Pajamas Media

Iran’s Oil Woes Threaten the Mullahs

Ahmadinejad has good reason to be concerned about falling oil prices.

September 26, 2008 - by Meir Javedanfar

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Much to the dismay of Ahmadinejad’s government, oil prices seem to be falling. From a record $147 in July, oil is now trading at around $100 per barrel. And despite Hurricanes Gustav and Ike, which usually push the price of oil up, there is talk that prices may go down to $80 or even to the $70 per barrel mark.

“Oil prices are dropping because they are inflated,” says Fadel Gheit, senior energy analyst for Oppenheimer, in an interview with Business Week. “You cannot sustain an artificial price forever. At the end of the day supply-demand fundamentals will take over.” According to an increasing number of analysts, not even the mighty Chinese economy and its insatiable appetite for oil can keep prices at current levels, because a lot of “hype” is involved in estimating future levels of demand.

The Iranians see no hype in the danger which the falling price of oil entails for them. This concern was openly expressed by Iran’s oil minister, who said that as far as his government is concerned, “$100 a barrel was the lowest appropriate price.” Meanwhile, at the recent OPEC meeting, Iran failed to convince other members to cut production, in order to push oil prices up. Therefore, unless there is a serious event, the government of President Ahmadinejad may find itself facing the nightmare scenario of falling oil prices.

With presidential elections 10 months away and sanctions hurting, this is the last thing Ahmadinejad needs. High oil prices have been like a morphine injection which has kept the sick Iranian economy alive. Despite oil and gas income for this year jumping to $81 billion, representing a whopping 31% increase from last year, Iranian people have seen no improvement in their economic welfare. If anything, the situation is getting worse. Inflation has reached the post-revolution record level of 27%. To make matters worse, the government of Ahmadinejad is coming up with new ways to reduce subsidies which Iran’s citizens receive. First it introduced its controversial petrol-rationing scheme in June 2007. This scheme failed miserably in its plans to reduce traffic and pollution.

Now the Ahmadinejad government wants to reduce government subsidies paid to Iranian families for their gas and electricity bill as well. The first part of this plan, which many Iranians find very annoying, involves each family filling out forms from the government, in which they have to declare their income and assets. Many rich people are openly saying that they are cheating, because declaring a high income could translate into a serious fall in the subsidies received. Others are withdrawing money from the banks in order to hide it from the government inspector’s prying eyes, thus leading to a fall in savings levels.

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Meir Javedanfar is the co-author with Yossi Melman of The Nuclear Sphinx of Tehran: Mahmoud Ahmadinejad and the State of Iran. He runs Middle East Economic and Political Analysis (MEEPAS).

19 Comments

1. Marc Malone:

Well, dang, who’s running the government over there?!? Obama?

Sep 26, 2008 - 1:14 am 2. mike:

so i guess we can expect some iranian backed hizbullah international terror soon to drive the price of oil up to their acceptable levels. and there is nothing the west is going to do except push for more talks with them. is there any more of a strong position we can help them with?

Sep 26, 2008 - 2:10 am 3. PineKnot:

Where’s Obama going to get the $150 billion he plans on ‘investing’ in alternative energy?

Yeah, right, he’s just going to conjure it out of thin air. . . After the $xxx bailout of Wall Street, taxpayers aren’t going to be interested in a tax increase. .

Sep 26, 2008 - 4:26 am 4. toby:

Its’ not threatening them soon enough:

“Iran students unveil book mocking Holocaust”

http://www.breitbart.com/article.php?id=080926111949.vk2p8oxk&show_article=1&lst=1

Sep 26, 2008 - 6:50 am 5. Austin:

The Republican Guard commenced 6 operations in 1988 that seized back all the territory that Iran gained during the whole war.

Iraqi Combined arms spearheads moved as far as 100 miles into Iran and killed or captured over 100,000 Iranians.

At one point there was nothing between the armor and Tehran.

The Mullahs panicked and sued for peace.

The falling oil price was not why Iran quit. They got their butts kicked.

Sep 26, 2008 - 8:24 am 6. John Dubya:

Somehow I find it difficult to be sympathetic to the plight of the Iranian mullahs, or to Achmoodinnajacket’s political aspirations. The Iranians are well versed in art of revolution,,, if they want to re-join the rest of the world as responsible citizens, they need to unite and kick the Islam-o-nuts out of power.

