Regime Change Not Bullish for Oil Production in the Middle East

Posted by Jeff Rubin on March 30th, 2011 under SmallerWorldTags: , , ,  • 11 Comments

If the Western military intervention in Libya is really being driven by oil, maybe it’s time to think again. History says regime change is never bullish for oil production in the Middle East and even less so for oil exports.

Iran and Iraq, two of the larger producers in the region, are cases in point.

While no one misses the Shah’s regime, Iran and the rest of the world still miss the oil production and the oil exports his regime once produced. At the height of the Shah’s power, Iran was pumping out six million barrels a day. Today, 32 years after the Iranian revolution sent Shah Mohammad Reza Pahlavi and his cronies packing, Iran barely produces four million barrels a day.

Exports have fallen even more than production. During the Shah’s reign, Iran consumed less than a million barrels a day, leaving over five million barrels for daily export. Today, thanks to decades of massive fuel price subsidies, domestic oil consumption has almost doubled, leaving only two million barrels a day for export- or 40% of the export volumes prior to the Iranian revolution.

Iraq’s experience should give Western allies no more confidence in their Libyan mission than the Iranian one. Prior to the invasion of Kuwait and the trade sanctions it triggered, Saddam Hussein’s Iraq produced around three million barrels a day in the late-1980s. Since then, oil production has never been close to that level.

When the Americans invaded Iraq in 2003, the U.S. Department of Energy confidently predicted the country would be throwing its arms open to foreign investment and the oil sector would be producing over four million barrels per day by 2010. Instead, the Sunni insurgency broke out and a whole lot of pipelines (and people) started getting blown up. Oil production plunged, and it has taken almost a decade to get production back to pre-invasion two and a half million pace.

What will happen in Libya is still anyone’s guess. Will a defeated Muammar Gadhafi try to blow up the oil fields like Saddam Hussein did on his forced retreat from Kuwait? Will oil production and oil installations simply collapse as collateral damage in a protracted civil war that partitions the country? Or will a new regime take over and prove to be as dysfunctional as its predecessor or less inclined to develop the country’s oil reserves? Whatever happens, both the Iranian and Iraqi experience suggest a post –Gadhafi Libya will produce less, not more, oil.

Of course, maybe the missing 1.3 million barrels of oil exports from the country have nothing to do with why we are in Libya. Maybe it is just a humanitarian mission after all. But if protecting defenseless populations from Middle Eastern dictators is what this is all about, why aren’t we intervening in Bahrain, Yemen and Syria as well?

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  • Trudeau

    The reality is the Seven Sisters of Multinational Oil Corporations and there lobby (Exxon,Mobil,Gulf,Socal,Texaco,Shell,and BP) are what it is all about. The truth is that it is about greed and control of oil resources by this cartel and their lobby who solicit the Empire’s (America) and it’s colonies the europeans/UK, Japan etc war machine to facilitate any action to oversee world domination over these finite resources in middle eastern and failing states under the guise of Humanitarian relief. Similar to Israeli strategic efforts on the Palestinian question, a destabilized and divided enemy, read Gaza and West Bank Political polarization, is a conquered and controlled enemy to include there resources.
    I believe what we are seeing in the Middle East are US lead social media incited rebellions supported by special forces on the ground to destabilize and replace longstanding regimes who have through their long standing ruling flagrantly thumb their noses at the empire. Hey and wait a minute I thought it was a no fly zone only. I wonder what those Canadian F 18s are doing flying in and dropping bombs in a no fly zone. You would hate for them to hit those protesters(Al-Qaeda) with Airplanes and tanks. I am afraid we are being dupped by the cartel and expect oil to climb.

  • Savage

    Wow, to think that all these endless wars in the middle east actually have a negative impact on total oil production! What insanity.

    However, doesn’t the war machine insure that select companies do receive a higher proportion of the booty from the oil that does make it out? And would the USA be able to burn 20+ % of the daily global oil consumption if the military didn’t help divert it over here?

  • ra

    Mr. Rubin argues that one of the positive turn of events to come out of peak oil could be renewed interests and incentives in local production of goods and services. The following is from an article at, entitled “As Oil Prices Rise, So Does Maton’s Fuel Charges,” by Alan Yonan, Jr.

    “There is a silver lining to higher fuel surcharges for local farmers. Higher shipping costs for mainland produce can provide a competitive advantage to Hawaii farmers, whose goods don’t carry the same freight premium when they are sold locally.

    “It does help in the short term,” said Dean Oki moto, owner and president of Nalo Farms in Wai ma nalo. “We’re more competitive with the fresh greens.”

    But higher fuel costs boost other expenses for local farmers, particularly the cost of fertilizer, he said. “One of the keys for us will be to be to develop fertilizer locally,” he said.”

  • Unc

    Jeff,It is in fact a humanitarion mission-1973-un-security council resoloution,how ever , Libya, is sweet oil and that will translate into the current refinery infrustucture that can not be changed overnight,the way I see things ,is they are killing 2 birds with one stone.Our world is indeed getting smaller.Unc.FSJ B.C.

  • Christopher_lambert

    Fifth fleet in Bahrain, Al-Quida in Yemen and Iran is too hot to handle. Expect more from you Jeff.

  • GC

    This has nothing to do with this post, but, Mr. Rubin, I just wanted to say I would love to see you as the resident economist on BNN. You would bring a lot of excellent analysis, insight, and color. Nothing against Linda Nazareth–I think she’s fine–but if I were in charge at BNN I would definitely want you on the air. Any chance of this?

  • Savage

    “US lead social media incited rebellions….”

    Maybe so, but do you have any evidence for that or more specific details? It’s hard to imagine e-mailing them on Facebook would whip tens of thousands of people into a rabid frenzy just because.
    The idea that sudden food inflation that they can’t afford, thanks to central banking policies, is pushing them over the edge seems to make more sense.