From Venezuela to Iraq to Russia, Oil Price Drops

Raise Fears of Unrest

ByCLIFFORDKRAUSSandRICKGLADSTONEAUG.24,2015

Oil, the lifeblood of many countries that produce and sell it, appears to be rapidly
turning into an ever-cheaper economic curse.
A year ago, the international price per barrel of oil was about $103. By Monday, the
price was about $42, roughly 6 percent lower than on Friday.
In oil-endowed Iraq, where an Islamic State insurgency and fractious sectarian politics
are growing threats, a new source of instability erupted this month with violent
protests over the governments failure to provide reliable electricity and explain what
has been done with all the promised petroleum money. In Russia, a leading oil
producer, consumers are now paying far more for imports, largely because of their
currencys plummeting value. In Nigeria and Venezuela, which rely almost
completely on oil exports, fears of unrest and economic instability are building. In
Ecuador, where oil revenue has fallen by nearly half since last year, tens of thousands
of demonstrators pour into the streets every week, angered by the governments
economic policies.
Even in wealthy Saudi Arabia, where the ruling family spends oil money lavishly to
preserve its legitimacy, the government has been burning through roughly $10 billion
a month in foreign exchange holdings to help pay expenses, and it is borrowing in the
financial markets for the first time since 2007. Other Arab countries in the Persian
Gulf that are dependent on oil exports, including Kuwait, Oman and Bahrain, are
facing fiscal deficits for the first time in two decades.
While the price has been declining for months, forecasts have always been hedged
with the assumption that oil would eventually stabilize or at least not stay low for
long. But new anxieties about frailties in China, the worlds most voracious consumer
of energy, have raised fears that the price of oil, now 30 percent lower than it was just
a few months ago, could remain depressed far longer than even the most pessimistic
projections, and do even deeper damage to oil exporters.
The pain is very hard for these countries, said Ren G. Ortiz, former secretary
general of the Organization of Petroleum Exporting Countries and former energy
minister of Ecuador. These countries dreamed that these low prices would be very
temporary.
Mr. Ortiz estimated that all major oil exporting countries had lost a total of $1 trillion
in oil sales because of the price decline over the last year.
The apparent weakness in the Chinese economy is radiating out into the world, said
Daniel Yergin, the vice chairman of IHS, a leading provider of market information,
and the author of two seminal books on the history of the oil industry, The Prize and
The Quest.
An awful lot of producers who enjoyed good times were more dependent on Chinese
economic growth than they recognized, Mr. Yergin said. This is an oil shock.
Although the price drop has most directly hurt oil exporters, it also may signal a new
period of global economic fragility that could hurt all countries an anxiety that
already has been evident in the gyrating stock markets.
The price drop also has become an indirect element in the course of Syrias civil war
and other points of global tension. Countries that once could use their oil wealth as
leverage, like Russia, Iran and Saudi Arabia, may no longer have as much influence,

