This article is a continuation of my Blog “World
Oil Scenario”, URL htpps://naseemmahnavi.blogspot.com?2013/11/world-oil-scenario.html?m=1
published on November 30, 2013. The apprehensions mentioned then are not only
coming true, but an ominous situation is arising. Let us get the facts together
first.
Cost of Production
The cost to produce a barrel of crude oil
varies significantly across the globe, primarily driven by the accessibility of
the oil (onshore vs. offshore), the technology required (shale fracking vs.
conventional pumping), and local tax or regulatory frameworks.
As of early 2026, here is how the
production costs per barrel generally break down by country:
|
Country
|
Production & Operating Cost
|
Total (Inc. Capex & Taxes
|
|
Saudi Arabia
|
~$3.00
|
~$9.00
|
|
Iran
|
~$2.00
|
~$9.10
|
|
Iraq
|
~$2.20
|
~$10.50
|
|
Russia
|
~$3.00
|
~$19.20
|
|
U.S. (Non-Shale)
|
~$5.15
|
~$21.00
|
|
U.S. (Shale)
|
~$5.85
|
~$23.35
|
|
Canada
|
~$11.50
|
~$26.60
|
|
Nigeria
|
~$8.80
|
~$29.00
|
|
Brazil
|
~$9.45
|
~$35.00
|
|
United Kingdom
|
~$17.30
|
~$44.30
|
With Brent crude oil currently trading
around $95/bbl, almost all major producing nations are seeing healthy profit
margins. However, for higher-cost producers like the UK, the margin is much
thinner than for Saudi Arabia, which enjoys a nearly 90% profit margin on its
production costs.
Global Oil Exports
The landscape of global oil exports has
shifted significantly between 2005 and 2025. The most dramatic change is the
rise of the United States, which moved from being a massive net importer in
2005 to one of the world’s leading crude oil exporters today.
Below is a comparison of net oil exports by
country, highlighting the top players and the evolution of the market.
Top Net Oil Exporters: 2005 vs. 2025
Figures are approximate in millions of
barrels per day (mb/d) based on historical records and recent 2025/2026
reporting.
|
Country
|
2005 Net Exports (Est.)
|
2025 Net Exports (Est.)
|
Trend
|
|
Saudi Arabia
|
~7.50 – 8.00
|
~7.50 – 8.00
|
Declining (OPEC+ cuts)
|
|
Russia
|
~4.50 – 5.00
|
~4.50 – 4.80
|
Stable/Slight Decline
|
|
United States
|
-10.00** (Net Importer)
|
~4.10 – 4.30
|
Massive Growth (Shale Revolution)
|
|
UAE
|
2.30 – 2.50
|
~2.70 – 2.90
|
Increasing
|
|
Canada
|
~1.30 – 1.50
|
~3.50 – 3.70
|
Significant Growth
|
|
Iraq
|
~1.40 – 1.60
|
~3.30 – 3.50
|
Doubled
|
|
Norway
|
~2.10 – 2.30
|
~1.50 – 1.70
|
Declining
|
|
Brazil
|
~0.10 (Minimal
|
~1.70 – 1.80
|
New Major Player
|
Key Market Shifts (2005–2025)
The
U.S. Transformation: In 2005, the U.S. was the world’s largest oil importer,
relying heavily on the Middle East and Venezuela. By 2025, due to the hydraulic
fracturing (fracking) boom, it has become a top-three global exporter of crude
and refined products.
The
Rise of Guyana: Non-existent in the 2005 export market, Guyana has become a
“wildcard” in the 2020s, with production and exports surging toward 1 million
barrels per day.
Consolidation of Power: As of 2025, five
countries (USA, Russia, Saudi Arabia, Canada, and Iraq) produce nearly 50% of
the world’s total oil supply.
OPEC+ Influence: While Saudi Arabia remains
the “swing producer,” its net exports have faced downward pressure in 2025 due
to voluntary production cuts aimed at stabilizing prices amidst high non-OPEC
production (from the US and Brazil).
Current 2025 Context
Global oil trade is currently impacted by
geopolitical tensions in the Middle East and ongoing sanctions on Russian
energy. While demand for oil remains high in developing economies like India,
the transition toward electric vehicles and renewables is beginning to flatten
the long-term growth curve for exports in advanced economies.
The crude oil market has evolved
significantly between 2005 and 2025. While specific “selling prices” for every
exporting country are rarely fixed (as most follow global benchmarks like Brent
or WTI), the average annual prices and the premiums/discounts for major export
blends provide a clear picture of the shift.
