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Iran deal is about staving off the coming oil shock [Nafeez Ahmed / Middle East Eye]

July 25, 2015

Lots of very interesting analysis below. Do read the Nafeez Ahmed article in its entirety, as well as the George Friedman / Stratfor book chapter linked within it.

The end of the article talks about an oil price shock that is to come. My one comment there is that the advent of tight oil (i.e., shale) production techniques, currently in the US and presumably worldwide, will look like a qualitative change which *increases* the stability of oil pricing.

This bit is based on my own personal, limited understanding of how oil/gas production and markets work, so take with a grain of salt…

Reason has to do with horizontal drilling and hydrofracking. I completely recognize the environmental problems and actively oppose it where I live, but like it or not, it is here to stay.

And here is what’s different. Wells using this techinque spit out the bulk of their contents over ~2 years, in contrast conventional wells which are more evenly distributed over a longer time. This cuts down the biggest time-lag in the feedback loop, which will improve its stability (as long as the available resources for this production technique are neither maxed out nor unused — if another more, or less, expensive production technique is the marginal price setter, or “swing” producer, then forget what I just said.).

The second reason, one would hope, is that market players who got burned by the price collapse learn their lessons and make fuller use of the futures markets. (shale producers in particular, had the option of eliminating 80%+ of their risk by hedging just 2-3 years into the future. Of course most chose to gamble. Thus, at the board-room and investor level, I have no sympathy for them…)

Stop Making Sense

Nafeez Ahmed writes for Middle Easy Eye:

[…] George Friedman, founder and CEO of private US intelligence firm Stratfor – which operates closely with the Pentagon and State Department – forecasted the US-Iran détente four years ago.

His prescient assessment of its strategic rationale is worth noting. Friedman explained that by reaching “a temporary understanding with Iran,” the US would give itself room to withdraw while playing off Iran against the Sunni regimes, limiting Iran’s “direct controls” in the region, “while putting the Saudis, among others, at an enormous disadvantage”.

“This strategy would confront the reality of Iranian power and try to shape it,” wrote Friedman.

Ultimately, though, the US is betting on the rise of Turkey – hence the latter’s pivotal role in the new anti-IS rebel training strategy, despite Turkey’s military and financial sponsorship of IS.

For the US, “the longer-term solution to the balance of power in…

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