(Ayandenegar Interviewer - Nada Saboori) How does the falling of oil price change the dominant strategies of energy world?
Following the historic cycle outlined above, the falling price will cause consumption of oil products to rise, and oil production to fall, and in due course the oil price will rise again as low cost fields decline in production and demand rises.
Does the behaviour of oil prices (falling continuously) cause energy and fossil fuels get much share in the world? Does the share of fossil fuels grow and become more?
Again following the historic cycle we would see the share of fossil fuels rise as prices fall.
The future of this trend is in favour of what groups or countries? Is it beneficial to consumers or producers?
Naturally, cheaper carbon fuel costs benefit consumer nations, while producer nations whose budgets have been inflated during the 'happy times' of high oil prices will see an economic downturn, and possibly even a recession or depression, depending upon what debt obligations they have assumed. This in turn will affect those countries which are accustomed to sell arms, technology, goods and services to oil producers which were paid for by Dollar and Euro borrowing.
What is the effect of this period of time (falling prices) on the countries of Middle East?
A prolonged period of low prices will have seriously destabilising effects on those Middle East countries which have wasted oil and gas windfall profits on profligate expenditure and subsidised lifestyles. Paradoxically, Iran has been protected from this problem, having been forced by physical sanctions to build domestic productive capacity and thereby achieve independence and resilience. Meanwhile, and even more ironically, financial capital has been obliged to remain in Iran because financial sanctions prevented capital flight to hard currency accounts in Switzerland and the West: this is particularly the case for capital flight caused by corruption and poorly executed privatisation similar to that which afflicted post-Soviet Russia.
Is the period of time a historic point? Do the people in future count it as a historic point in history of oil?
As the former Saudi oil minister Zaki Yamani put it, the Stone Age did not end because of a shortage of stones, and the Oil Age will not end because of a shortage of oil.
I believe that there is now a long term 'upper boundary' price for oil. The first limiting factor is high cost US shale oil which may be deployed at short notice and which essentially constitutes a second tier US Strategic Petroleum Reserve. This gives the US energy security- at a price - and currently this upper boundary price is around $60/barrel, although oil prices could spike temporarily through that level.
The second limiting factor for the oil price is the rapidly falling cost of renewable energy, particularly solar and wind energy - which displaces fossil fuels - combined with the rapid spread of 'smart' technologies which act to improve energy efficiency. As has been said, the cheapest carbon fuel of all is carbon fuel saved, and the more expensive carbon fuel becomes in $ and terms, the more $ and profit is to be made from saving it. So I believe it is indeed the case that the oil market has reached a historic inflection point of Peak Demand.
This period (falling of prices) is along with Iran coming back to the oil market as Iran tries to get back to its previous level of production; How do you evaluate this? How does Iran affect on the market? And how is it influenced by this situation?
It is one thing for Iran to attain a high level of oil production capacity, but quite another to actually bring this capacity to market. In my judgement, it would be most unwise for Iran to engage in a race to the bottom by producing oil at full capacity as soon as possible. An influx of oil into an already over-supplied market with relatively little spare storage capacity could see oil collapse to levels not seen for decades. Ministers will note that two million barrels per day exported at $40/barrel will raise the same income as the export of four million barrels per day at $20/barrel.
My advice to Iran is not to dump oil on the open market but rather to seek out and enter into long term oil supply deals on the basis of swaps, such as oil for petroleum products. In this way Iran could attain security of oil demand while consumer nations such as Scotland, Greece or South Africa (to name three candidates) would attain security of supply. Iran could agree to take either physical products or financial rights to products - prepay product credits - which may in turn be exchanged for goods and services.
China's economy is slowing while it is the biggest energy consumer in the world. How does this affect on the producer countries and the rest of the world?
When the history of markets is written I believe two key turning points will be identified. Firstly there was the moment - which I date to the collapse of Lehman Brothers in October 2008 - at which the global burden of dollar denominated debt exceeded the capacity of the developed world to pay it - I think of this as the moment of Peak Debt. This essentially marked the beginning of the end of the deficit-based dollar economy based upon bank-manufactured credit.
I see the current economic turning point in China as a moment of Peak Demand at which the 'Irresistible Force' of increasing consumption of goods and services has run up against the 'Immovable Object' of the dollar cost of the energy and resources necessary to produce it.
In the absence of a transition to a new market architecture and instruments - which are not only available, but have always been available and have simply been forgotten - we will see the emerging and highly indebted (particularly with private bank debt) resource rich nations such as Brazil, Russia and Australia collapse financially. This in turn will lead the US, EU and other nations which supplied and financed these nations to recession at best and depression at worst.
But this need not be so. I have long advocated a new settlement directly between energy producers and consumers such as the multilateral institutions referred to by President Rouhani at Davos in 2014.
As I stated above, the unprecedented and unique position of re-entry into a terminally broken market enables Iran to propose and lead just such a global initiative - an energy Bretton Woods.