Let’s make an experiment...
Just go and google this two words: DONALD
TRUMP.
What do you get?
I’m sure you will find lots of results about
his latest tweet, his latest bold statement
or his latest sexual scandal.
But perhaps you will have to go to the second
or third page to find something about what
appears to be one of his biggest political
bets.
We are talking about something that might
change the international economy, the price
of oil and the fate of two countries.
Yes, my dear viewers, I’m talking about
the IRAN SANCTIONS.
This is such a complex matter that we will
make not one, nor two but three videos to
cover all the caveats.
In Today’s video we will focus on one question:
what does the nuclear program has to do with
the price of oil?
At the end of this video, you will see where
I’m coming from.
As every good story, we should start by introducing
the characters.
The first one is, of course, the Islamic Republic
of Iran: a country known by the Persian carpets,
the uranium enrichment and…
Oil!
Yes, Iran has the forth largest dinosaur juice
reserves on the planet.
But not only that!
If you’ve been subscribed to VisualPolitik
for a long time, you already know that there
are different types of crude oil.
For example, if you want to extract an oil
barrel in Scotland, at the North See, you
gotta build a sea platform, make a super deep
hole that goes below the bottom of the ocean
and spend a use rocket technology to refine
it.
In total, a barrel has an extraction cost
of more than 44 dollars.
In Iran, the extraction cost is smaller than
a fourth of that.
Alongside with Saudi Arabia, they have the
cheapest oil on the planet.
So what is their problem?
Well… they just can’t sell it to most
of the countries.
Iran’s economy is virtually isolated from
the rest of the World.
This means they can only export 3 million
barrels a day.
It might seem like a lot but this is nothing
if we compare it with the 10 million barrels
sold by Saudi Arabia.
So now you might wonder… who is Iran’s
worst enemy?
Yes, I know what you are thinking…
America, right?
Well… you are wrong.
Iran’s arch enemy is, of course, Saudi Arabia.
Yes, I know… both countries are muslim,
both countries follow strict religious principles
and both countries consider human Rights as…
optional.
But not all the Islam is the same.
In Iran they are SHIA muslims while Saudi
Arabia is a SUNNI muslim country.
So, in summary, they hate each other.
But this is another story for another video.
So what’s Saudi Arabia’s problem?
Well… despite having oil and lots of money,
their economy is at the edge of collapse.
Basically, they spend all their money in living
like a hip hop artist on a Friday night.
And since they don’t export anything else
than oil, anytime the price of the barrel
goes down on the market, their economy goes
panic.
So now you might wonder…
Who is Saudi Arabia’s best friend?
Well… this is when America gets into the
picture.
OK, OK, the relationship between Uncle Sam
and the Saudi Royal house is not as wonderful
as it seems from the outside.
During the Obama administration, the White
House put some pressure on the Saudis and
tried to close ties with Iran.
This is how the nuclear deal came about.
But now the president is Donald Trump.
And since he put a foot on the Oval House,
Trump made clear who is his ally in the Middle
East.
This is why on his first official trip he
went to RIYADH, the Saudi capital.
Even now, alter the alleged murder of a Saudi
journalist in Turkey, Donald Trump is trying
to avoid making a firm condemn.
But the best proof of his friendship with
the Saudi Royal House are the Iran nuclear
sanctions.
Yes, you heard this right.
So now you might wonder… what does Saudi
Arabia has to do with the Iran sanction?
What does oil have to do with all of this?
Today we are going to answer to all of this
questions but, before we do, let’s take
a look back at history.
A POLITICAL BOMB
Remember this date: April 2015.
In this moment, Barack Obama signed the Iran
nuclear deal.
Basically, on this agreement, America, China,
Russia and the European Union said they would
start trading with Iran if they stop their
nuclear bomb program.
This explains why, from one day to the other,
oil exports from Iran almost doubled.
Just look at this chart.
Prior to Obama’s deal, Iran was exporting
1.8 million barrels a day.
After the deal Iran went to as much as 3 million
barrels.
Y eso explica que, de la noche a la mañana,
las ventas de petróleo de Irán prácticamente
se duplicaran.
Fijaos en esta gráfica.
Their new clients were Spain, France and other
European countries.
And what happens when the oil supply increases
on the international market?
Well, the oil barrel price drops.
Just look at this other chart.
In the moment the deal was signed, the BRENT
barrel was 67 USD.
Just on year later, it was half as cheap.
Of course, there are many other reasons to
explain this price drop.
But, definitely, Iran was one of them.
Nonetheles… wait a minute because this is
just the beginning of the story!
If you’ve been subscribed to VisualPolitik
for a long time, you already know how hard
it is to extract oil.
You need technology, companies and, specially…
MONEY!
In other words, if the National Iranian Oil
Company wants to produce more oil barrels,
they need investors.
And in this moment is when the real financial
bomb was dropped!
Saudi Arabia is considering an IPO of Aramco,
probably the world’s most valuable company
But let’s pause it there…
Why are this news so important?
Well… let’s rewind for a moment…
A FINANCIAL EXPLOSION
I’m gonna make you a question… who is
the World’s biggest company?
Many of you might think of Apple, Coca Cola
or some bank, right?
Well… none of those.
The World biggest company is called ARAMCO.
This is the national oil company from Saudi
Arabia.
However, don’t waste your time finding them
on any stock market: they are just not public.
ARAMCO is owned by the Saudi royal family.
