Russia, Iran, and China are pushing oil prices down across the world. (Almost) Everyone is happy.
This is a transcript, for the video found here:
Bullets:
Western sanctions against oil producers in Russia and Europe have simply re-routed global trade routes.
Energy shipments from Russia to the European Union have instead been snapped up by India, Turkiye, and Africa.
Iran, though under heavy sanctions, produces more oil today that at any time in over 40 years, with $78 billion in export sales, mostly to China.
Russia and Iran are some of the world's lowest-cost oil producers in the world, and can book profits even as prices fall.
In the United States, drilling companies are shutting down oil rigs and shelving plans for new exploration. Energy companies cannot profitably drill new wells in North America, unless oil prices maintain long-term pricing far above $60 per barrel.
Demand destruction is also being felt across the world, as Chinese production of new energy vehicles is a hit to future gasoline sales.
Report:
Good morning. This is a 5-year chart of oil prices, and the high point—there in 2022—was when Western countries put sanctions on the exports of Russian energy. The conventional wisdom at the time, was that those high prices would stay high. This forecast is from June 2022, and it is typical of what mainstream economists, policymakers, and investment banks believed. Barclays is a London bank, and they forecast far higher levels for crude oil going forward. Brent is the European benchmark, and their prediction was for $111 per barrel in 2022 and 2023. That didn’t happen—crude prices haven’t gotten even close to $100 since 2022—just a steady ride down.
These lower prices are impacting the US economy in weird ways. Politicians lose elections if gasoline prices go up, but if oil prices go down, oil drillers don’t bother to look for more supply. Falling prices means that oil companies are shutting down oil rigs. In the United States, the active rig count is the lowest in over four years. Revenue per barrel is falling, so American operators are taking the money and buying back stock or paying down debt.
US drillers need oil prices of at least $60 a barrel to drill new wells, and in most formations the price needs to be $70. What’s more, oil companies must expect those high prices to last a long time, otherwise they won’t get their initial investments back.
Russia, Iran, and China are the three reasons why all the smart people were wrong about oil prices. In the case of Russia, the sanctions simply re-directed their energy exports away from the EU, and toward everyone else. This chart shows total Russian exports by region, from 2021 through 2024. 2021 was the full year before the war in Ukraine and the sanctions, and Russian oil exports were just under 8 million barrels per day. In 2024, Russian oil exports were 7.5 million barrels per day. Slightly below exports from 2021. But this is one reason everyone got everything wrong. Light blue, the bottom bar, is Russian crude exports to the European Union. 3.5 million barrels per day, to 400,000. And analysts assumed that Russia’s economy would slow dramatically, or collapse completely, when all that European demand went away. But all it did was move. China is in dark green, and Chinese imports of Russian crude did increase. India is in yellow—India went from almost nothing at all, in 2021, to 1.9 million barrels a day. Turkiye increased their imports by over 4 times. Same for Africa, in purple—up four times in four years.
When we break out the Russian export data by country, we can see what happened. These are Russian fossil fuel exports of all kinds, over a 3-year period, from the date of EU sanctions through the end of May. The European Union continues to be the top buyers of Russian natural gas, both liquefied and pipeline. But the EU dropped to #3 on crude oil, and for oil products don’t show up at all. Who are all these countries who are now buying Russian energy? The BRICS countries. And how are they doing all this trade, if Russia has been frozen out of SWIFT banking systems? They built their own system. Here’s a handy timeline. In late 2022, price caps on Russian energy, which were redundant, because prices are falling anyway. Then came sanctions against tanker companies that were shipping the Russian oil. None of it mattered. These data are from 2015, and show the cost of oil production by country. Again—these are 10 years old and the costs are higher now, especially in USD terms. But there’s Russia, near the bottom at $17.20. American oil companies won’t dig new holes unless prices are north of $60, but the Russians can make money at much lower prices. And so Russia has become the supplier for all their oil business that used to go to Europe.
