The information in the October Monthly Oil Market Report from OPEC show that crude oil production from KSA is running at 9.85 mbd, as reported by other sources.

When one looks at the production that KSA itself is reporting, the numbers are slightly reduced.

While the comparison of the two levels of crude suggest that the US has a long way to go in matching KSA crude production, the two sets of figures also point to the answer to another question.

Looking at the figures for Iran, it is clear the sanctions that have been imposed on this nation by the West are having a serious impact. Not only is this seen in the fall in oil production, likely around 1 mbd, but in the more consequential cut to exports this fall is reflected in a $7 billion reduction in income. Iran has just started to admit that this bite in their export market is hurting production. And it is only now that they recognize that this will further fall, though they are also threatening to carry this drop to its ultimate conclusion, and to stop exports entirely. An immediate impact would fall on Turkey, which has cut oil imports from Iran by about 20%, but which has a six month exemption from the full impact of the sanctions. It is currently importing around 200 kbd of crude. Some of that oil's value is apparently returning to Iran as gold bullion, which can be easier to spend.

However, the primary question might well be: if world oil markets are so tight, why hasn't taking a million barrels out of production had a more significant impact? And the answer to this comes in part because of the increase in production from KSA (note that a year ago the country was producing around 500 kbd less than it currently is), and also from the gains in production from the United States (as shown in Figure 1).

Further, given that the global economy, though regenerating from the depths of recession, is still not operating at levels sufficient to bring unemployment to more normal levels, overall demand also remains below what it might be.

Since we live in a global economy, the problems of Europe and America are reflected in a reduced demand for goods from China and other Asian countries, which impacts the energy demand from factories. China has been taking some 40% of the Iranian export. OPEC has noted that Chinese demand has declined, and that part of this decline stems from an 18% reduction in imports from Iran. Interestingly, this was partially made up through an increase in imports from Iraq.

One of the threats that Iran has made is that it will shut down its exports completely. The country was initially exporting some 2.3 mbd before sanctions occurred, and sanctions have dropped this already to around 860 kbd. Of this, 200 kbd are going to Turkey, but this is a country with pipeline connections that give it options. There is a pipeline running from Iraq, the Kirkuk- Ceyhan connection which carries 300 kbd, and was briefly damaged by fire in August; and more famously, there is the Baku-Tiblisi-Ceyhan pipeline from the Caspian. This can carry 1 mbd of crude, and having run 190 mb through September this year, it is running not quite full.

In short, as with the suggestions mentioned the other week that Iran might seek to challenge Qatar in going into the natural gas LNG market, the threat this week is that it might shut off exports of crude seems to be likely geared only for domestic consumption.

The global demand at present is not such that the Iranian supply is critical to ensuring a balance in an acceptable price between supply and demand. It would seem that the global economy would need to regenerate further, and for North American and KSA to reach some form of current peak in production against that potential of rising demand before this balance is threatened. But in consolation to Iran, resting oilfields can sometimes help in terms of their longer-term production (as KSA has practiced for years).