Following OPEC's Thursday decision to not lower oil production output, one international oil economist says that the move could undermine the global oil industry and set up the world for a major oil crisis.
Speaking in an interview with Russia Today, Dr. Mamdouh Salameh, international oil economist and World Bank oil and energy consultant, said the OPEC decision, because it will cause oil prices to further decrease, could negatively affect oil producers in the Middle East and could undermine U.S. shale oil production in the long term.
"And of course, it will also undermine, above all, the global oil industry, because many of the oil majors will have to cut and sell assets, and cut investment," he said. "That will be reflected in lower production in the future. It means they are planting the seeds for a huge oil crisis in 2015 or 2016."
Oil prices were down 8.7 percent Friday afternoon, with a barrel of Texas Intermediate crude costing $67.17 - a new four-year low, reported USA Today. Experts say prices are expected to remain below $100 a barrel for the foreseeable future, and could affect Russia, Iran and Venezuela more than others.
"The oil price is likely to continue falling until rising demand and declining non-OPEC supply get rid of the oversupply," analysts at Commerzbank said in a note Friday, reported MarketWatch. "The key role in this looks set to be played by U.S. shale oil producers who will probably face more and more problems at prices below $70 per barrel."
Salameh believes the decision was at least partially politically motivated by Saudi Arabia, who wants to weaken Iran's economy.
"They wanted the price to slide because they can take a bit more pain than Iran, because they need $100 a barrel while Iran needs $125," he said. "They want to damage Iran's economy, which is a very [wrong] decision because it means Saudi Arabia is playing with fire. Furthermore, they hoped that the sliding price will kill U.S. shale oil production. And that will antagonize the United States which is a protector of Saudi Arabia.
"As I know that Saudi Arabia and Iran are having a proxy war. So Saudi Arabia can take less pain than Iran from a reduction in the oil price, but they cannot tolerate it for long, because sooner or later they have to balance their budget. And they cannot balance their budget with $70; they need $100 or more."
