Crisis of Oil Price for Oil Producers
Increasing of oil price has created a crisis not only for oil consuming countries, but for exporters
There are many reactions towards increase of oil price. According to some opinions, the oil exporting countries and OPEC do not have that much of a role compared with oil international companies and oil traders in setting oil price. But contrary to this opinion, the oil exporters have been accused of saving oil and reducing daily oil export.
On the other hand, according to oil experts’ analysis, the price of oil has been determined by oil market’s transformations in supply and demand and, none of oil exporters, consumers or powerful countries separately can decide about the price of oil.
They believe that oil price has increased because of some factors, such as: anxiety about Chinese, Indian, Japanese, Korean, and Brazilian increases in demand , the impact of the North Sea decline on global supply, uncertainty about the ability of OPEC to continue increasing its export capability despite the rhetoric, decline of dollar etc.
Although the above mentioned factors impact the oil price, it has also been influenced by lack of security in oil exporting process from exporting countries to oil consuming countries.
In countries like Iran, Iraq, Venezuela and Nigeria that have some problems in domestic and foreign policy, the process of oil trade doesn’t go well. Oil consumers are not sure about the level of Iraqi supply over the next years, also due to the problems between US and Venezuela the price of oil has been affected and this in turn affected US economy; eventually US lost the security regarding its need of oil.
For some important reasons Iran can affect the oil global market, these reasons can be summarized as: possessing the second largest oil reservation in the world and having a strategic situation where it controls Hormoz Strait through which one quarter of the demanded oil in the world passes
As a matter of fact, US threatens Iran because of Iran’s policy towards US role in the region and particularly US support for Israel. These consequently make the region instable. Thus, any reactions over this issue can increase oil price, as the time when Israeli Minster spoke about Israel’s plan to attack Iran, which led increase of oil price.
At the same time, Iran has faced US and Security Council sanctions that have affected its oil industry more than other sectors. In fact, oil production has reduced from 6 million barrels per day to 3.8 million barrels per day from 1978 to 2006. Also, soaring domestic demand for oil and gas — which is growing at 8 per cent annually — has created such a previously unthinkable situation.
According to industry experts, the Iranian petroleum industry needs foreign investment and, despite the country’s vast oil and gas reserves, is struggling to maintain production levels, and Iran is pinning its hopes on the development of huge new fields and is in talks with big Western oil companies. However, those companies are under mounting political pressure from the United States and UN Security Council to withdraw from negotiations. Therefore, if Iran could not resolve its production problems, it could not be considered as an oil exporter by 2015.
Thus, oil save by consuming countries oil traders’ interference had increased oil price in global market. In fact, this is result of insecurity of global oil market. Insecurity will impact demands and increase it in the short time. But in the long run oil consumers and investors will try to invest in non-OPEC countries and also will invest on alternative energy.
Although the revenue of oil will increase Iran’s budget but the country will lose the opportunity of investing in oil fields. Consequently the oil production will decline and it can not compete with other oil exporters in global oil markets.
Thus, increasing of oil price has not created a crisis only for oil consuming countries, in fact some of oil producer like Iran that need investment to develop their oil industry will face more problem represented by lack of investor in future, if they will not try to make the region secure.