Nonetheless, having the World’s biggest
company doesn’t mean you cannot go bankrupt.
You see, as the oil prices go down, Saudi
Arabia is in dire straits.
They just need to diversify their economy:
live from other things apart from petroleum.
And how can you do this?
Easy!
Starting your own hedge fund!
Saudi Arabia wants to build a $2 trillion
mega-fund
This means the Saudi Government wants to start
investing Money in other companies.
Weird as it seems, this won’t be the first
time a whole country invest on businesses.
In fact, the World biggest hedge fund belongs
to the Norwegian government.
The saudies just wanna make something similar.
The problem?
They need Money.
Where do they get that Money?
Easy!
When you have the property of the World biggest
company, you just need to sell 5% of it on
the stock market and you will get all the
cash you need.
This way, Saudi Royal family would kill two
birds with one stone: first, they made money,
second, they kept Iranian from getting that
juicy investor’s money.
Do you remember when I told you that, in 2016,
Iran wanted investors to build new oil rigs?
Well, before those investors would consider
Iran, Arabia Saudita wanted to put a sweeter
candy in front of their eyes: ARAMCO.
But wait a minute because not everything is
that easy!
You see… listing a company on the stock
market is great because, out of a sudden,
you get a lot of cash.
But there is a problem: everyone must be able
to check your balances.
Nobody would buy stocks from your company
if they don’t know, exactly, how much money
you got, where and how do you spend it.
In other words… you gotta be transparent.
And this is, exactly, the least favourite
word of the Saudi Royal House.
During decades, the Saudi monarchs have been
using ARAMCO as they wanted: parties, luxury
and… well… the kind of things you don’t
want anyone to know.
But this is not the only problem.
According to the Prince Muhammad Bin Salman,
also known as MBS, ARAMCO is worth 2 trillions
dollars.
That means that this 5% he wants to sell would
worth 100 billions.
Nonetheless, as soon as he started talking
about the IPO, all this financial analyst
started making their own estimations and they
said…
Two trillion bucks!?!?!?
With the price of oil falling like this?
Oh, come on, Prince Salman!
You gotta be dreaming… look, ARAMCO might
worth 1.2 trillion…
1.5 if we are optimistic but… that all,
man!
In other words, that financial explosion ARAMCO
IPO was meant to be became just a nice buzzword…
During the last year, anytime Prince Salman
was asked about this, he said things like…
Oh, yeah… yeah man… we gotta do this but…
maybe another day, you see… like… today
I’m kinda busy… this week I gotta do…
you know… like… stuff…
But wait a minute!
Because this is not the end of the story!
A CRATER ON THE MARKET
Remember this date: May 2018.
This is the moment when Trump broke the Iran
deal and announced new economic sanctions.
But not only that!
He also promised secondary sanctions against
those countries that would not comply.
In other words, if any country wants to buy
oil from Iran… well… they will have to
deal with Uncle Sam.
And this includes European Union.
Other countries such as China have already
said they will not listen to Trump and they
will keep buying oil from Iran.
India, their second largest client, has said
they will try to reduce their imports but…
they can’t stop 100% buying oil from the
country of the Ayatolahs.
Nonetheless in seems that EU will have to
follow Donald Trump to the letter even if
they don’t want to.
But this is a matter for the next video.
The truth is… nowadays, Europe is buying
more than 1 million barrels to Iran.
Every day.
This means, if we put Iran out of the equation,
we have a whole of 1 million barrels that
somebody has to fill.
Because one thing is clear: everybody needs
dinosaur juice.
And guess who is more than happy to fill that
void?
Exactly!
Trump Pressures Saudi Arabia to Increase Oil
Production
Nevertheless, Saudi Arabia has just increased
its production in 600,000 barrels.
Russia has done it by 200,000.
If you do the math, you get 800,000 barrels…
we still need more production to fill that
void!
And do you remember what happens when we reduce
the oil offering on the international market?
Exactly!
Oil barrel price goes…
UP!
Let’s go back to the BRENT chart.
If you pay attention, you will see that right
alter Trump started talkig about the Iran
sanctions, the dino juice has gone til the
80 USD.
In other words, things are starting to go
really, really good to Saudi’s economy.
Saudi Arabia's Sovereign Wealth Fund Raises
$11 Billion Loan
So what does this mean?
Well… two things.
On one hand, the Saudi Royal Family has now
a lot more of breathing space for that ARAMCO
IPO.
The company is profitable enough so they can
wait for going to the stock market.
On the other hand, if they could keep the
oil barrel at 80 USD, it would be way easier
to make the initial valuation closer to 2
trillion dollars.
And this explains news like this one.
Saudi crown prince says IPO for oil giant
Aramco will happen by early 2021
Meanwhile, there are two things we should
cover.
First, the Islamic Republic of Iran is at
the edge of economic collapse.
This is leading to protests, social unrest
and an authoritarian regime that is on a very
bad moment.
Second, we have the big question…
Is EU going to comply with Trump’s sanctions?
The debate couldn’t be more hot nowadays.
EU acts to protect firms from Donald Trump's
sanctions against Iran
So now the question is…
Do you think we are at the beginning of the
end of the Ayatolah regime?
Do you think European Union will keep buying
oil from Iran?
We would love to read your theories and, in
the following videos, we will see how much
do they match ours.
Also visit the RECONSIDER MEDIA website, the
podcast that provided the vocals on this episode
that were not mine.
In the meantime, don’t forget we publish
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If you liked this video, give us a thumbs
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