Opinions

Alaska shouldn't sweat Iranian oil glut yet, but must get finances in order

News of the Mad Hatter accord ostensibly aimed at limiting -- or ensuring, depending on your viewpoint -- Tehran's ability to conjure up a nuke by next Tuesday in return for lifting international oil, weapons and financial sanctions understandably triggered night sweats about oil prices and Alaska's iffy fiscal situation.

As good Alaskans, we should not concern ourselves that a hostis humani generis, an enemy of all mankind, with bloody decades of coups, hostage-taking and exporting terrorism under its belt, now has access to $150 billion, a phony nuclear facility inspection regimen (Really? 24-day delays before inspections?), and a green light to produce as much nuclear fuel as it wishes after the pact's 15th year.

No need to worry, either, about lifting the ban on Iran's import and export of conventional arms after five years or ballistic missiles after eight, or our president's promise to catch Iran if it cheats -- despite his being unable to catch millions of illegal aliens sashaying across our borders.

Nor should we fret about whether Iran's drive for regional hegemony will trigger a Middle East arms race or a war.

Instead, we must ask the Big Question: What the heck does this mean for our Permanent Fund dividend?

We should be nervous, but not panicked -- not yet -- at the prospect of Iranian oil entering the market, costing us revenue. Cash problems just forced us through a nasty bout of budget-cutting heretofore unseen in the Frozen North. The Legislature struggled to trim some $400 million from the state's budget before dipping into the Constitutional Budget Reserve for about $3.5 billion to keep us in the black.

Our immediate problem? Lawmakers must cut at least that much again next year. We have about $2 billion in oil income and a $5 billion-plus appetite. We like to spend -- to do silly things such as expand Medicaid when we have no money -- as if it were 10 years ago.

ADVERTISEMENT

Our problem is -- in addition to spending -- tanking oil prices caused by the Saudis, who are determined to recoup market share. Out to crush the U.S. fracking industry, they have opened the spigots, causing a glut. Their OPEC allies have joined in. Alaska is particularly hard hit because of its one-trick-pony economy.

Despite fears the Iran agreement would trigger an oil price collapse, it did not, because its impact is not seen as immediate.

Iran, with 10 percent of the global reserves, has lots of oil. Off-limits to Western oil interests because of sanctions and Iranian law curbing private energy investment profitability, the country's aging fields still can produce about 3.5 million barrels daily, or 4 percent of the world's output, The New York Times reports. The fields suffer, however, from stunted technology and investment, producing only 2.6 million barrels daily for export in 2011 and 1.4 million barrels per day last year -- primarily to China, India, Japan, South Korea and Turkey.

With sanctions lifted, how much oil could Iran dump onto the market? Most guesses are that the nation has 20 million to 40 million barrels of crude stored in supertankers in the Persian Gulf that it may soon try to market -- about half of it crude and the other half condensate.

There may be even better news for Alaska. Oil sanctions will be lifted only as Iran proves it is playing nice -- modifying nuclear equipment, dismantling centrifuges and allowing inspections. That could mean months of delays.

After that, Iran will have to attract investment, develop contracts and invest in infrastructure. Additionally, it is a brave new world, with burgeoning competition as OPEC fights for its place at the table and nations such as Iraq prepare to come on line.

Analysts across the board seem to agree there likely will be no immediate surge in Iranian output until sometime next year -- at the earliest. It may well take even longer.

"There isn't going to be this great flood of pent-up supply hitting the market and it looks as if the process will be far more gradual than people expected," Neil Atkinson, head of analysis at Lloyd's List Intelligence, told CNBC.

For a state with Alaska's fiscal problems, that is more than welcome news, but it only delays -- barring a miracle -- the inevitable. If Iranian and Iraqi oil come on line in a year or two, it will happen just as Alaska is running out of cash reserves.

For the time being, our Permanent Fund dividend appears safe, but nothing is forever. We must find a way to cut spending and use the fund's earnings and our other assets to make ends meet.

And soon.

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.

Paul Jenkins

Paul Jenkins is a former Associated Press reporter, managing editor of the Anchorage Times, an editor of the Voice of the Times and former editor of the Anchorage Daily Planet.

ADVERTISEMENT