There's A New Kid In Town -- Iran Versus Kazakhstan

The world oil peak is obviously a popular topic here and many reports look at depletion & production as a function of world supply and demand as a whole. For countries, Chris Skrebowski speaks of Type III depletion which he defines as the tipping point "when a country produces less oil in a year than it did the year before". But what the OECD countries, along with India and China, are most interested in is the oil export capacity of producing countries because almost without exception (Canada), each OECD member plus China and India must import large volumes of oil to meet their internal demand. If a producer is in Type III depletion or close to it, how severe that depletion is as regards exports will depend on it's own internal consumption as well as the geology or economics of its existing production. If that domestic demand is high, this describes the worst case for big consumers who can not meet their own demand. Iran is such a country. On the other hand, the best of all possible worlds is a producer country with little domestic consumption and growing export capacity. And that would be Kazakhstan.

This story examines a hypothetical scenario regarding our best and worst cases regarding their export capacity out to 2012. That in turn is a good measure of how geopolitically important a country is to the US, the Europeans, Japan, China, India and the rest. Afterall, I haven't noticed much interest in Ethiopia or the Falkland Islands lately which, according to the CIA World Factbook (July 28 2005), both produce the same amount of oil--0/kbd.
According to the BP 2005 Statistical Review, in terms of production (page 4) and proven reserves (page 2), Iran is still a giant and Kazakhstan is a middle tier country among the world's oil suppliers. Iran produced 4081/kbd in 2004, 5.2% of the world's total while Kazakhstan produced 1295/kbd, a paltry 1.6% percent of the whole. Iran has 132.5 billon barrels in proven reserves, 11.1% of the world's total while Kazakhstan has 39.6 billion barrels, a 3.3% world share. But let's look into our chrystal ball to see what the future may look like.

According to the EIA, Iran (link above) with a population of 68,017,860 exports 63% of its oil production, using the rest for internal consumption. On the other hand, tiny Kazakhstan (link above) has a mere 15,185,844 people and uses only 18% of its production to meet internal demand. In addition, the EIA estimates Iranian FIP declines at between 8 and 13%. For our purposes, we'll use a hypothetical 10% nearer the lower end. Kazazkstan's current main production is from its Tengiz field, discovered in 1979. Whether it is in any kind of decline at all is unknown but for our purposes, a general 2% rate is assumed for all of Kazakhstan's production. As regards consumption, it is assumed here that Iranian demand remains constant at 37% of all oil produced there. A similar (and generous) assumption is made for Kazakhstan--demand will remain at 18% of all oil produced and the remaining 82% will be available for export.

This is an exercise looking to identify a trend and not make an exact prediction. So, these further assumptions are made in addition to those mentioned above concerning depletion and domestic consumption.
  • Landlocked Khazakhstan can actually transport all of its exports via pipelines like the Caspian and the BTC.
  • No "above the ground" (eg. terrorism) incidents inhibits production in either country.
  • All of the projects mentioned in Skrebowski's Megaprojects document happen without delays in the time frame he gives. For example, a project like Kashagan in Kazakhstan has 3 phases. Skrebowski lists Kashagan Phase 1 as coming onstream 2008 as adding 450/kbd (2009). In this case, I add half (225/kbd) in 2008 and the remainder in 2009--similarly for other cases.
So, what finally after all that does the future look like? Here is the export capacity for each country for the years 2005 to 2012 based on our best Wild Ass Guess.

Whoa! As The Eagles once said in a song, it looks like "there's a new kid in town". Around the years 2008 to 2009 period, Kazakhstan is exporting more total oil supply to the OECD countries, China and (perhaps) India than Iran is. Maybe this would explain why all the Big Boys (the US, the Europeans, Russia, China, India, Iran itself) are so anxious to talk to and bribe the Sultan of the Steppes, Nursultan Nazarbayev who is almost, but not quite, the Kim Il Sung of Central Asia. On the other hand, Iran is easily pounced upon as a part of the "Axis of Evil" over their nuclear program and their stated desire to rid the world of the Zionist Entity and fight the "The Great Satan". Despite the idealized assumptions made in this post, the trend seems clear. Maybe there's more to all this than meets the eye?

[editor's note, by Prof. Goose]Look at Dave go with the Excel! Get on with your bad self, Dave...

