As the last oilman out of Iran in 1979, Jeremy Gilbert knows just how it feels to be caught up in a Middle Eastern revolution. Hospitalized and desperately weak with hepatitis, he was left behind in the general evacuation and only escaped by walking through Iraq – after being forced to kiss the shoes of a border official.
Compared to the 170 British oil workers still trapped in the Libyan desert, the former chief petroleum engineer for BP was relatively fortunate. But the oil shock he lived through was far more serious than the current crisis. “It was a much bigger shock”, says Gilbert, “at least, so far”.
Jeremy Gilbert in Iran in 1977. Photo courtesy of Jeremy Gilbert.
As the revolution developed, Iranian output slumped by some 4 million barrels per day, more than double the output lost from Libya and a far bigger proportion of global demand – then just 66 mb/d compared to over 88 mb/d today. The price soared from $13 to $34, or 150%.
The crisis eased as Saudi Arabia raised production from 8.5 mb/d to 10.5 mb/d, and today the world is relying on the kingdom to come to the rescue again. Saudi was reported to have raised production on Friday to just over 9 mb/d, but its claimed nameplate capacity is some 12 mb/d, leaving ‘spare capacity’ of around 3 mb/d. But Mr Gilbert is deeply skeptical of Saudi’s ability to deliver much more oil in the short term, stressing the length of time it would take to bring mothballed fields and equipment back on stream.
“You can’t operate wells at half the potential off-take one day and then double it the next – it’s just not physically possible”, he says. “I have grave doubts about the numbers that are talked about as spare capacity”. Increased production might be available in 6 to 9 months, he says, “but in terms of what you could do in days or weeks I think the numbers are grossly overstated”.
After the second oil shock, Iranian production recovered surprising quickly, but with western oil companies ousted it has never regained pre-revolutionary levels. “The Iranians could operate the fields on a day-to-day basis, but when it came to developing new fields, introducing new technology, they really weren’t capable of doing it”.
Mr Gilbert fears the long term effect on Libya and potentially other producers could be similar even if the current crisis is resolved quickly. “Libya is on the verge of becoming a significant producer. If the turmoil continues it means we’ll lose a million and a half barrels a day and we won’t see the build up that we might have expected”.
With non-OPEC oil production flat or falling, the IEA has said virtually all oil demand growth must be satisfied from the Middle East and North Africa. But if Mr Gilbert’s fears are confirmed, the result could be many more oil shocks to come.