Remember predictions of an Israeli airstrike on Iran, instantly propelling oil prices above $180 a barrel?

Remember forecasts of steadily building emerging-market demand ushering in the age of energy scarcity?

Those scenarios may yet materialize, notwithstanding the recent slide in oil prices. But it’s at least as likely that two major global producers and prominent US foes suffering dramatic production declines will eventually have to change course, with the potential to glut the market.    

For the last few years Iran and Venezuela have been the oil speculator’s best friends, pursuing policies that have throttled output from two of the leading OPEC suppliers. In Venezuela’s case the decline has taken place over a decade of mismanagement, expropriation and neglect. In Iran, the falloff has been more abrupt, caused by tough international sanctions over Tehran’s nuclear program.

So here are two entirely plausible scenarios that could set off a bear market in crude prices:

It’s January 2014, and the streets of Caracas are filled with hundreds of thousands of protesters banging pots and pans and calling for the ouster of President Nicolas Maduro, the luckless and unpopular successor to the late Hugo Chavez.

Soaring inflation, runaway crime and frequent power outages have soured much of the population on Chavismo socialism minus the Chavez charisma. The military, sensing which way the wind is blowing, refuses to back the government. Within days, Maduro has fled to Havana. Within months, he is replaced by Henrique Capriles, the business-friendly opposition leader narrowly defeated this month in an election he has claimed Maduro stole.



Capriles’ first order of business is a pledge to push Venezuelan oil production way above its 1997 high of 3.5 million barrels per day (bpd), from the recent 2.8 million barrels. He purges tens of thousands of Chavez loyalists from state-run oil giant PDVSA, brings back professional managers fired by the old regime and ends a program offering discounted crude on easy credit terms to numerous of countries in Latin America and the Caribbean. Capriles also ends Chavist rules limiting foreign participation in oil exploration and production, bidding out numerous concessions to multinational oil giants.

This would be a bonanza for oil-services giant Schlumberger (NYSE: SLB), already heavily involved in Venezuela. But the regime change would likely prove as a significant drag on oil prices as traders factored in the likelihood of increased supply in the years to come.

Maduro’s vulnerabilities have been publicly exposed by his slim win over Capriles, who was beaten much more soundly by Chavez last fall. Government ministers have taken to threatening to fire any public worker who supports the opposition, in another sign of weakness. One of the main reasons for this erosion of support is that the run-down Venezuelan oil industry has stopped laying golden eggs for the rest of the economy. Firing opponents won’t solve this. Meanwhile, the oil aid to allies abroad is increasingly resented.

This situation isn’t sustainable in the long run: If the current regime can’t arrest the PDVSA’s rapid decline and lift output, someone else will get the opportunity soon enough.

The regime in Teheran faces a similar existential threat as a result of US-led international sanctions, which have cut Iran’s crude output from 4.2 million bpd in 2011 to 3.5 million last year, according to the US Energy Information Administration (EIA). In March, Iranian oil production was down to 2.7 million bpd, according to the International Energy Agency, while the country’s oil exports were down to 1.1 million barrels.

This is economic damage Iran’s unpopular government can ill afford. The economy contracted 1.9 percent last year as a result of sanctions and will shrink another 1.3 percent this year, according to the International Monetary Fund.  Inflation is above 30 percent and likely to accelerate as shoppers hoard necessities ahead of a huge currency devaluation.

Sooner than later, Iran will need to cut the best nuclear deal it can and try to export its way out of the slump, or it too will increasingly run the risk of regime change.

The day that news hits will be a very dark day indeed for oil bulls. Increased production from Iran and/or Venezuela could wreck any semblance of OPEC price discipline at a time when the cartel is already coping with sharp increases in oil production in North America as well as Iraq.

For the moment, that challenge is manageable: increased North American production in 2013 will be absorbed by rising global demand and a modest cut in OPEC output, the EIA reckons. But a near-future in which Iraq, Iran and Venezuela all try to make up for lost time is a nightmare for the Saudis, US shale producers and anyone else counting on rising oil prices.

There are, of course, countervailing upside risks. The rivalry between Iran and Saudi Arabia for regional hegemony and leadership of the Muslim world, and the related enmity between Iran and Israel, are hatreds that tend to trump economic calculus as well as common sense.

Furthermore, Saudi Arabia and allied Gulf royalty continue to deny basic democratic rights to young populations increasingly unwilling to take No for an answer. The Saudi monarchy seems ill-suited to the 21st century and its long-term prospects must be considered doubtful.

Meanwhile, another key US supplier, Nigeria, is perpetually on the brink of anarchy and plagued by insurrection as well as widespread theft. The staying power of the US shale drilling boom remains debatable, which aging conventional fields succumb to gradual exhaustion.

But if Venezuela and Iran are pumping 5 million bpd apiece a few years from now, the shale boom will almost surely fail. Because at that point whoever’s in power in Caracas and Teheran won’t care about production costs on the North Dakota prairie. They’ll be trying to rebuild their economies while holding on to power. Destabilizing Saudi Arabia with low prices would be an Iranian bonus.

How likely are the bullish and bearish outcomes? Consider that bombing Iran or else running Venezuela ever deeper into the ground would qualify as Very Bad Business Decisions. In contrast, rebuilding those countries’ oil exports would be good business first and foremost. And over time, good business tends to prevail.