Forget about Iraq and Iran - it's time to liberate Kazakhstan next!
I seem to recall hearing that that the oil from Kazakhstan was undesirable for some reason.  Sour, heavy, something like that.
Nothing wrong with the crude, but tough to ship from this more or less land-locked country. However, they are building a pipeline to China, with whom they share a border, so no problem to ship there. Which explains why China was the high bidder for pkz.
/sacarsm on

So, is there really an economic reason to Iran try to develop atomic energy? They need atomic energy to lower Iran's oil and gas consumption (and so, to make possible to export more oil) as the iranian government say and the USA government say it is a lie...

As the USA government have acess to the same data and anyone can get to same conlcusions, it is possible that the USA government is lieing when they say that Iran want atomic energy to get nuclear weapons for the, it is possible that Bush and Cheney are lieing about Iran?

I cannot believe it!!!!!

Bush and Cheney never lied beofre! They found WMD at Iraq and Sadam had ties top Al Qaeda!

/sarcasm off

Sorry my bad english, my native language is portuguese

Good luck to the US soldiers when invading Iran....they will need it...

My guess is that Iran probably has two parallell development programs.
One for building ordinary power producing reactors.
One for developing nuclear weapons.

Both programs can benefit from enrichment plants, fuel manufacturing plants and share some expertese.

Iran could back down by importing enriched fuel for their power producing reactors. Not running their own enrichment and fuel plants removes the ability to make highly enriched uranium that directly can be used in nuclear weapons and fuel to small specialized hidden nuclear plants optimised for producing plutonium.

The problem is that it is possible to hide most of the military nuclear program  and to have most of the equipment underground wich makes it much harder to attack.

If aerial bombardment is contempakted as a tool for removing the Iranian nuclear program it gives bad choices.

1. Bombing the obvious civilian powerplants.
Does not help, makes the Iranians mad, shows that USA is a bad country.

2. Bomb the hidden facilities with conventional weapons.
Will probably not be enough, makes the Iranians mad, will be applauded by manny.

3. Bomb the hidden facilitiss with nuclear weapons.
Will probably work if you hit enough of them, makes everybody mad.

4. Bad Iranian planning leaves key facilities out in the open.
Makes Iranians mad and only makes other people realy mad if the only soft spot left was to take out the qualified workforce  including their neighbourhood.

They only good outcome is if internal opposition makes Iran more democratic  and other countries are allowed to inspect that they indeed only run a nuclear power program. If they liberalise seriously it even removes them as a threath even if they do build nuclear weapons. But that will probably take generations.

The nightmare scenario is of mullas afraid of change initiates a war on USA or Israel and use a beginning defeat as an excuse to use nuclear wepons on large soft partly military tagets like ports or airfields.

The Iranians are 10 years away from developing nuclear weapons.

No, the US is more concerned with the opening of Iran's internet, Euro-based oil bourse in March next year.

Any attack to stop this going ahead will most definitely be based on the argument that Iran is just about to make some nuclear weapons.

I would predict that not long after we've had a nice, warm, fuzzy christmas and new year, the US administration will start the hype machine about Iran's nuclear weapons plans, building up to a crescendo around the end of February ready for the March strike.

If my prediction comes true, it will be one of America's biggest mistakes.

1st - I totally agree with your scenario.
2nd - Consider this: Under the Bush doctrine of 'pre-eminate strike' if 'imminent danger' is detected (or thought to be detected), Iran currently has ample reason to start a war with the U.S.. Of course, if they employed the same excues for their war as we did with Iraq, no one would listen to them.
3rd - If the peak really is comming, what ethics are involved? Is it reasonable to use military force to ensure economic stability? These are questions for debate.
Old news, old ideas, almost old issues, except for Iran's oil.
I really can't fathom Iran being the one to initiate a war with the US and/or Israel. If anything, it would far more likely be the other way around, with Iran's alleged nuclear weapons program being the excuse.

Because we are bogged down in Iraq, such a war would be almost totally restricted to a massive bombing campaign. However, unless we nuke them off the map, no amount of conventional bombing is going to bring the Iranian government to its knees.  Yes, it will make them mad, very mad.