some political analysts said. Iran, which once asserted it could withstand the
antinuclear embargo of its oil by the West, appeared to have rethought that calculation
in reaching an agreement on its nuclear activities last month.
Of course, lower oil prices confer economic benefits, too. The average American
household, for instance, buys 1,200 gallons of gasoline every year. And gasoline, on
average, has sold for most of this year by roughly a dollar a gallon less than in 2014.
But even while lower oil prices stimulate economies of consuming countries, a
protracted decline carries many unanticipated consequences starting with the
economic weakness in developing countries that buy increasing amounts of goods
from the United States and others in the industrialized world.
A supply glut has been evident for some time, driven partly by a vast increase in
Saudi production and a growing energy self-sufficiency in the United States, which
was once heavily reliant on Middle East oil.
Saudi Arabia not only is producing a record amount, but also is increasing the number
of rigs drilling for future production. And its Gulf allies, the United Arab Emirates and
Kuwait, are following suit. Even with the turmoil wrought by the Islamic State, Iraqs
production has jumped nearly 20 percent since the beginning of the year.
The surge in production may seem counterintuitive, since lower prices can cause selfinflicted economic wounds and potentially incite more political and social trouble.
But all the exporters in the Middle East are struggling with each other to protect Asian
markets, now that the United States is using much less of their oil.
The Gulf states, said Sadad I. Al-Husseini, former executive vice president of the
Saudi Aramco oil company, dont want to take on the role of oil price regulators
because the market is far too big and too political for them to manage it.
Had these producers curtailed their production late last year, he said, a flood of new
oil supplies from the U.S., Canada, the deep offshore and other basins would have
continued to undermine the oil markets, and prices would have collapsed to where
they are now in any case.
The global glut is likely to worsen if the nuclear deal with Iran is approved,
potentially releasing as much as one million more barrels onto the 94-million-barrela-day global market in a year or so.
Irans oil minister, Bijan Namdar Zanganeh, has made no secret about his countrys
intentions. We will be raising our oil production at any cost, and we have no other
alternative, he was quoted Sunday in Irans state-run news media as saying.
The big change in recent years has been the surge of United States oil production,
adding more than four million barrels a day to global supplies. But in recent months
the oversupply has been driven primarily by the Saudis, who have flooded the market
in what economists regard as a deliberate attempt to drive down the price so that other
high-cost producers can no longer compete most notably the Americans.
Still, production in the United States has not declined as much as foreseen by the
Saudis, who thought the price of oil would stabilize at about $50 a barrel. Now it may
be headed to $30, the lowest level since the 2008 global economic recession.
The Saudis, the most important member of OPEC, have resisted calls by other
members to reduce output. The result is that nearly all OPEC members, who together
control much less of the global market than they once did, are pumping more oil.
We are witnessing competition between member states over market share, and most
of these countries are dependent on oil as a primary source of income, said Luay AlKhatteeb, a nonresident fellow in foreign policy at the Brookings Doha Center. If
prices do not recover to the $60 a barrel level, he said, and countries in the Arab
region continue to rely on oil revenue heavily, we could see decades of decline.

David L. Goldwyn, who was the State Department special envoy and coordinator for
international energy affairs in the first Obama administration, said that if the Brent
global oil benchmark price stays below $45 a barrel, that is a red flag for stability
issues across the oil producing world.
The hemorrhaging of government budgets reliant on oil will force dramatic cuts in
spending or dangerous increases in borrowing, if not both, Mr. Goldwyn said.
The countries without significant foreign exchange reserves are most at risk, and
they include Nigeria, Angola, Algeria, Venezuela and Iraq. The countries which need
to sustain investment to maintain political legitimacy need to be worried, and thats
Brazil, Russia and even Iran.
Meghan L. OSullivan, director of the Geopolitics of Energy program at Harvards
Kennedy School, said she was most immediately concerned about the impact of
extended low oil prices on Iraq.COMMENTS
Not only is fighting ISIS an expensive endeavor, but many of the political deals that
need to be done to keep different groups supportive of the Iraqi government require
money to sustain, she said.
But Ms. OSullivan expressed a longer-term worry about possible miscalculations by
Saudi Arabia, on both the duration and magnitude of the oil price drop.
With a burgeoning population looking for jobs, education and health care every day,
she said, the expensive social contract between the royal family and Saudi citizens
will get more difficult, and eventually impossible, to sustain if oil prices do not
recover.
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Industri minyak bumi dan regulator federal lebih terfokus pada eksplorasi dan
produksi dari keselamatan di tahun-tahun menjelang 2010 Teluk Meksiko tumpahan
minyak, membantu untuk mengatur panggung untuk bencana lingkungan terburuk
lepas pantai dalam sejarah AS, menurut sebuah laporan independen baru National
Academy of Engineering dan Dewan Riset Nasional.
Dilakukan atas perintah Menteri Dalam Negeri Ken Salazar, laporan itu
mengatakan "beberapa keputusan cacat yang menyebabkan ledakan" di rig Deepwater
Horizon dihasilkan dari "sistem secara keseluruhan kekurangan pendekatan
keamanan" di antara perusahaan-perusahaan yang berlari pengeboran Macondo baik,
termasuk BP, Transocean dan Halliburton.
Laporan, berjudul "Macondo Yah - Deepwater Horizon ledakan, Pelajaran
untuk Meningkatkan Offshore Drilling Keselamatan," bergema banyak temuan dari
penelitian sebelumnya dari bencana. Tapi itu menambahkan tingkat baru detail dan
menempatkan atas kelompok rekayasa rekan bangsa balik panggilan untuk mendesain
ulang satu set besar katup, domba jantan dan perangkat hidrolik pernah dianggap
gagal-aman: pencegah ledakan yang gagal untuk membendung aliran lebih dari 200
juta galon ke Teluk Meksiko.
"Ada banyak peringatan untuk kedua industri dan regulator tentang potensi
kegagalan dari BOP [pencegah ledakan] sistem yang ada" selama dekade sebelumnya,
menurut laporan, yang menuntut penekanan lebih besar pada keamanan dari industri
dan regulator telah menunjukkan, dan mempertanyakan industri dan peraturan norma
yang bisa mengikis keamanan.
Sifat terfragmentasi pengeboran minyak lepas pantai, dengan perusahaan yang
berbeda bertanggung jawab untuk tugas-tugas yang sangat khusus, berarti bahwa
beberapa orang di rig mungkin memiliki rasa lengkap dari risiko terlibat dalam
operasi pengeboran, laporan itu menyimpulkan.
Ketua laporan komite, mantan Sekretaris Angkatan Laut Donald C. Musim
Dingin, mengatakan bahwa perbaikan dalam pengawasan regulasi dan respon industri
bencana lepas pantai memberinya keyakinan bahwa pengeboran lepas pantai harus
terus. Tapi dia menekankan bahwa lebih banyak pekerjaan yang harus dilakukan.
"Kekhawatiran kami adalah apakah ini adalah langkah pertama yang baik ke
arah yang benar," kata Winter dalam panggilan konferensi, "atau apakah perubahan
ini merupakan respon pasca Horizon Deepwater."
Departemen Dalam Negeri mengatakan dalam sebuah pernyataan bahwa ia
menyambut baik laporan temuan, yang katanya mendukung kebijakan peraturan itu
telah mengejar sejak ledakan Horizon Deepwater pada tanggal 20 April 2010.
Departemen memperkenalkan peraturan lingkungan dan keselamatan yang
lebih ketat, dan industri menanggapi dengan mengembangkan respon tumpahan
minyak dan penahanan sistem baru, menggabungkan pelajaran dari bencana Teluk.
Namun laporan tersebut menyatakan keprihatinan tentang bagaimana upaya
industri serius dan berkelanjutan mungkin, mengingat bahwa upaya penelitian dan

