Marred Christmas- Poking the Russian Bear

“You are Fourth on my List of Loveable Evil Dictators- after Stalin, Mussolini and Hitler- you are the greatest..”

So today might be Christmas for some but it is very not Christmassy for others. Just like me, sat alone, snowed in, in my house in Leicestershire on Christmas Day with no humans to appear in the foreseeable future in my life, I am making a doll installation; the world is struggling with oil prices whilst Europe and USA celebrate Christmas. For major oil producing countries such as the Middle East and Russia, who do not even celebrate Christmas, this American “super low price oil” Christmas joke is really not funny. During December oil prices have dropped so much that the whole world has become shaken up. During my almost 4 years of driving experience, I do not remember the petrol station ever telling me a price lower than 130 p per liter of fuel and yet here I am, filling up my tank at only 113 p per liter. Some experts believe that this is all America’s fault as they try to cripple Russia and control their pipelines to the EU via Ukraine and Iranian and Syrian (The Middle East) pipelines to the EU via Syria in order to gain global control of the essential resource and become the global leader. The resource, oil, which America does not have enough of, to be the king of the world, has to be controlled in alternative ways. However all the negativity to one side, some see the oil price drop as a positive thing where this is America’s attempt to help Russia out and help them get rid of the Putin dictator. Help, of course I say with a tint of irony and sarcasm, as whilst it may seem that USA is helping Russia get rid of another evil dictator, it also seems that by doing this they hope to achieve a country that is weaker and no longer competes with America for world domination. Putin has already shown himself to be a master player in the chess game of energy politics so the hope that lower oil prices will crush Putin has to be met with a degree of uncertainty. The article describes today oil price affairs and tries to suggest the real reasons for them.

Treasure Hunt

Oil reserves are considered to be the amount of technically and economically recoverable oil as some oil is either impossible to obtain due to lack of the required advanced technology or economically unprofitable as the extraction costs are higher than the profits made from selling the oil. There exist classifications of oil reserves related to the degree of certainty as it is very difficult to predict how much oil is located in the reservoir. Recovery factor is the ratio of reserves to the total amount of oil located within the reservoir. Determining recovery factor depends on the methods of oil recovery available in that particular place as well as on the technology the country has available to extract it.

OPEC provides annual statistics about the amount of oil that is thought to be located in different reserves. According to the 2013 statistics, the highest proved oil reserves are currently found in Venezuela at 20% of the global reserves followed by Saudi Arabia with 18%, Canada at 13% and Iran at 9%. Further oil reserves can be seen in Figure 1 below.

Figure 1.

Source: Wikipedia. List of countries by proven oil reserves.

However these figures are often wrong and include a lot of uncertainty. Some uncertainty is due to the lack of knowledge as the reserves cannot be examined directly so estimations are used. Upon discovery, early estimates often provide much lower figures for the amount of oil actually available in the reserve so the reserve «grows». Furthermore this process is further complicated by international politics where many oil-producing countries do not actually reveal the real amount of oil found in their reserves. Finally countries also have government-controlled national reserves mainly for security reasons but also for economic reasons that are excluded from total reserves count. For example USA is thought to have about 4.1 billion barrels held in their national reserves. Figure 2 below shows the distribution of world oil reserves.

Figure 2.

Source: Wikipedia. Source: Wiki. A map of world oil reserves, 2013.

Two-third of reserves of the world oil are believed to be in the Middle East but 85% of those are irrelevant to global production in 2010 (Odell, 2004). The world sees quite a large issue of under-exploration and limited exploitation of the oil reserves and so some might have not been found yet. Whilst USA  has been the exploration and search for oil reserves, other parts of the world such as The Middle East itself are very under-explored and drilling deep into the ground could well establish the discovery of new oil reserves increasing the world oil reserves. However figure 2 above and figure 3 below the current known world reserves of oil although it can be assumed that these are underestimated. Albeit The Middle East, North America and the former Soviet Union, the areas of maturity in respect to oil exploitation are very limited to essentially just a few locations: Gulf coastal strip of Mexico, Venezuela, parts of Indonesia and some small areas in Europe such as the North Sea in England (Odell, 1994).

Figure 3. 

Source: Oil and Energy Trends, May 2010. World proven crude oil reserves by region.