It would seem reasonable to expect Iran to retaliate by 1) immediately shutting down all of its oil exports thus immediately removing 4 million barrels per day from the world oil market,  and 2) attack US- and UK-bound tankers going through the Straits of Hormuz with land-based cruise missiles.  Regardless of our air superiority, such an attack would not be very difficult, as those missile launchers are easy to hide in the rugged terrain of the Iranian coast, and a super tanker makes quite a juicy easy target. The sinking of a single super tanker would throw the world oil markets into total panic and cause economic havoc throughout the West.

Thus, an attack on Iran would be folly for the US, but the powers that be are just stupid and twisted enough to try it.

You forgot to mention the 150,000 hostages; I mean troops we have next door in Iraq.  The Shia in Iraq are mostly sitting out of the game and letting the Sunni carry on with the insurgency.  Attacking the Ayatollahs in Iran would tick off the Iraqi Shia to no end.  

Imagine you are the American commander in Iraq.  On a normal, sunny day, you cannot secure the road from the Baghdad Airport to the Green Zone.  Now, your team just attacked Iran and the Iranians are sending, oh, four divisions your way.  It is a straight shot from the border across friendly (for them!) territory.  

Helicopters are useless because the Iranians have shipped in gobs of shoulder fired Surface-to-Air missiles and passed them out like beads at Marti Gras.  Any fixed winged aircraft have to come from out of country because of the same reason (they gotta fly `real slow' on landing approach).  And don't count on the US Navy's help from the Persian Gulf.  Iran has some nasty anti-ship cruise missiles from Russia called SS-N-22, Sunburn.  They fly at Mach 3, got a 320 kg warhead, and no one knows how many Iran has.

Let's not forget fuel.  There may be gigabarrels of the black stuff under your feet, but those pissed off Iraqis are NOT going to let a single fuel truck into your gates.  Aircraft don't fly.  Trucks don't drive.  Armored vehicles don't fight.  Hell, even generators don't work too well without the stuff.  Bye, bye air conditioning, computers, anything else that puts the `modern' Army ahead of the game.

Let us review.  Your forces are spread across the country in either large `Enduring Bases' or their satellite compounds.  Every single person in the most heavily armed patch of dirt on the planet is mad as hell with you.  A nearby country with 63 million people is invading.  You have no air support.  There is no naval support.  The rest of the world is mad at your country.  And you have some 150,000 people depending on you...

Anyone want the job?  

Dave's excellent post does bear out the fact that Iran's desire to develop nuclear capacity for peaceful purposes of power generation is eminently justifiable by the hard scientific facts.  Nevertheless, it probably is true (in my opinion, anyhow) that Iran is concealing an ulterior motive of acquiring nuclear weapons capabilities also.  Now this deceit on Iran's part is arguably blameworthy (I would argue that it is; as a lover of truth, I would say that deliberately propagating falsehood is always wrong).  But who can justly blame the Iranians for wanting nuclear capabilities as a means of self-defence against manifest US tendencies to engage in unprovoked aggression against other nations?
Total exports from the two countries seem to be dropping.
Meanwhile, Iran's population is young and breeding well(typical of other OPEC countries, not least Saudi), so their internal demand is almost clearly understated.
As an aside, citizens of OPEC countries tend to be fairly well off, and oil is frequently subsidized to keep their non-voting citizens happy, or at least not sad; OPEC countries' internal consumption is likely to be surging, off-setting some of the demand destruction going on in others.
What is your definition of "Fairly well off"?

GDP per capita has been falling in most OPEC countries.
In fact, the GDP per capita measured across all OPEC countries is now lower than any of the OECD countries.

Matt Simmons has recognised that increasing poverty in these countries is likely to fuel increased terrorism.

First someone beat me to the punch.  

 Suadi regular Joe's aren't as well off as they once were, now that their numbers are so high.  Used to they could make a decent living off the Crown's Oil payments,  Now those numbers are cut almost in 4ths.  The Princes number into the 1,000's each of them getting bigger cuts.  There are several articles in National Geographic, first starting in the early to mid 70's and either this year or last year talking about all this.  I don't have dates on these, but have seen them and read them.

 Indonesia recently opted to slow or shut down completely their oil subsidy.  Though it was met with some turmoil, it was a needed thing as Indonesia is not a NET Importer of Finished Oil Products.

 IRAN is not a Place filled with rich folks feeding off the oil either.

