The World Seems to be Doing Fine Without Iran’s Oil
One obvious reason for higher gas prices is the rising level of uncertainty in the Middle East, especially in Iran. According to the International Energy Agency (IEA), Iran’s crude oil production has fallen to a 10-year low of 3.38 million barrels per day. This figure could drop further –to under three million barrels per day — due to tighter sanctions.
After July 1, when the European Union embargo goes into effect, Iran’s production could fall to two million barrels per day. Crude oil exports provide half of Iran’s government revenues and 80% of that country’s exports.
Iran also lacks the technology and skills to boost its crude oil production due to ongoing sanctions. Iran is also in the midst of parliamentary elections, so a leadership change between competing conservative political parties is viewed as increasingly likely.
In the meantime, Saudi Arabia’s oil production is running at a 30-year high. That will help make up for the Iranian shortfall. In addition, President Obama said last week that America has made “historic progress” in reducing its reliance on foreign oil.
“Thanks to booming U.S. oil and gas production, more efficient cars and trucks, and a world-class refining sector that last year was a net exporter for the first time in 60 years,” he said, “we have already cut our net energy imports by 10% in the last year alone.”
Let me close with some more good news. Global growth continues to be strong, showing that the world can grow without Iran’s oil. For instance, India’s industrial output accelerated 6.8% in January (versus a year ago), and India’s December output was revised higher, to a 2.5% increase. Also, Germany’s ZEW economic-expectations index rose to 22.3 in March, its highest level in nearly two years.