Mohsen Renani, a university professor, says he does not buy arguments that Saudi Arabia has refused to reduce its output only to undermine Russia, Syria and Iran.
Mohsen Renani, an economist and a university professor, says that falling oil prices have not been hatched by Saudi Arabia. On January 17, Sharq newspaper filed an interview with Renani on who is to blame for the drastic drops in crude prices. The following is a partial translation of what he said in the interview:
I think the drop in oil prices is neither a plot nor something outside the analysis I offered in The Political Economy of Iran Nuclear Dispute [a book written by Mohsen Renani]. What is certain is that a rise in oil production by Saudi Arabia and Libya has contributed to plummeting prices.
Naturally, the conflict between Russia and Ukraine can affect the oil market, but such an effect will come in the form of a hike in prices, not a drop. Russia, the world’s biggest crude producer, produces more than 10 million barrels per day, so any tension Russia gets engaged in will push up crude prices.
The abrupt plunge in prices seems likely to have been the result of overproduction by Libya and Saudi Arabia and the massive flow of [US] shale oil into the market.
The downward spiral of oil prices, which is something natural, started prior to Saudi Arabia’s decision [to keep its output unchanged]. The recent incidents just expedited the falling trend.
I do not buy arguments that Saudi Arabia refused to prevent price drops by reducing its output only to deal a blow to Russia, Syria and Iran.
Saudi Arabia, which mainly depends on oil revenues, has a long-term plan to sell oil for at least 40 years. Under this plan crude prices should not climb.
If oil prices go up, the production of alternative energies will be accelerated and oil will be removed from the global consumption basket or, to say the least, its share will be minimal. Thus Riyadh can no longer sell oil. That’s why the kingdom has to keep oil prices at a balanced level so that it can export oil in the next 40 years.
This is the way Saudi Arabia has generally looked at its oil output in the past four decades. To serve its long-term interests, Saudi Arabia does not seek a drop in production and an increase in prices.
This is the reason why Saudi Arabia has sped up the downward trend of prices. Even if Saudi Arabia did not cause the drop, the prices would naturally decline slowly.
Riyadh believes that prices should hover at around $50 instead of slumping to $35 or lower in three or four years due to the inflow of alternative energies. If so, the shale oil is removed from the production cycle or at least its production slows down and Saudi Arabia can export oil in the next 10 years.