 Only the Shiekdoms,  Only the places where the Princes or Shieks  are in control,  mostly the Little countries outside of Saudi Arabia, are filled with small Largely Rich Populations.

In 2002, a high-ranking deputy in Iran suggested that Iran may not be an oil exporter at all past 2007 if their internal consumption patterns didn't continue.

The situation may be more extreme that you have already noted.

Ooops -- I meant if internal consumption patterns didn't change.
It's a simple matter of geography why Iran wants the bomb. To the east is their border with Pakistan and to the west is the US controlled Iraq. Add in the B-52s on an Indian Ocean island and they have good reasons for their desires.
So what would happen to both Iranian production and internal demand if the US attacked them?  What are the odds that any invader could sucessfully take and hold their oil fields in production worthy condition?  Scratch that, it doen't need to be possible, it only requires a few neocon madmen to think it is.  I would imagine internal consuption in Iraq has been experiencing significant "demand distruction" lately. Of course the production is also hopeless, so that does not seem to be working out so well.  
Never underestimate the power of spite as a motivation for human behavior. It shows its ugly head from messy family squabbles all the way up to the manner in which countries interact with each other.  The economists' arguement that all actions are in accord with rational self-interests goes right out the window once you realise that spite is a major motivator of human behavior.  People are inherently nasty.

Now, can it be realistically thought that if Iran were subject to a massive US/Israeli attack that they won't do everything in their power to drop one big turd in the global punchbowl?

And, what would that big turd be? Why, of course it would be the Oil Weapon, and Iran would respond by destroying as much oil exports going through the
Gulf in proportion to the damage done upon its homeland. Can we expect otherwise?  If you were the leader of Iran, would you do anything differently?

By the way, an old but relevant precedent is the US oil embargo of Japan starting about five months before Pearl Harbor.  It surely must have cost US oil companies several billions of dollars (when a dollar was a dollar), but nonetheless FDR  felt in in the nation's interest to absorb that cost in order to advance a foreign policy bent on containing Japan.  Japan, however, followed the Bush doctrine of preemption and took out Pearl Harbor as a way of getting the jump on the Americans, who were determined to have a war with Japan come hell or  high water.

Do we learn anything from this episode? Probably not.

I had read or heard somewhere that 70% of Iran is under 25 years of age. Maybe younger.
Bear in mind Israel would love to pound on the Iranians, in fact Iran recently told Israel "don't mess with us or you'll live to regret it".
I think Israel would love to take on Iran with a wink and a nod from Washington.
Just also remember that China is courting Iran for oil. I could not see China sitting back and letting the US pound them into submission. If the rhetoric starts cranking up from Washington don't be surprised to see China threatening to send a few divisions of the Red Army.

Joint military exercises between Iran and China would really turn up the heat.


Yes, China was mighty pissed off when the oil contracts they had with Saddam (worth billions of dollars) were nullified after the US invaded.  Now that they have similar contracts with Iran, I don't think they'll let the same thing happen again.

By the way, that was one of the reasons France was so pissed off with Bush.  Their oil contracts with Saddam were also nullified after the 'liberation'.

 If you have played Sid meyer's Civilization games you know that powerful as bombers and missiles may be, they will not let you occupy a city. You need ground units, tanks and infantry. It's much the same in the real world.

The invasion force dont have time for 12 years of UN sanctions to soften up the country.
Iraq has about 20 million inhabitants, Iran 70 million.
Iran is bigger than Iraq.
That must mean that it will require a lot more manpower to control Iran than to control Iraq.(I am not saying that Iraq is under control) and as far as I understand the army already has problems with recruiting enough. I don't see how it will be possible for the USA to invade any country without using a lot of poorly motivated conscripted soldiers. When Bush starts to build an army of conscripts, then I will start worrying about Syria and Iran.

The share of the Iranian domestic consumption of the total production has increased from 28% in 1994 to 36% in 2004. During this time production has been practically flat (some increase in the '00s). Domestic consumption has been consistently rising so we could expect its share to reach 45% - 50% in ten years - without considering depletion. So Iran may become another Indonesia and become an oil importer in few years time. Domestic consumption is really important.

Iran has rapidly growing population as noted here - and ambitious industrialization program to employ all those young people. Iran has some coal, too, which helps building industrial capacity. It is practically the only Persian Gulf country that could become an industrial power - lots of energy - oil, gas, coal, some hydro), minerals, rather well educated labor force, rather good logistical facilities.