pengembangan selama 20 tahun terakhir telah menyusut dan outsourcing. Dan

sebagian besar upaya mereka telah "difokuskan proporsional pada eksplorasi,
pengeboran, dan teknologi produksi yang bertentangan dengan keselamatan."
Erik Milito dari kelompok perdagangan Petroleum Institute Amerika membela
fokus penelitian industri. "Industri ini memimpin dalam menerapkan unsur-unsur
terbaik dari yang paling sukses program keselamatan yang ada, termasuk penggunaan
audit independen dan sertifikasi oleh pihak ketiga," kata Milito.
Puas tentang keamanan, terutama dalam kasus preventers ledakan, menjadi
jelas dalam pernyataannya di depan komite yang menunjukkan "keyakinan salah yang
ledakan preventers bisa memberikan jaminan, polis asuransi untuk ledakan itu," kata
Winter.
Industri ini tampaknya telah marah kepercayaan dalam keandalan preventers
ledakan, kata Roger L. McCarthy, seorang konsultan rekayasa pribadi dari Palo Alto
dan anggota komite laporan. Namun, tidak ada standar yang seragam untuk ledakan
preventers dan tidak ada sertifikasi independen dari keberhasilan mereka, kata
McCarthy.
"Anda tidak bisa membeli pemutus sirkuit untuk rumah Anda yang belum
disertifikasi secara independen oleh Underwriters Laboratories," kata McCarthy,
"sementara BOP adalah jenis pemutus sirkuit untuk jumlah yang luar biasa dari
kekuatan yang muncul string bor, dan itu tidak bersertifikat standar apapun. "
Dalam pengeboran minyak lepas pantai menjadi lebih umum, yang dibuktikan
dengan $ 337.000.000 dalam tawaran yang ditawarkan Rabu di lelang pertama
Departemen Dalam Negeri sewa federal di Teluk Meksiko sejak barat tumpahan BP.
Dalam lingkungan seperti itu, industri perlu pendekatan keamanan melalui
sistem "proaktif" yang mengartikulasikan semua risiko yang melekat pada setiap
proses tertentu dan menempatkan di tempat langkah untuk mencegah mereka, laporan
itu dianjurkan. Meskipun pendekatan yang diadopsi di Laut Utara di bangun dari
bencana ada generasi yang lalu, tidak semua perusahaan menggunakan pendekatan di
luar operasi Laut Utara mereka.