No nation or company has control over the price of oil. Neither Saudi Arabia nor ExxonMobil nor Halliburton nor Goldman Sachs have anything but the slightest influence over how high or how low the prices go. This is because the price of oil is the result of two factors of which one is not controlled by any single entity and the other is only observable in retrospect. These are supply and demand.
The additional 3 million barrels per day (mbpd)of production that the United States has brought online in the last 5 years probably has more to do with the collapse of the price of oil in the last six months than any other factor with the exception of global demand stagnation.
In the last decade, Saudi Arabia’s exports have only fluctuated between about 7 and 8 mbpd. Look at the extreme volatility in the global price of oil over that period. To believe that Saudi Aramco and Saudi Arabia have any control is delusional.
At $100/barrel Saudi brings in about $280 Billion/year. At $45/barrel figuring an arbitrary lifting cost of $10/barrel, Saudi brings in only $108 Billion/year, or one third the cash.
The CIA’s World Factbook shows Saudi’s GDP as $718 billion with a budget in 2013 of $302 billion in revenues and $258 billion in expenditures – basically in line with their oil revenues. A drop to $108 billion will cause pain, how much and to whom is arguable.
Saudi could cut its production by 2 mbpd as it has done in the past. However there is no guarantee this in itself would push the price of oil back to $70 or $80/barrel. It would, however, guarantee a 25% drop in Saudi oil revenue to $75 billion/year. Pain.
Iran, on the other hand, has been suffering under sanctions for years already. They have a GDP of $987 Billion with a baseline export market only a quarter of Saudi’s. They also have a government budget of only $47 billion in revenue and $67 billion in expenditures.
Rouhani is basically correct.
A Little Bit Of Oil Speculation
Jan 8th, 2015
As for American foreign policy makers? To assume that they have thought further out ahead than their itineraries, is to demonstrate a severe lack of rationalism. If there is one thing that the US has proven during its 20 years of global benevolent US hegemony, it’s that no US policy will ever be successful at achieving any of its stated goals, with the exception of lining the pockets of the military industrial complex and the state bureaucratic apparatus. As we have seen, there has been no shortage of that recently, so all is well in Washington.