Below is a comparison of the average prices
and key export benchmarks for both years.
Global Benchmarks (Annual Averages)
These serve as the “anchor” prices for
almost all exporting countries. Most countries sell their oil at a slight
discount or premium to these based on quality (API gravity and sulfur content).
Estimated Average Selling Prices by Key
Exporting Countries Prices for specific countries are based on their
primary export blends (e.g., Saudi Arabia’s Arab Light or Nigeria’s Bonny
Light).
|
Exporting Country
|
Primary Export Blend
|
2005 Price (Avg)
|
2025 Price (Avg Est.)
|
|
Saudi Arabia
|
Arab Light
|
~$50.50
|
~$70.50
|
|
Russia
|
Urals
|
~$50.10
|
~$62.00 - $65.00
|
|
Nigeria
|
Bonny Light
|
~$55.60
|
~$71.50
|
|
Iraq
|
Basra Medium
|
~$48.20
|
~$67.50
|
|
UAE
|
Murban
|
~$53.80
|
~$71.00
|
|
Kuwait
|
Kuwait Export
|
~$49.50
|
~$68.80
|
|
Canada
|
Western Canadian Select
|
~$38.00
|
~$52.00 - $55.00
|
|
USA
|
WTI
|
~$56.49
|
~$65.39
|
|
Brent Crude
|
Global Standard
|
$54.38
|
$69.00 – $72.00
|
|
OPEC Basket
|
Member Average)
|
$50.64
|
$68.00 – $71.00
|
While the nominal price in 2025 is higher
than in 2005, it is actually lower when adjusted for inflation. $54 in 2005 has
the purchasing power of roughly $85–$90 today. Therefore, oil exporters are
technically receiving less “real” value per barrel in 2025 than they did during
the 2005 boom. The disparity really lies in the profit margin which is about USD
65/barrel for the Middle Eastern nations it is only about USD 45 for USA and 25
for UK. It could cause serious heartburn in certain circles.
Production 2005, 2025
The landscape of global oil production has
shifted dramatically since 2005, primarily driven by the “Shale Revolution” in
North America and shifting geopolitical dynamics in the Middle East and Russia.
In 2005, the world produced roughly 82
million barrels per day (mb/d). By early 2026, that figure has climbed to
approximately 106–108 mb/d.
Comparative Production: 2005 vs. 2026
Below is a comparison of the top producers
from two decades ago versus today’s output (in mb/d).
|
Country
|
2005 Production
|
2026 Production (Est.
|
Change (%)
|
|
United States
|
5.18
|
13.58
|
+162%
|
|
Russia
|
9.23
|
9.87
|
+7%
|
|
Saudi Arabia
|
9.58
|
9.51
|
-1%
|
|
Canada
|
2.37
|
4.94
|
+108%
|
|
China
|
3.63
|
4.34
|
+20%
|
|
Iraq
|
1.83
|
4.39
|
+140%
|
|
Brazil
|
1.72
|
3.75
|
+118%
|
1. The American Resurgence: In 2005, the
U.S. was considered a declining oil power, heavily reliant on imports. The
advent of horizontal drilling and hydraulic fracturing (fracking) completely
reversed this. The U.S. has more than doubled its output, moving from the #3
spot in 2005 to the undisputed #1 today.
2. The Rise of “New” Giants (Canada,
Brazil, Iraq)
Canada: Production has more than doubled due to the
maturation of the Oil Sands projects in Alberta.
Iraq: Following years of conflict, Iraq
successfully rehabilitated its infrastructure, jumping from under 2 mb/d in
2005 to consistently over 4 mb/d.
Brazil: Huge offshore “Pre-Salt”
discoveries have turned Brazil into a top-tier global player, a status it did
not have in 2005.
3. OPEC’s Changing Role
In
2005, Saudi Arabia was the clear “swing producer” with the highest capacity.
While it remains a central pillar of the global market, its share of total
production has slightly decreased as non-OPEC countries (like the US, Brazil,
and Canada) have captured most of the global demand growth.
Summary Table: Global Perspective
|
Metric
|
2005
|
2026 (Projected)
|
|
Total Global Output
|
~82 mb/d
|
~107 mb/d
|
|
Top Producer
|
Saudi Arabia
|
United States
|
|
Total OPEC Share
|
~40%~$54/bbl
|
~36%
|
|
Oil Price (Annual Avg
|
~$54/bbl
|
~$75-85/bbl (current range)
|
Reserves
As of 2026, the global landscape of oil
reserves remains a mix of massive conventional deposits (like those in the
Middle East) and technically challenging “unconventional” resources like oil sands
and shale.
