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Iran: Saudis Can’t Replace Our Oil

OPEC flag

U.S. President Trump is wrong to expect that Saudi Arabia and other large producers can compensate for the decline in Iranian crude oil supply resulting from the renewed U.S. sanctions against Tehran, Iran’s OPEC governor told Reuters.

“It seems President Trump has been taken hostage by Saudi Arabia and a few producers when they claimed they can replace 2.5 million barrels per day of Iranian exports, encouraging him to take action against Iran,” Hossein Kazempour Ardebili said a day after a Reuters poll suggested that OPEC’s total production this month had only risen by a modest 70,000 bpd.

Last month President Trump called on OPEC to boost production because of the inexorable price rise prompted by the Iran sanctions and the steady decline in Venezuela’s oil production along with supply uncertainty regarding Libya.

Trump was not alone in this call: India is also unhappy with higher prices and has been vocal about it, but despite assurances from OPEC—notably from Saudi Arabia’s Khalid al-Falih—prices have been reluctant to go down substantially, with Brent currently hovering around US$74 a barrel and WTI at around US$70.

As soon as these assurances were made, doubts arose regarding Saudi Arabia’s as well as other producers’ actual ability to boost supply quickly enough to rein in prices. Although Riyadh is firm that it could add more than a million barrels daily to its production, the question remains how quickly this could happen. Russia, the world’s largest producer to date, would also be hard put to increase production significantly enough and fast enough.

“Now they and Russia sell more oil and more expensively. Not even from their incremental production but their stocks,” Ardebili told Reuters, echoing comments that Saudi Arabia’s stated spare capacity is actually lower than its actual spare capacity, and the Kingdom is using its substantial stockpiles at home and abroad to increase supply.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on July 31 2018 said:
    At best Saudi Arabia could add some 400,000 barrels a day (b/d) to the global oil market while Russia could add no more than 200,000-300,000 b/d. Other OPEC members could not raise their production further to replace Iran’s oil exports amounting in 2017 to 2.125 million barrels a day (mbd).

    However, this discussion is academic since US forthcoming sanctions on Iran are doomed to fail and that Iran will not lose a single barrel from its oil exports for two reasons.

    One reason is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude such as the EU,China, India, Japan, Turkey and even South Korea are against the principle of US sanctions in general and particularly the sanctions on Iran. They are not going to comply with US sanctions.

    The other reason is the petro-yuan which has virtually nullified the effectiveness of US sanctions and also provided a viable alternative to bypass the petrodollar altogether.

    The Saudis have not been truthful about their proven oil reserves, production capacity and spare production capacity. They claim they could produce 12.5 mbd if really needed. However, this claim doesn’t stand scrutiny. Saudi oil production peaked in 2005 at 9.64 mbd and has been in decline since. Out of 10.4 mbd they said they were producing, almost 1 mbd was not actual production but withdrawal from their oil inventories. Even the 400,000 b/d they claim to have added recently came from their stored oil and were not actual production. Their claim that they have a spare capacity of 2 mbd is also not true.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Phil on July 31 2018 said:
    Well, if the situation is what it seems to be, namely, increasing deficit of supply of oil and, on top of it, sanctions slapped on Iran, this could be used by Russia to put "a bit of oil into the fire" for the US: Russia could theoretically come to Iran's assistance, not against its own benefit too, and buy out all Iranian oil and then resell it for a bit of additional profit for itself.
    The result will be firmer relationship with Iran, a demonstration of the inefficiency and, basically, stupidity of America's attempt to punish Iran (and actually not regime but rather people of Iran), and also a demonstration of the fact that American sanctions hit the only party - Europe - who will end up buying this Iranian oil via Russia paying additional money, loses its chance to bring their own oil companies to Iran and so on and so forth - political demonstration that the biggest and exclusive sufferers from America's actions are so-called America's friends - Europe.

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