THE SIGNIFICANCE OF A DEAL WITH IRAN AND RUSSIA'S OIL PREDICAMENT

Below are two interesting articles which is a MUST read.

Having read through both, I would like to share my opinion of the significance and impact of the deal with Iran.

I tend to agree that there is a potential for a major oil spike if all Capex are put on hold or cancelled due to the depressed oil price. A major spike could actually result in a global crisis of epic proportion, including a super inflation.

I believe the depressed oil price will result in a wave of bankruptcies among shale oil companies. This could result in many being taken over by Big Oil, several of which have recently enlarged their war chest to potentially take over weak and failing shale oil companies with attractive assets.

Some have opined that the current oil crisis was engineered to destroy the US shale oil companies. I think it was more than that. In collusion with who I have no idea. But here are some interesting outcomes which could happen:

1) US shale oil companies become attractive take over targets by Big Oil.
2) The oil crisis has resulted in a recession in Russia which could deepen into a depression if the current crisis is prolonged (read the Daily Telegraph article).
3) Venezuela is in a state of financial meltdown due to the oil crisis.
4) Due to 2) and 3), two major oil producers are now in dire straits.  Cut off from the world without foreign investment and import of new technology, oil production will continue to worsen and continue to damage the economy.
5) Oil companies from US and Europe have indicated interest to help Iran pursue its agenda to increase production. In the Middle East Eye article, it was mentioned that several oil executives from US were in discussion with Iranian officials many months prior to discuss post-sanctions co-operation to tap on the oil bonanza. Included in the deal with Iran would likely be a condition to grant access for foreign oil companies to invest in Iran oilfields.
6) A resurgent Iran would act as a balance of power in the Middle East.

There is now doubt that Iran can quickly increase its production as feared by many. In fact, the Mid East Eye article states that production could only come online a few years after the sanctions are lifted which most probably will be next year. By then global economy would perhaps be able to absorb the excess supply.

Interestingly, supposing Big Oil have acquired large enough shale assets, have rights to Iran's oil, and with Venezuela and Russia seeing their production continue to decline, would we not see a sense of stability returning to the price of oil? And of course a gradual and coordinated increase in price as well.

The above is just my opinion.

Link 1: http://www.telegraph.co.uk/finance/economics/11759391/Oil-and-gas-crunch-pushes-Russia-closer-to-fiscal-crisis.html

Link 2: http://www.middleeasteye.net/columns/iran-deal-about-staving-coming-oil-shock-1366649799