Bijan ZangenehREUTERS/Heinz-Peter BaderIranian Oil Minister Bijan Zangeneh at his hotel before a meeting of OPEC oil ministers in Vienna on December 3.
A year ago, when Anatole Kaletsky suggested that the price of oil might fall to $20 a barrel, most people laughed. The global economy was growing! Demand was picking up! Oil had been at $100 only recently!
Citi, at the time, expected oil to go back up to $63 a barrel in 2015, after the price plummeted below $50.
And no one is laughing.
The world is awash with oil. Everyone expects it to stay that way for decades. OPEC predicts the price won't go back above $100 until 2040.
This week, Kaletsky has a new suggestion for oil-watchers to consider: Iran may be able to produce oil for just $1 a barrel, he wrote in a recent column (emphasis ours):
ExxonMobil, Shell, and BP can no longer hope to compete with Saudi, Iranian, or Russian companies, which now have exclusive access to reserves that can be extracted with nothing more sophisticated than nineteenth-century "nodding donkeys." Iran, for example, claims to produce oil for only $1 a barrel. Its readily accessible reserves — second only in the Middle East to Saudi Arabia's — will be rapidly developed once international economic sanctions are lifted.
For comparison, it is widely believed that Saudi Arabia's production cost is $10 to $20 a barrel, according to Quartz.
It's important to note that producing oil for $1 is not the same as selling it or breaking even at that price. Oil still has to be refined and distributed, adding to its breakeven cost. Regardless, it will make Iranian Oil Minister Bijan Namdar Zangeneh one of the most watched people of 2016.
Until recently, everyone assumed that the price of oil would naturally go back up as producers shut down unprofitable production. But the opposite happened. There are new markets to be developed in India and China. No one wants to give up that market share to the Saudis or the Americans. So everyone is pumping away, regardless of their losses.
The notion that Iran is sitting on catastrophically cheap oil — catastrophic, at least, for economies that depend on oil revenue — isn't actually new. The National Iranian Oil Company says it has been pumping oil at $1 to $1.50 a barrel for a while now. In 2008, under sanctions, the International Monetary Fund noted in a report on the Iranian economy that the country was producing for about $5 a barrel, at a time when oil hit $115 a barrel on the market.
Because Iran's oil has been cut off from the rest of the world by political sanctions, we simply haven't had to think much about it. In 2016 those sanctions come to an end, and Iran will be able to sell its oil for whatever it wants.
It's not clear whether Iran will go for broke or, as the world's fourth-largest oil producer, restrict its supply in an attempt to prop up prices. The Telegraph reported that Zangeneh said he would cut prices to bring exports back to pre-sanction levels. The Houston Chronicle's oil blog said new Iranian oil could wipe up to $15 more off the current price of oil, bringing it down to about $22.
But Zangeneh also said last week that he expected the price of oil in 2016 to be about $40.
Iran's economy has endured years of hurt under Western sanctions. It needs the money and needs the trade. As long as Iran can sell oil at a profit it is hard to see the country deciding to curtail its good fortune to help out everyone else.

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