Rebel Yell: Our Best Weapon Against Iran and Russia is Big Domestic Oil Production!

by James DiGeorgia | 04/02/2016 10:26 AM
Rebel Yell: Our Best Weapon Against Iran and Russia is Big Domestic Oil Production!

One of the lead headlines in the oil sector in the past couple of weeks has been focused on Iran's resistance to the OPEC/NON OPEC proposed oil production freeze.

The Russian backed Shiite Theocracy wants to increase its oil production from 3.3 million barrels a day to 4 million. Most of the reports and stories about this center on when and what solution Russia can offer the powerbrokers of Iran to accept a freeze.

It is safe to assume Russia will get Iran to cooperate. A betting man would believe the Russians will sell them some weapons system(s), aircraft, or military hardware they are lusting for - on credit. I also expect Iran to get most of the increased production it is insisting on.

Instead of worrying about whether a production freeze agreement is agreed to by the Iranians, I’d rather focus on the three deep insights that have become very clear with Iran's resistance to a production freeze and the ending of sanctions tied to the U.S. lead nuclear treaty...

  • The U.S. led embargo worked! Embargos can be an effective tool if the world community is united and willing to police them. Clearly, the US $50 billion that was released when the nuclear deal was put into effect, did very little to help Iran's financial picture. Their economy is still in shambles.
  • Iran will remain financially weak and vulnerable as long as oil stays under $60 a barrel. The total value of Iran's yearly oil production is less than $60 billion a year, assuming today's price of $37 a barrel. $60 billion a year is a very small amount of money to fund a country the size of Iran. Keep in mind Iran winds up with a lot less than that after the cost of production. Iran is STILL spending almost all its free cash flow on its military operations in Iraq, Syria, and Yemen, and developing its ballistic missile program.
  • If the price of oil falls to under $30 again, it could trigger an Iranian and Russian economic crisis. A $10 decline in the market price of Crude oil would reduce Iran's net revenues on 4 million barrels a day oil production to about $38 billion.A 25% cut in price from $40 Crude oil to $30 would strangle Iran economically in 3 years or less.
  • For Russia's Putin, another few years of oil at $30 or less would mean he'll have to murder a whole lot more people to remain in power. Russia's budgets are based on $50 oil.
  • If United States policy makers ever decide to increase domestic oil and natural gas production so that this country becomes completely self reliant for energy - for the long term, the price of oil would remain under $35 barrel for decades. In less than 3 years, the United States will have to increase its oil imports to keep up with domestic demand. That has to be avoided.
We have the technological potential, with current accelerating technologies in the United States, to develop breakthroughs in energy production and energy storage that could render oil a historic energy relic. At worst, we have the means to further reduce the cost of shale oil development and production substantially.

The best way to contain and limit both Russian and Iranian military and economic power in the next 20 years is by incentivizing U.S. oil production.

I'm no fan of "Corporate Welfare"; but in this case it could be the best strategy in dealing with the Iranian and Russian threat. By increasing U.S. oil production to 12, 13, even 15 million barrels a day the United States could assure its ability to be energy self efficient.

Increasing oil production and keeping oil at under $30 a barrel would also be a whole lot more effective weapon than spending trillions of dollars on replacing thousands of nuclear weapons which are becoming more and more obsolete. We need a lot fewer of those weapons these days to kill every human on earth. Why spend money on them? Our best weapons against Russia and Iran are producing domestic oil and natural gas, undermining the price of black gold, and keeping the treasures of these two enemies bare.

President Obama's decision to limit oil exploration off the Atlantic coast and from spoiling other domestic areas rich in oil reserves is a commendable ecological decision, but it's a huge mistake when weighed against the threats facing the United States. Keeping the "oil market glut" in place is literally our best weapon, even if it means giving U.S. oil companies some more corporate welfare.

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