The Real World: Iran and U.S. elections

by Ariel Cohen, Ph.D.

June 21, 2008

U.S. President George W. Bush and Senator John McCain have called for an expansion of U.S. domestic oil drilling to Alaska, federal lands and the Outlying Continental Shelf (OCS) off the U.S. East and West coasts. This could not be more timely, if only it was realistic.

The biggest roadblock on the way to more U.S.-produced oil is the Democratic majority in the Congress and its fellow travelers. Oil-rich rulers, from King Abdullah I of Saudi Arabia, to Mahmoud Ahmadinejad to Hugo Chavez are probably opening champagne.

U.S. Senator Barak Obama, the presumptive Democratic Presidential candidate is supported by his party's congressional delegation, which says in chorus, "we cannot drill our way out of this oil crisis."

The Democrats have no monopoly on dead-end energy decisions. In 1989, when abundant oil was $14 a barrel, U.S. President H.W. Bush signed an executive order which banned drilling and exploration along the coasts. As a result, America has no idea how much oil is down there. Now lifting that executive order cannot restart domestic drilling without Congressional cooperation.

Around the world, plans to increase supply through exploration and production are being frustrated by heightened political risks, domestic conflicts, and mismanagement. Anti-competitive and monopolistic national energy policies in the oil-producing countries are doing the energy markets much harm.

A third of Iraq's production capacity is off-line, while the country is capable of increasing production from the current 2.4 million barrels a day (mbd) to 5 mbd and beyond within five years or less – if the security situation is resolved.

Iran is pumping 3 mbd, one half of what it did under the shah due to the failure of the mullahs' regime to attract private capital and advanced technology, and to develop a predictable oil and gas investment environment based on transparency and the rule of law.

The Islamic Republic's leadership also has made the Iranian energy sector the hostage of its dangerous and opaque nuclear program, which triggered international sanctions against Iran and stifled the development of its oil and gas resources.

One-quarter of Nigeria's productive capacity is permanently down due to social unrest in the Niger Delta. Venezuela's Hugo Chavez is destroying his country's oil sector through nationalization, taking at least 1 mbd off the market.

Russian oil production, which has accounted for over 80 percent of the net increase in non-OPEC oil production until 2003, is stagnant as the government insists on state ownership of the oil sector. Russia is cutting taxes on oil companies to reverse the production slump, whereas under private ownership Russia's output grew at about 10 percent a year.

The policies of the exporting policies provide preferential treatment to national oil companies (NOCs) while denying equal access to international oil companies (IOCs). Oil-producing governments severely restrict foreign investment and access to resources. OPEC's 13 nations control 76 percent of the global reserves; add Russia and the number grows to 83 percent. By contrast, the integrated oil companies, ExxonMobil, BP, Chevron, ConocoPhillips, and Shell, hold only 3.8 percent of known reserves. [Read More]