Gulf offshore oil rig against background of Iranian flag
We know Donald Trump is a reality TV show star, so he is not very familiar with business or economics. But Mr. Arithmetic has kindly offered to help him out on this one.
There are many unknowns in this story, but we can start with the amount of oil at stake. Before Trump Israeli Prime Minister Benjamin Netanyahu began the war, Iran was producing between 3.5 million to 4.5 million barrels per day. It uses roughly 1 million barrels daily domestically, so that leaves exports between 2.5 million and 3.5 million barrels. Let’s take the midpoint of 3 million barrels. That comes to exports of 1.1 billion over the course of a year.
The price of oil has soared as a result of the war, but presumably, if there is some future date where Trump has seized Iran’s oil, everything is back online, and things are more or less back to the pre-war situation. That means oil will be selling for around $60 a barrel.
Iran is a very low-cost producer: its oil is easy to get to, unlike the fracked oil in Texas. Its costs are estimated at around $10 a barrel. That would leave Trump with a profit of $50 per barrel. That comes to roughly $55 billion over the course of a year. (I’m assuming that Trump wouldn’t expect to profit on the Iranian oil that Iran uses, but who knows?)
Trump originally planned to ask for $200 billion to cover the cost of his war. In that story, he could recover the costs in less than four years. That looks like a pretty good payback. After the fourth year, we could be pocketing $55 billion annually from Iran’s oil.
But that apparently is only part of the story. Trump now says that he needs to raise annual U.S. military spending by $500 billion due to all the enemies he has made with his threats and wars. That picture doesn’t look so good. With the U.S. spending an additional $500 billion a year on its military, and getting $55 billion a year from Iran’s oil, we would get paid back precisely never.
Source: Author's calculations (see text)
But wait, it gets worse. The world is turning rapidly away from fossil fuel consumption, a trend that is being hugely accelerated by Donald Trump’s war. Close to 60 percent of the new cars sold in China are electric vehicles, and that figure is rising rapidly. The European Union is not far behind. EVs are already comparably priced or cheaper than conventional cars, and their costs have been falling rapidly. They are far cheaper to operate and maintain.
Solar and wind energy are already cheaper than fossil fuel energy, and that gap is sure to grow in the decades ahead. Also, the price of battery storage has plummeted, making the shift to clean energy even more attractive.
With demand for oil likely falling sharply in the next two or three decades, the value of the oil Trump is considering seizing from Iran will likely be falling as well. But the costs we incur from having made new enemies around the world will be enduring, even if we don’t need the extra $500 billion he is demanding.
Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.
Reprinted with permission from Dean Baker.