Right under Russia is Iran, at just $12.60 a barrel. There are heavy sanctions against Iranian energy too, and those haven’t made a difference either. Last year Iran’s oil production reached the highest level since 1978, and in 2025 they’ll probably produce even more. Iran made $78 billion in oil revenues in 2024, over 4 times what they did in 2020. They’re making money on everything—crude, natural gas, condensates. During the war last month, the Israelis didn’t do much damage to Iran’s oil industry, which was quickly repaired, and production resumed.
Our experts didn’t know that at the time, of course. There was a big oil price spike, there, because investors actually believed that the Iranian government might fall apart, or short of that do something desperate. If Iran were to close access to the Persian Gulf, it would drive oil prices a lot higher. The Strait of Hormuz is a narrow waterway, and Iran sits right on top of it and could close it, along with a big chunk of the world’s oil trade. Goldman Sachs: “Brent oil could go to $110 a barrel if Iran closed the Strait, a 30% move up from that day’s trading price.”
But that didn’t happen, because Iran would be crazy to close the Strait of Hormuz. They’re making more money than ever. It’s the Israelis who would love to close it, if they could. 90% of Iran’s oil comes here, to China. And now Iran wants to use some of that money to buy a new air force from China.
Except for officials in Brussels, and in Tel Aviv, and for some companies in the American oil patch, most people in most places are very satisfied with the way things are, right now. Oil prices are going lower, which means lower inflation. China, India, and the BRICS and emerging economies are happy to buy oil that would have otherwise gone to Europe, but at lower prices. Russia and Iran are making lots of money even at these lower prices, because their cost of production is so low. That is all happening on the supply side. But another key driver of lower oil prices is demand destruction, and that’s coming from China. Gasoline demand is just grinding lower, sharply, as a result of China’s electric vehicle boom. China is the world’s biggest car market, and most of the cars sold here are electrics and hybrids. Every time a Chinese electric vehicle is sold, both here and across the world, it’s a hit to future oil demand. Chinese families buy millions of new cars a year, but this line—gasoline demand--it keeps dropping, just like all the others.
This is Xingping, in Shaanxi province. Be good.
Resources and links:
Forbes, Rising Oil Prices Could Spike Another 30% If Iran Blocks Strait Of Hormuz, Goldman Warns
https://www.forbes.com/sites/dereksaul/2025/06/23/rising-oil-prices-could-spike-another-30-if-iran-blocks-strait-of-hormuz-goldman-warns/
Reuters, Barclays raises Brent forecasts on Russia oil sanctions
https://www.reuters.com/markets/commodities/barclays-raises-brent-forecasts-russia-oil-sanctions-2022-06-06/
China’s EV Boom Threatens to Push Gasoline Demand Off a Cliff
https://www.energyconnects.com/news/renewables/2024/november/china-s-ev-boom-threatens-to-push-gasoline-demand-off-a-cliff/
Iran’s Oil Exports Shift Dramatically Under Sanctions
https://x.com/plotset/status/1938147492496835016/photo/1
Average Russian oil exports by country and region, 2021-2024
https://www.iea.org/data-and-statistics/charts/average-russian-oil-exports-by-country-and-region-2021-2024
Bloomberg, Iranian Oil Production Booms Amid the Bombs
https://www.bloomberg.com/opinion/articles/2025-07-03/us-attack-on-iran-leaves-booming-oil-sector-unscathed
May 2025 — Monthly analysis of Russian fossil fuel exports and sanctions
North American Shale breakeven prices
https://www.ogj.com/home/article/17294254/north-american-shale-breakeven-prices
But forward rates for Oil have long long been lower than spot prices or all those expert forecasts.
https://www.tradingview.com/symbols/NYMEX-CL1!/?contract=CLZ2030&timeframe=ALL
This chart shows the NYMEX oil future for Dec 2030. It has been trading since 2020.
Never been below 47 (even when spot prices went to negative because no one could take delivery) and has never been above 66.5.
Most oil gets traded long term on long term agreements - only the odd bits of unsold oil trade in spot markets. The long term trend for oil has been flat or if anything rising over past 5 years.