Readers Write: Iran nuclear deal will keep oil prices down


A huge  decline in  the price of oil is seriously  affecting the  economy of the oil producing nations.  

Almost their entire GDP is based on  oil.

What  can OPEC do to reverse  this slide in oil prices?  

The last time this occurred OPEC’s  solution was to  decease oil production in hopes that higher oil prices would return. 

In fact what happened was a renewed search  for new oil sources  which proved  surprisingly successful thus keeping oil prices  depressed.   They  realize now that that tactic did  not work and are scrambling for alternatives this time.   One alternative is to do nothing.  OPEC oil is cheap to produce whereas, for example, our shale oil is quite  costly,  Depressed oil prices will eventually cause a reduction of our shale oil operations causing oil prices to rise.

However there is another  quite unexpected factor that  will tend to keep oil prices  down. 

It appears that  Iran, formerly a major oil producing nation, which has been virtually shut down due to sanctions will be back on stream in the near future. 

Iran is so desperate for this income that they will pump oil regardless of the price. 

OPEC nations have spent much of their oil profits on  handouts to their retinue of  officials, relatives and princes; on magnificent  structures; on highways and hotels for the  ultra rich and  they have kept the masses at bay with  sufficient social amenities to maintain calm.  

Most of these nations do have  substantial Sovereign Funds,  which are now being rapidly depleted  propping up their economies.  

Thus oil prices should remain low for many years.

Norway is one oil-producing nation that has bucked the trend to splurge.  

Currently Norway has the largest Sovereign Fun in the  world amounting to nearly $1 trillion (yes trillion) .  

Only 4 percent of annual oil profits go into government coffers the remaining is placed in their Sovereign Fund. (And even this small percentage is  to be reduced  next year).  

Due to this approach the Norwegian economy is relatively unaffected by low oil prices because their economy is not propped  up by  oil revenues.  

They realized that  pumping large amounts of money into the economy would have serious  consequences.   

Initially inflation accompanied by reduced worldwide competitiveness.  

When the oil runs out they would not be prepared  to compete in the  world economy.   

Best to  invest oil profits for the day when their oil fields run dry they concluded.

Theodore Theodorsen



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