Anatole Kaletsky, the man who predicted that oil would fall to $20 a barrel last year, now says that Iran could produce oil for as little as $1 per barrel.
Kaletsky’s prediction is raising eyebrows in energy circles, and for good reason: if Iran is able to produce oil at such a low rate, it would prove detrimental to major oil producers like Saudi Arabia and Russia who are already suffering from remarkably cheap oil prices. Saudi Arabia spends anywhere between $10 to $20 per barrel in its oil production, meaning Iran could severely undercut the market thus endangering Saudi Arabia’s position in OPEC (Organization of the Petroleum Exporting Countries).
“Iran, for example, claims to produce oil for only $1 a barrel. Its readily accessible reserves — second only in the Middle East to Saudi Arabia’s — will be rapidly developed once international economic sanctions are lifted,” writes Kaletsky in a column for The Guardian.
Kaletsky cites a release from the National Iranian Oil Company website which quotes Iranian Central Oil Fields Company President Salbali Karimi as saying: “with the implementation of the existing plans, we expect oil and gas production costs to reach a minimum.” The piece notes that the central oil fields in Iran can produce oil at “$1-$1.50 a barrel.”
The only impediments preventing Iran from flooding the already saturated oil market are the international sanctions which limit the country’s ability to sell oil on the international market. According to a report by the Council on Foreign Relations, Iran’s oil exports have been cut in half since the various sanctions were imposed on the country. However, with the Joint Comprehensive Plan of Action (JCPOA, or Iran Deal) agreed upon, Iran could gain access to international oil markets as early as 2016.
Iran’s potential to produce oil at $1 per barrel obviously does not mean it can sell it at such a rate, but it does mean oil prices on the global market could be significantly cheaper. Investment bank Goldman Sachs predicted a potential drop in October that could see oil prices at around $30 per barrel next year. If Iran’s claims are to be believed, such a forecast is not far-fetched.
Implications from cheap Iranian oil could go farther than simply maintaining a cheap price at the gas pump. Indeed, it is no secret that Saudi Arabia has been concerned with Iran’s growing influence in the Middle East ever since the Iran deal was agreed upon. So great was this concern that it prompted a visit to Washington from Saudi Arabia’s King Salman, who was reassured by President Barack Obama that the deal would in fact limit Iran’s reach.
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