Iran stll uses cnsiderably less oil per capita than the European countires or the US. If the Iranians used as much oil as the Americans per capita they would triple there domestic consumption and would be importers.

We might think that this is what is behind the Iranian-US problems. Iran is ceasing to be an oil and gas exporter and becoming a strong regional power. Iran is not the only oil exporter that wants to add value to its energy exports by industrialization. Venezuela is one of them. Nigeria, Angola and Algeria might consider this. All South America is in this. Russia is not going to be an exporter for long. China was, but is no more. Like Indonesia.  

Simmons has right - many of the oil exporters with a large population have a poverty and unemployment problem that could be helped by industrialization - consuming more of the oil and gas at home.

Think Iran as a new West Asian industrial tiger and oil importer - right in the middle of the most important oil exporters. Iranians are already very interested in the Iraqi oil. Bombing the Iranian industrial infrastructure could make sense in this context and serve as a warning to all those oil producers who might consider using more themselves. It also makes sense to sponsor the conservative Islamic forces - they do not advocate industrialization and modernization. Traditionally the nationalists, Arab socialists, baathists and like have been for industrialization. Iraq had some energy-intensive heavy and chemical industry - but has no more.  

PS. Do the excercise: if the 550 million people in he OPEC would use as much oil per capita as the Americans - what would happen? Or even as much as the Europeans in the EU?
I intentionally understated Iran's internal consumption going forward, so as you and others have noted, their future export capacity is probably worse than I said. Even with my generous assumption about their internal demand, the trend seemed clear enough.
No one mentioned the massive amount of NG Iran has. The contract it has with China alone will need 100+ LNG tankers built to fulfill. When combined with Qatar's part of that massive field, far too many people in the world are/will become dependent on that energy source for further war in the region, which will likely be its saving grace. Imagine if Bush had bombed Qatar what an even deeper mess we'd be in now.

For Hitler, Lebenschram was to be provided by the oil in the east. The Russians won the war because Hitler was a terrible military tactician. I think everyone will agree that Hitler needed to be defeated regardless of his genocidal efforts. The actors today are different, but the motivations remain the same, and many would argue that there's also a genoicidal aspect to a project that's been ongoing since Bush I.

We must change direction by realizing that our lifestyle is non-negotiable because its a disaster for the planet, not that it's any sort of plus. That's my Thanksgiving Prayer.

Will the two recent explosions and the environmental catastrophes that resulted at Chinese petrochemical plants in Habrin City and the southwestern city of Chongqing have any significant effect on China's demand for oil?  
The comment about what Iran can do militarily is quite good. They are armed with sea based and land based cruise missiles. They have at least one midget submarine in commission and more building - they land frogmen in harbors to mine tankers. They have three divisions available and ready to go on the Iraq border for invading if attacked. The price of oil and NG would go up substantially in the event of war.

One plan is for three days of conventional bombing by the USA. Israel really can not do that but they have a nuclear deterrent available if the Iranians do something really crazy - one past Iranian president did say it would be O.K. to lose 10,000,000 Muslims to wipe Israel out, though. We know what the current President said, and do not forget, the Jews do know what a holocaust is all about. They will fight Iran from doing something nuts.

But you miss some other points. Iranian youth like the USA, something not typical is places like Jordan or France. They might change their like to dislike if we bomb the hell out of them, but it is a fact. Secondly, only 51% of the population is Persian. 3% is Arab, there are more Azerbaijanians (sic?) in Iran then in that Azerbaijan. You have the Baluch Liberation Front operating on the Pakistan border, etc., etc.

That is why Rumsfeld has established the Caspian Guard, in part to threaten that flank of Iran.

Remember, too, all the little gulf states and S. Arabia would be cheering us on. Iran is a huge military threat to them, especially in the air, and they do not like Shia's.

As to internally in Iraq, we would see more attacks against our troops but remember we are moving them out of population centers as the Iraq security comes on stream.

However, having said all of this, I don't think the USA will do anything at this time. After 2006 when we begin drawing down from Iraq you might see that three day bombing exercise (I think after the congressional elections), but it would whack out the world economy too much.

As to China. They won't do anything except maybe invade Taiwan while we are busy in Iran, if we are there for longer then three days.