Oil Dictatorships Require High Oil Prices: Can They Hold?

Oil dictatorships from Saudi Arabia to Iran to Venezuela to Russia have grown dependent upon $100 a barrel oil, in order to placate their people with handouts, social welfare programs, and Potemkin Village styles of "prosperity and power." But there is a very real question as to whether these heretofore "masters of the oil universe" will be able to hold the line on oil prices over the long term.

Only three years ago, it was thought that Saudi Arabia – the largest oil exporter and second largest producer in the world – could generate large budget surpluses with oil at $70/barrel. In recent weeks, new estimates state that the country would need oil at $75/barrel just to balance the budget – never mind trying to post a budget surplus. The country’s oil minister has stated that the nation would work to stabilize prices at the $100/barrel level – which is a first. Saudi Arabia has traditionally held the role of OPEC moderate while Iran and Venezuela have been hawks who favor higher oil prices. Saudi Arabia has always balanced its need for oil revenues with the knowledge that if left unchecked, high oil prices have tended to precede recessions.

The reason for this change in policy would most likely be due to the country’s response to the uprisings across the Middle East last year. Fearing unrest, the government of Saudi Arabia has unveiled a huge increase to public spending that totals almost $130 billion. The Saudi commitment to stabilizing oil in the $100/barrel range should serve as a wakeup call for consumers and investors alike.

...it is not just Saudi Arabia that needs high oil prices to meet its spending commitments. Russia needs prices of over $100/barrel to balance its budget. Together, Saudi Arabia and Russia account for a little over 20% of the world’s oil production. It would be hard to argue therefore that these two major oil producers would be willing to bring down prices. _Financial Post

Of course, the higher the oil price, the more incentive for wildcatters and other entrepreneurs to come up with new sources of crude, and new substitutes for crude oil in all of its wide and various application markets.

One of the sources for new oil is shale oil -- a source with massive potential for new oil supply. Another source is the arctic.

“The race is on for positions in the new oil provinces.” That starting-gun quote was fired last week by Tim Dodson, executive vice-president of the Norwegian oil and gas company Statoil. The ‘new oil provinces’ are in the Arctic, which brims with untapped resources amounting to 90 billion barrels of oil, up to 50 trillion cubic metres of natural gas and 44 billion barrels of natural gas liquids, according to a 2008 estimate by the US Geological Survey. That’s about 13% of the world’s technically recoverable oil, and up to 30% of its gas — and most of it is offshore.

...On 17 January, Moe awarded 26 production licences for developed offshore oil areas in the Norwegian and Barents Sea to companies including Statoil, Total, ExxonMobil and ConocoPhillips. And the settlement in 2010 of a long-running row between Norway and Russia over their Arctic maritime boundary will allow more exploration in formerly disputed parts of the Barents Sea (see ‘Frozen fuels’). “There’s an ocean of new opportunities that we will grasp with both hands,” says Moe. _Nature

Of course, no matter how much oil & gas the USGS thinks is in the Arctic, there is certain to be much more. As long as prospectors are looking mainly "under the streetlights," they will find only a small portion of the world's oil.

Of course the oil and gas resource shrinks in relative magnitude next to the massive global methane hydrate resource, which is merely waiting for smart and wise humans to find safe and efficient ways to scoop it up.

More on the desperate need of oil dictatorships to maintain high oil prices.

It is quite easy for peak oil doomers to misapprehend the reasons for high oil prices and "stalled" oil production levels. That is because their brains can only hold one idea: peak oil doom. To consider the dozens of other more important factors involved, would entail a massive and intolerable cognitive dissonance, which must be avoided at all costs.