While Venezuela holds the largest total
“proven” reserves, much of its oil is ultra-heavy and difficult to extract.
Conversely, the United States has revolutionized its position over the last
decade through shale (tight oil) development.
Top 10 Countries by Proven Oil Reserves
(2026)
The following table reflects the most
recent data from the OPEC Annual Statistical Bulletin (released April 29, 2026
and energy monitoring agencies.
|
Rank
|
Country
|
Reserves (Billion Barrels)
|
Primary Oil Type
|
|
1
|
Venezuela
|
~303.8
|
Ultra-heavy crude / Bitumen
|
|
2
|
Saudi Arabia
|
~267.2
|
Light/Medium Conventional
|
|
3
|
Iran
|
~208.6
|
Conventional
|
|
4
|
Canada
|
~170.3
|
Oil Sands (Athabasca)
|
|
5
|
Iraq
|
~145.0
|
Conventional
|
|
6
|
UAE
|
~113.0
|
Conventional
|
|
7
|
Kuwait
|
~101.5
|
Conventional
|
|
8
|
Russia
|
~80.0
|
Conventional & Tight (Shale)
|
|
9
|
United States
|
~74.0
|
Shale (Tight Oil) & Conventional
|
|
10
|
Libya
|
~48.4
|
Conventional
|
|
11
|
China
|
~27.5
|
Conventional & Tight (Shale)
|
|
12
|
Brazil
|
~15.5
|
Offshore
|
Key Insights on Shale and Unconventional
Reserves
The
“Shale Revolution” (United States): While the U.S. ranks 9th in
proven reserves, it is often the world’s #1 or #2 producer. This is because
“proven reserves” only count oil that is currently profitable and technically
feasible to extract. The U.S. has massive “technically recoverable” shale
resources (estimated at over 200+ billion barrels) that are not yet classified
as “proven reserves” because they require higher market prices or better
technology to move into the “proven” category.
Canada’s Oil Sands: Canada’s ranking is consistently high (4th)
because it includes the Alberta oil sands. Like shale, this is “unconventional”
and requires significant energy and water to process, making it more expensive
than Middle Eastern crude.
The
Russian Arctic & Bazhenov Shale: Russia holds the world’s largest shale oil
formation, the Bazhenov Shale. Estimates suggest it could contain upwards of 75
billion barrels of technically recoverable oil, which could drastically jump
Russia’s ranking if the technology and geopolitical climate allow for its full
development.
Accessibility vs. Volume: There is a major
difference between having oil and being able to sell it. Venezuela has the most
oil, but due to its density and the country’s infrastructure challenges, much
of it remains in the ground. Saudi Arabia’s reserves are considered the most
“valuable” because they are light, close to the surface, and very cheap to
extract.
Note: Figures for “proven reserves”
fluctuate annually based on new discoveries, technological advancements in
fracking/extraction, and—crucially—the current price of oil, which determines
if a reserve is “economically” recoverable.
US Energy export to EU
As of mid-2026, the United States has
solidified its position as the primary energy partner for the European Union, a
shift accelerated by the 2022 energy crisis and recent Middle Eastern supply
shocks.
Current Landscape (May 2026)
The US now provides approximately “one-fifth”
of the EU’s total energy imports, covering natural gas, crude oil, and refined
products.
1. Natural Gas & LNG
The US has become the dominant supplier of
Liquefied Natural Gas (LNG) to the EU, largely replacing pipeline gas from
Russia.
Market
Share: US LNG accounts for nearly 60% of all EU LNG imports and roughly 28% of the EU’s total natural gas supply.
Trade
Volume: Between January and April 2026, over 60% of all US LNG exports were
directed to the EU and the UK.
Strategic
Shift: A trade agreement signed in July 2025 committed the EU to importing up
to $250 billion in US energy annually over a three-year period to stabilize
reserves.
2. Crude Oil & Refined Products
The US has also surged in the liquid fuels
market, recently becoming a net exporter of crude oil for the first time since
World War II.
Crude
Oil: US crude now represents about 15% of the EU market. This growth
accounts for more than one-third of the volume lost following the decline in
Russian oil imports.
Diesel
& Refined Fuels: Diesel exports to Europe have seen a massive spike,
doubling in early 2026 to reach roughly 396,000 barrels per day.
