Report: Iran's Oil Exports May Disappear ??

Yesterday there was a rather bizarre story in the NYTimes (AP wire) on Iran(copied below):

"Iran is suffering a staggering decline in revenue from its oil exports, and if
the trend continues income could virtually disappear by 2015, according to an
analysis published Monday in a journal of the National Academy of Sciences."

The "analysis" here is so idiotic seemed to offer only one explanation to me. The clue comes from the author of this "study":

''With an explosive demand at home and poor management, the appeal of nuclear
power, financed by Russia, could fill a real need for production of more
electricity.''

That is, I wondered if the purpose here is to get us used to the idea of Iran becoming a nuclear power. Short of a war, the notion that Iran's oil output will dwindle to zero makes no sense. The study claims all Iranian exports will disappear, leaving only internal consumption. For instance, take a look at the U.S. government's own data (http://www.eia.doe.gov/emeu/international/iran.html#Forecasts):

Iran:Reserves: 132.5 billion barrels (http://www.eia.doe.gov/oiaf/ieo/oil.html)
Production: 1.45 billion barrels per year. (https://www.cia.gov/cia/publications/factbook/geos/ir.html)
Internal consumption: 0.52 billion barrels per year. (CIA worldfactbook again)

That is, putting aside growth in annual production and discovery of new fields (always underestimated), a straight-line projection (I'm not trying to get into nuances here) says Iran has 91 years worth of oil production in their fields. This shouldn't be so remarkable, cause Iran has the third largest world reserves, behind only Saudi Arabia (264.3 billion barrels) and Canada (178.8).

Currently, Iran uses 1/3 of that production. To use 100% of it by 2015 they would have to have an economic growth rate of 13.7% by my calculation. Current growth rate in GDP in Iran is 6.9% (a rate the study seems to think is "explosive"; ref: CIA World factbook), which would give them about 15 years supply instead of 8.

Assuming no increase in annual production, this is almost feasible if you believe the CIA assessment: "Iran's economy is marked by a bloated, inefficient state sector, over-reliance on the oil sector, and statist policies that create major distortions throughout. Most economic activity is controlled by the state."

So how does the study justify a prediction of Iran's oil output drying up in 8 years? I don't know. Haven't read the NAS report (the Jan 16-20 online "early" edition isn't online yet). But it sure sounds like it's trying to get us used to the idea that Iran needs nuclear power -- either to influence U.S. policy, or as part of it. Says the study author, Roger J. Stern of Johns Hopkins:

"If the United States can ''hold its breath'' for a few years it may find Iran a
much more conciliatory country, he said. And that, Stern said, is good reason to
belay any instinct to take on Iran militarily."

An assertion so bald-faced stupid as to defy further comment. But what's worth a moment's more comment is another online press release on Stern's hypothesis (http://www.jhu.edu/news_info/news/home06/jan06/mideast.html -- not copied here) that undercuts the conspiracy theory. In it, there's a different take on the whole story. Stern's argument is that

A) "U.S. policy in the Middle East is driven by baseless fears that an "oil weapon" can cut off our fuel supply;"
B) "His review of economic and historical data also shows that untapped oil supplies are abundant, not scarce."

A point of view that the release says has made Stern something of a pariah, cause his research shows that "since 1970 the cost of extracting oil in Saudi Arabia has dropped by more than one-half, a clear sign of abundance."

(Huh? What about technological advances! He would have argue that market *price* has dropped for there to be abundance.) He also argues that Persian Gulf oil prices are being kept artificially high to generate "monopoly profits for these nations". His first conclusion is

C) We should stop appeasing Mid-East countries like Iran,

Which sounds encouraging, but in a typical academic non-sequitur, he then concludes

D) Market forces are the primary threat; and
E) We need to stop using oil, and
F) accept the idea of a Gulf Superpower, ie, Iran.

Maybe the AP and Johns Hopkins and the NAS are seizing on the report for their own conspiratorial reasons, but considering all the foolishness here, I will have to categorize Roger J. Sterns' motives as simply very confused.

(Just found the article "Oil market power and United States national security", http://www.pnas.org/cgi/reprint/0503705102v1.pdf. A quick scan confirms the nonsense amidst lots of economic quasi-rational gobbledy-gook. His abstract says, "It is therefore oil market power, not oil per se, that actuates threats." Give me a break. Has this guy never heard of nuclear weapons? Not in the Ivory Tower, I guess.)

http://www.nytimes.com/aponline/us/AP-Iran-Oil.html

Report: Iran's Oil Exports May Disappear
By THE ASSOCIATED PRESS
Published: December 25, 2006
Filed at 8:09 p.m. ET

WASHINGTON (AP) -- Iran is suffering a staggering decline in revenue from its oil exports, and if the trend continues income could virtually disappear by 2015, according to an analysis published Monday in a journal of the National Academy of Sciences.

Iran's economic woes could make the country unstable and vulnerable, with its oil industry crippled, Roger Stern, an economic geographer at Johns Hopkins University, said in the report and in an interview.

Iran earns about $50 billion a year in oil exports. The decline is estimated at 10 to 12 percent annually. In less than five years exports could be halved and then disappear by 2015, Stern predicted.

For two decades, the United States has deployed military forces in the region in a strategy to pre-empt emergence of a regional superpower.

Iraq was stopped in the 1991 Persian Gulf War, but a hostile Iran remains a target of U.S. threats.

The U.S. military exercises have not stopped Iran's drive. But the report said the country could be destabilized by declining oil exports, hostility to foreign investment to develop new oil resources and poor state planning, Stern said.

Stern's analysis, which appears in this week's edition of the Proceedings of the National Academy of Sciences, supports U.S. and European suspicions that Iran is trying to develop nuclear weapons in violation of international understandings. But, Stern says, there could be merit to Iran's assertion that it needs nuclear power for civilian purposes ''as badly as it claims.''

He said oil production is declining and both gas and oil are being sold domestically at highly subsidized rates. At the same time, Iran is neglecting to reinvest in its oil production.

''With an explosive demand at home and poor management, the appeal of nuclear power, financed by Russia, could fill a real need for production of more electricity.''

Iran produces about 3.7 million barrels a day, about 300,000 barrels below the quota set for Iran by the oil cartel, the Organization of Petroleum Exporting Countries.

The shortfall represents a loss of about $5.5 billion a year, Stern said. In 2004, Iran's oil profits were 65 percent of the government's revenues.

''If we look at that shortfall, and failure to rectify leaks in their refineries, that adds up to a loss of about $10 billion to $11 billion a year,'' he said. ''That is a picture of an industry in collapse.''

If the United States can ''hold its breath'' for a few years it may find Iran a much more conciliatory country, he said. And that, Stern said, is good reason to belay any instinct to take on Iran militarily.

''What they are doing to themselves is much worse than anything we could do,'' he said.

''The one thing that would unite the country right now is to bomb them,'' Stern said. ''Here is one problem that might solve itself.''