

How an Iran nuclear deal would impact oil prices

By Nick Cunningham, Oilprice.com
June 27, 2015

A deal stopping Iran’s nuclear program and lifting Western sanctions on the country would immediately push down oil prices, writes Nick Cunningham. The country has 40 million barrels of oil in storage and could ramp up production quickly.

Oil prices have leveled off in recent weeks, but with the negotiations over Iran’s nuclear program bumping up against a deadline, that could change.

After crashing last year and then hitting several peaks and valleys, oil prices have traded within a relatively narrow range, with WTI bouncing around a bit above and below the $60 per barrel mark, and Brent staying near $64 per barrel. Of course, day-to-day there has been volatility as usual, but oil prices have been stable (relatively speaking) since the end of April. Even the OPEC meeting came and went without so much as a shrug from the oil markets.

But the deadline for the Iran negotiations – ostensibly set for June 30 – is only a week away and the outcome could have broad ramifications for the oil market, both in the immediate aftermath and over the long-term.

If a deal can be agreed to by both sides, Iran could bring a wave of oil production online. Western sanctions have knocked 1.2 million barrels per day offline since 2012. Although estimates vary, Iran might be able to bring 400,000 barrels per day online within a few months, perhaps as much as 700,000 barrels per day by the end of the year, growing to well over 1 million barrels per day sometime in 2016.

Also, Iran has somewhere around 40 million barrels of oil sitting in storage, a lot of which could essentially hit the market as soon as sanctions are lifted.

If news breaks that a deal is in hand, oil prices will sink on the expectation of this future volume, potentially dropping by $5 to $10 per barrel. And as Iran actually does ramp up output over time, and the rest of OPEC opts against cutting back to make room, global supplies will increase. That will keep a lid on future price gains and extend the current period of soft pricing.

Of course, supply and demand will have to balance out over time, and more Iranian crude will force a larger adjustment from U.S. shale, so U.S. oil production could see a deeper contraction.

Save The Iranian Oil And The Wine (Rev 6:6)

How Would The Iran Nuclear Deal Impact Oil Prices?

Trefis Team, Contributor

Iran was the first Middle East nation to report an oil discovery. In 1908, the Anglo-Persian Oil Company, known as BP today, struck first oil in the country. Since then, the country’s crude oil industry has seen many ups and downs, including the nationalization of oil fields in the 1950s and the formation of OPEC in the 1970s. Today, it holds the second-largest proved crude oil reserves base in the Middle East. However, the country’s ability to market these reserves internationally has been severely restricted since 2012 because of the tighter sanctions imposed by the European Union and the U.S. to curtail its nuclear program. Iran’s crude oil exports, which contribute around 80% to its total exports income, and almost 50-60% of all government revenue, have almost halved in volume since 2011, and the recent slump in oil prices means that the decline in revenue could be much worse. The chart below shows how Iran’s crude oil production has trended over the past few years.

However, things could start to look up for ancient Persia if it is able to strike a deal with the U.S. and its negotiating partners that include Russia, China, Britain, France, and Germany. Negotiations for the deal have been ongoing for over 18 months now and a framework agreement was signed in April this year. The parties involved are looking at a June 30 deadline to work out the details including the pace and the manner in which sanctions over Iran would be lifted, and the level of access that would be given to the Nuclear watchdog, the International Atomic Energy Agency (IAEA), to monitor the country’s nuclear facilities and scrutinize the broader program. Based on the final form of the deal, it could have huge implications for both Iran’s economy, as well as the global crude oil market. Let’s focus on the latter for now.

The global crude oil market is already oversupplied currently, which is also evident from the recent weakness in benchmark prices. The front-month Brent crude oil futures contract on the ICE has fallen by more than 45% over the past 12 months. A lot of this could be attributed to a combination of the slowest growth in demand for oil products last year, since the 2008-2009 recession, and a robust growth in supply from Non-OPEC sources, primarily the U.S. In the U.S., increased horizontal drilling of relatively impervious shale rocks has led to a significant jump in crude oil production over the last few years. According to the latest statistical review of world energy by BP, the country’s oil production increased by almost 1.6 million barrels per day or 15.9% year-on-year in 2014. This made up for more than 75% of the total net growth in global crude oil production last year. Global demand on the other hand, increased by just around 0.7 million barrels per day. Although the slump in oil prices has resulted in a significant decline in drilling activity in the U.S. over the past several months, crude oil production from the country is still expected to increase by around 0.6 million barrels per day this year. And despite weaker prices, the OPEC, led by Saudi Arabia, has also been adding supplies to the market, to increase its market share. All of this additional supply means that global crude oil prices are not expected to recover significantly from current levels anytime soon, despite a much faster growth in global demand, expected at 1.5 million barrels per day this year.

In such a scenario, the Iran nuclear deal could mean even more oil in the market, further widening the gap between the demand and supply. In terms of how much and how soon, based on the market reports regarding the country’s floating oil storage capacity, we believe that Iran could introduce as much as 30 million barrels of crude oil into the market almost immediately as soon as the sanctions are lifted. This will not have a sustained impact on benchmark crude oil prices, as it represents just about one-third of the daily consumption of oil products and other liquid fuels globally. However, the impact of the actual increase in Iranian crude oil production could be far more significant. We expect the country to easily be able to ramp up its production by around 1 million barrels per day over a period of 8-12 months after the sanctions are lifted, as it would be just about starting up shut down wells. To give some perspective, that is more than one-fourth the daily consumption of oil products in India, an emerging market that has been a key customer of Iran’s crude oil in the past. Since the Iranian exports will be entering an already oversupplied market, it will have to offer some discounts to buyers in order to lure them into long-term contracts. This will further increase the competition for market share in the global crude oil market and might even lead to Saudi Arabia following an even more aggressive approach on pricing, as it is not in favor of the U.S. and other world powers to ease sanctions on Iran. We have therefore reduced our short to medium term price estimate for crude oil on growing signs of a final deal between Iran and the world powers by the end of this year. We currently forecast spot crude oil prices (Brent) to average around $63 per barrel this year and increase gradually to around $93 per barrel by 2021.