Export Surge: In May 2026, total US fuel
exports hit record highs (over 8.2 million barrels per day) as European
buyers sought to offset supply disruptions caused by the recent conflict in
Iran and the closure of the Strait of Hormuz.
3. Key Challenges & Market Drivers
|
Factor
|
Impact on EU-US Trade
|
|
Iran Conflict
|
The 2026 “Iran gas shock” and Strait of Hormuz closure forced
Europe to lean even more heavily on US seaborne supplies
|
|
Price Volatility
|
Global prices remain high ($95–$105/barrel range), providing
record cash flow for US producers but straining European consumers
|
|
Infrastructure
|
While US gas is flexible (shipped by sea), Europe remains exposed
to the higher costs of the global spot market compared to old long-term
pipeline contracts.
|
|
Domestic Pressure
|
High fuel prices in the US (averaging over $4.50/gallon) have led
to political debates in Washington regarding potential export caps to protect
domestic consumers
|
Strategic Outlook
While the EU is more dependent on the US
than ever, it is also diversifying with increased pipeline flows from Norway and Algeria to avoid replacing one single-source dependency with
another. However, US LNG remains the “baseload” of Europe’s energy security for
the foreseeable future.
What will happen if Middle East oil and
gas supply are permanently impaired
The prospect of a permanent impairment to
Middle East oil and gas supplies—whether due to large-scale infrastructure
destruction or sustained blockade—would trigger the most significant
restructuring of the global economy since the Industrial Revolution.
Given current geopolitical tensions in
2026, including recent strikes on key facilities like Qatar’s Ras Laffan and Saudi Arabia’s Ras Tanura, here is the likely trajectory of such a
permanent shift:
1. Global Economic “Shock Treatment”
A permanent loss of the 20 million
barrels per day (roughly 20% of global supply) that flows through the Strait of Hormuz would cause immediate and structural inflation.
Price
Explosion: Experts estimate oil would likely soar past $150–$200 per barrel and stay there, as “easy” oil from the Gulf is replaced by high-cost
alternatives (shale, deep-water, or synthetic fuels).
The
“Energy Tax”: For importing nations,
this acts as a massive, permanent tax on growth. Manufacturing costs in Asia
and heating/cooling costs in Europe and North America would reset at much
higher levels, likely triggering a prolonged global recession.
2. Radical Energy Realignment
The vacuum left by Middle Eastern supply
would force a “wartime” mobilization toward energy independence:
Hyper-Acceleration
of Renewables: Solar, wind, and nuclear energy would shift from “green goals”
to “national security imperatives.” Any remaining regulatory hurdles for
nuclear power would likely be dismantled to ensure grid stability.
Coal’s
Resurgence: ]In the short-to-medium term, many nations would likely revert to
coal to bridge the electricity gap, potentially setting back global climate
targets by decades.
Western
Supply Dominance: The U.S., Brazil, and Guyana would become the primary
arbiters of the remaining global oil supply, drastically increasing their
geopolitical leverage.
3. Geopolitical Power Shift
The “Permanent Impairment” would
fundamentally change the map of global influence:
Decline
of the Petrodollar: The strategic logic that has underpinned the U.S.-Middle
East relationship for 80 years would evaporate. The U.S. would likely reduce
its military footprint in the region, focusing instead on protecting Atlantic
and Pacific trade routes.
Regional
Instability: Without oil and gas revenues, many Middle Eastern states would
lose the ability to fund their social contracts (subsidized food, fuel, and
employment). This could lead to widespread civil unrest and the potential
collapse of rentier states.
China’s
Pivot: As the world’s largest importer of Middle Eastern energy, China would be
forced to aggressively secure overland energy pipelines from Russia and Central
Asia, potentially leading to a more rigid “bloc-based” global economy.
4. Supply Chain and Logistics
The disruption isn’t just about the fuel;
it’s about the byproducts:
Fertilizer
and Food: Natural gas is a primary feedstock for nitrogen-based fertilizers. A
permanent shortage would lead to a global food security crisis, as fertilizer
prices would remain permanently high, making modern industrial farming far more
expensive.
Petrochemicals:
Everything from medical plastics to electronics components relies on
oil-derived chemicals. We would see a forced pivot toward bio-plastics and
recycled materials.
