International crude oil prices began to decline in early October. After the oil price dropped below $50 / BBL in New York, many people were surprised. But I would like to say that the future trend of international oil prices will also make people doubt their life.
Let’s not forget that the post-world war ii economic recovery in Europe and the rise of Asian economies since the 1960s and 1970s can all be attributed to the declining crude oil production in the continental United States since the mid-1970s, while the increasing crude oil production in Europe, Asia and Africa.
Venezuela: the sacrifice of the international oil market
In my opinion, in addition to the surface factor of crude oil reserves, another core factor that determines how much crude oil a place produces is the level of national governance.
When a country’s governance level is very low, the financial demand will be uncontrollable expansion, once the main industries are hit, there will be a burst of hyperinflation, and hyperinflation will destroy all the industries in the country, of course, including the oil drilling activities. Eventually, their oil production will be driven out of the international market.
Once the Wells are abandoned due to the explosion of hyperinflation, it will take a long time and a lot of investment to restart. Without the change of social system, it is almost impossible to recover. Even if recovery is possible, it will take a long time.
Venezuela is a textbook example of this. Around the time of the subprime crisis, oil production was still nearly 3 million barrels per day (BPD). After a decade of high inflation, it is now only slightly above 1 million BPD, making it a sacrifice for the international oil market.
By October 2018, venezuela’s inflation rate over the past 12 months has reached 83,400 percent, and the international organization expects it to reach 100 million percent by the end of 2018. All industries (including oil production, of course) are still deteriorating, and the U.S. oil industry is expanding, filling the gap left by production cuts in venezuela and other countries.
In that sense, maduro, a rookie, is trump’s best friend. Once maduro steps down, venezuela’s political situation will stabilize, crude oil production will resume, and venezuela will become the enemy of the expansion of the U.S. crude oil industry.
Khamenei: trump’s next ‘good friend’ to deal with
As the United States has become the world’s largest oil producer, and the United States has begun to be able to carry out net crude oil exports, trump must activate another “good friend” to free up international market share for American crude oil, and this good friend is Iran’s khamenei!
Iran’s crude oil exports have been hit hard since the United States pulled out of the nuclear deal and renewed economic and financial sanctions. Under pressure from the United States, China, India and Europe cut imports, and South Korea, Japan and the united Arab emirates stopped importing Iranian crude. Iranian crude oil exports fell to 1.6 million BPD in September 2018, down nearly 40 percent from their peak in April 2018.
Just when the world was expecting the us to block Iranian oil exports to zero, Mr Trump trumped the gun by exempting some countries from importing Iranian oil. Iran can still export oil, coupled with the world’s major countries’ economic data turned bad (demand turned bad), for a time, the international oil price suffered a double blow, from October began to dive!
What is trump up to, and is he really trying to get away with “good friend” khamenei? Of course not. Pushing U.S. crude to capture more and more international market share is an established strategy that will never change.
Trump’s real thinking is, if completely blocked in Iran’s oil exports, the international crude oil supply will appear gap, oil prices will soar, which makes the Eurasian all major countries (all in dependence on the Middle East and Iran’s oil) and the United States produce irreconcilable contradictions, the result is likely to be part of the country continue to import Iranian crude.
That way, even though Iran’s crude exports have fallen, its oil revenues have not been hit as much by the surge in prices.
However, when Iran’s crude oil exports have fallen by nearly half, granting some countries the exemption to import Iranian oil and increasing the international supply will lead to a rapid drop in prices, which will rapidly deteriorate Iran’s balance of payments and promote the outbreak of hyperinflation in Iran.
If inflation worsens further, social unrest will follow, and crude oil production will take a hit.
Mr Khamenei’s misfortune is that he has an untested opponent. No matter how elaborate the routine can be dealt with, but how to deal with no routine? This is what jin yong said that there is no way out there.
American “Yang mou” : let the main source of crude oil to the americas
Although Iranian President hassan rouhani has insisted that us sanctions will have no impact on Iran. But it’s the same kind of rhetoric that maduro and others are using.
Reports suggest that the real rate of inflation in Iran has reached 203% since the dollar rose to $138,000 against the Iranian real in September. Hyperinflation is already happening in Iran!
Hyperinflation and accelerated currency depreciation lead to economic contraction, especially in the next year. The IMF forecasts that Iran’s GDP will shrink by 3.6% in 2019.
In the second half of 2014, the drop in international oil prices completely ignited the fire of inflation in venezuela, leading to the shrinking of its crude oil production. The fall in international oil prices starting in October 2018 will also ignite inflation in Iran, putting it on a path of shrinking crude production.。
Iran’s inefficient national governance model determines that when the balance of payments driven by low oil prices is broken, hyperinflation will break out, which will become the core driving force for the rise of international oil prices in 2019.
In 2019, the international oil price is actually a game between trump, maduro and khamenei, the three “good friends”. When there is a rise in oil price, you should not doubt life.
From the perspective of conspiracy theory, only the repeated rise and fall of international oil price can continuously promote the shrinking of crude oil production in countries with low governance efficiency and gradually transfer the main source of crude oil to the americas to realize the Yang mou of the American empire.
The only way Iran can stop the U.S. from becoming more assertive is to improve governance and fiscal efficiency, while other major countries in Europe and Asia can only afford to play along.