Tehran: Energy and resources experts agree - if the situation in Iran gets out of control, it will have a massive impact on global oil and financial markets. That was not the case after the removal of Nicolas Maduro in Venezuela. Then again, Iran produces four times as much oil.
According to Deutsche Welle, Iran is the third-largest producer in OPEC, with its output covering roughly 4% of global demand, whereas Venezuela only produces about 1%. Andreas Goldthau, director of the Willy Brandt School of Public Policy at Germany's University of Erfurt, points out that Iran exports about 2 million barrels a day compared to Venezuela's 350,000 barrels. Global markets would feel it far more intensely if Iranian production stopped.
Moreover, fear of regional conflict in the Gulf weighs heavily in Iran's case. Goldthau explains that roughly half of the world's oil reserves and a third of global oil production is in the Middle East, making political developments in Iran more impactful on markets than those in Venezuela.
OPEC statistics show Venezuela's estimated 303-billion-barrel reserves as the world's largest, but these reserves contain heavy crude requiring specialized technology for extraction and refinement. Much of this oil is located in the remote Orinoco Belt.
Both Iran and Venezuela face challenges due to international sanctions on their oil industries. Goldthau notes Iran's difficulties in accessing modern drilling technology and the costly maintenance of its industry due to a lack of replacement parts and inadequate structural investment. Foreign investment is also hindered by state control over the industry.
Despite these hurdles, Iran's oil sector has shown resilience, maintaining production levels around 4 million barrels a day, although it has not reached the 6 million barrels per day seen before the 1979 Islamic Revolution. However, selling oil at discounted prices to secure buyers has prevented much-needed investments.
Iran also employs a shadow fleet of oil tankers to navigate around Western sanctions. These tankers provide floating storage and facilitate the transfer of sanctioned Iranian oil onto non-Iranian-flagged vessels at sea, primarily targeting buyers like China.
The social and economic situations in Iran and Venezuela bear similarities, with poorly maintained oil infrastructure leading to financial crises, currency devaluation, hyperinflation, and nationwide protests. A significant threat to Iran's regime could arise if oil sector workers join the protest movement, reminiscent of the strikes that contributed to the fall of the shah in 1978.
In the event of Iranian production stalling, oil prices are expected to rise sharply, potentially reaching $120 a barrel, as projected by investment banks like JPMorgan Chase. However, other producers may eventually fill the supply gaps, and the International Energy Agency's strategic petroleum reserves could be utilized to stabilize markets.
The geopolitical implications are significant. An Iranian blockade of the Strait of Hormuz, a crucial waterway for global oil and LNG transport, could lead to increased oil and gas prices, impacting markets worldwide. An attack on oil infrastructure in neighboring states could further exacerbate the situation, warns Goldthau.