Summary Table: Short-term vs. Long-term
Effects
|
Impact Area
|
Short-term (1-2 Years
|
Long-term (10+ Years
|
|
Oil Prices
|
$200+ per barrel
|
Stable at high “cost-of-production” levels
|
|
Global GDP
|
Severe contraction/Recession
|
Slow growth due to higher energy baseline
|
|
Energy Mix
|
Panic-buying of coal/wood
|
Dominance of Nuclear & Renewables
|
|
Food Security
|
High risk of famine in poor nations
|
Transition to high-
|
Impact on Israel
While the rest of the world would face a
devastating energy deficit, Israel’s position in a "permanently
impaired" Middle East would be unique—marked by extreme domestic
resilience but severe geopolitical and economic isolation.
Based on the current status of the regional
conflict in 2026, here is how Israel would be affected:
1. The "Energy Island" Advantage
Unlike its neighbors, Israel has spent the
last decade preparing for "energy independence." In a scenario where
Gulf oil and gas are gone, Israel becomes one of the few stable energy
producers in the region.
Offshore
Gas Fortress: Israel’s three major fields—Leviathan, Tamar, and Karish—provide
more than enough natural gas to power its entire domestic electricity grid and
desalination plants. As long as these offshore platforms remain physically
protected, Israel can maintain its "lights on" status while global
grids fail.
Desalination
Stability: Because Israel’s water supply is almost entirely dependent on
energy-intensive desalination, its domestic gas reserves are literally its
lifeline. A global oil collapse wouldn't necessarily lead to a water crisis in
Israel, provided the gas infrastructure holds.
2. The Crude Oil Vulnerability
While Israel is self-sufficient in gas, it
is highly vulnerable in crude oil. Israel produces almost no oil and relies on
imports from countries like Azerbaijan (via Turkey), Kazakhstan, and Brazil.
Import
Costs: Even if these countries continue to sell to Israel, the global price of
oil (projected at $200+) would shatter the Israeli transport sector and
military budget.
The
Strategic Reserve: Israel relies on a 1975 agreement where the U.S. helps
maintain its strategic oil reserves. In a permanent impairment scenario, the
U.S. might be forced to prioritize its own domestic needs, leaving Israel to
find extremely expensive alternative suppliers.
3. Economic and Diplomatic Realignment
The
Export Leverage: Currently, Israel exports gas to Egypt and Jordan. In a world
without Gulf energy, this gas becomes infinitely more valuable. This could
either:
A)
Strengthen regional ties as neighbors become desperate for Israeli energy.
B)
Make Israel a "high-value target" for regional actors who view its
energy abundance as a strategic threat or a prize to be seized.
Industrial
Shift: Israel’s tech and manufacturing sectors would face a massive price hike
for raw materials (plastics, chemicals) derived from oil, potentially shifting
the economy even more heavily toward software and high-value defense tech.
4. Heightened Military Risk
A permanent impairment of Gulf supply
almost certainly implies a high-intensity regional war.
The
"Targeted Platforms" Risk: As seen in recent 2026 reports, the “Leviathan”
and “Karish” fields are primary targets for Iranian and Hezbollah precision
missiles. If these fields are permanently damaged alongside the Gulf’s,
Israel’s "energy island" advantage disappears instantly, throwing the
country into a total blackout and water crisis.
Defense
Spending: Israel would be forced to permanently allocate a massive portion of
its GDP to the "Iron Beam" (laser defense) and naval protection of
its Exclusive Economic Zone (EEZ).
Summary: The Great Decoupling
|
Factor
|
Impact on Israel
|
|
Electricity
|
Resilient (via domestic gas)
|
|
Water
|
Stable (gas-powered desalination)
|
|
Transport
|
Increased Leverage (as a rare regional energy exporter)
|
|
Diplomacy
|
Increased Leverage (as a rare regional energy exporter)
|
|
Security
|
Extreme Risk (offshore platforms become the nation's
"Achilles' heel")
|
In short, Israel would likely survive
better than most in the short term due to its gas, but it would be living in a permanent state of siege, defending its platforms as the most vital
strategic assets in the Eastern Mediterranean.
Conclusion
With the above background in view, it is
not difficult to understand the motives behind the recent political and
military moves worldwide.
The encouragement of Ukraine to engage in a
protracted war with Russia has resulted in Europe’s Russian energy supplies being
cut off and search for new sources. USA immediately came forward with its
surplus oil and gas to the rescue of Europe and is harvesting generous profits.
The turmoil in the middle east and closure
of the Strait of Hormuz has resulted in further gains for the US. To a shortsighted
American, it may appear that the destruction of Middle eastern energy sources
would result in American domination of the world. But the above analysis shows
otherwise. If things keep moving the way they are, Capitalism and its military
alliances may be the biggest losers. What the American people do to their
leaders is really up to them.