That’s not likely to ever happen.

Sorry Iran, your choices are to either get your international act together, or freeze in the dark while listening to your hungry children cry. It’s really very simple.

Sep 26, 2008 - 9:14 am 7. Meir Javedanfar:

Well, we should wait and watch the oil prices. I would say $70 is the threshold. Anything less than that for 2 months and we are very likely to see Iran back at the negotiation table.

Sep 26, 2008 - 10:23 am 8. Steve-o:

Oil bottoms at about $86, stays around $86-95 for 6-9 months, and then heads higher again. The swami has spoken.

Sep 26, 2008 - 11:33 am 9. Ex-fetus:

None of this matters. While they don’t call themselves that, Iran is a modern police state. If the Citizens don’t like something, too bad. The secret police have all the machine guns and a whole bunch of religious fanatics willing to use them.
Remember Tiananmen Square? That guy got away with stopping that tank,because the units the army used were locals and wouldn’t kill their friends and relatives. When the Chinese government ( ChiComs) brougth in non-local military units, they killed thousand. Enough to put down the protests. The Soviet Union fell because the units at the Kremlin wouldn’t fire on the mob. Locals, there was not enough time to bring in units from somewhere else.
If the Citizens of Iran protest, they will just be shot down. There will be NO popular uprising in Iran.

Sep 26, 2008 - 12:04 pm 10. BlogDog:

I’d like to congratulate the people of Iran and Jimmy Carter for forcing out the terrible, awful Shah who ran a secret police force was responsible for … being a BAD man I guess.
Thank goodness the Iranians are enjoying the prosperity and freedom their revolution brought about.

In the non-snarky vein, I still bridle at the act of war the “students” of the Ayatollah perpetrated against the United States which has never been answered. I look forward to a reckoning one day.

Sep 26, 2008 - 2:11 pm 11. Teplost:

“I look forward to a reckoning one day.”
Blogdog, you and I both.

Sep 26, 2008 - 3:53 pm 12. PoliGazette » Why Ahmadinejad Fears Falling Oil Prices:

[...] Javedanfar explains for Pajamas Media why Mahmoud Ahmadinejad, Iran’s President, is so afraid of falling oil [...]

Sep 27, 2008 - 2:21 pm 13. fechancellor:

“His pledge to invest $150 billion in renewable energy could very well burst more bubbles around oil prices, thus pulling them to more unbearable lows for right-wingers in Iran — so low that the words “suspension of uranium enrichment” may turn from blasphemy into a realistic option.”

Obama will break Iran by building windmills, ethanol and some biodeisel? ROTFLMAO! Obama Mania has frozen the logic centers of too many Americans.

More importantly, last December and January the IRGC Navy mock attacked US Navy surface ships in the Straits of Hormuz to keep the price of oil from falling then below $100.00 bbl. Look for Iran to do what it can with it’s military in the Gulf and their Special Groups and Hezbollah knockoffs in Iraq to drive up the price on the coming dip.

Sep 28, 2008 - 1:10 am 14. Welcome | Project on Middle East Democracy:

[...] companion piece to the post below, Meir Javedanfar in Pajamas Media writes of the leverage that may soon be falling into the laps of any potential interlocutor with Iran. Even though Iran’s oil and gas income rose 31% this [...]

Sep 29, 2008 - 6:38 am 15. hass:

In fact, the belief that Iran suffers from dire economic conditions is one of four myths circulating about Iran’s macroeconomic performance. Iran’s economy has actually performed well in aggregate terms, with a moderate rate of growth in the last ten to fifteen years, including healthy GDP and per capita growth in investment. In the last three years, Iran’s actual growth rate has averaged 5.8 percent.

http://www.usip.org/pubs/usipeace_briefings/2007/0510_iran_economic_crisis.html

Sep 29, 2008 - 8:31 am 16. John the Libertarian:

McCain’s “all of the above” energy plan makes Obama’s plan look like an emaciated vegan slurping wheat grass juice through a straw.

Clean coal. More nukes. Drill, baby, drill.

Sep 29, 2008 - 3:05 pm 17. PAUL:

You have got to be kidding Austin. Its time you open a history book because Iraq was never in range of getting Tehran. Mostly because from the get go Arabs on the Iran-Iraq border that were supposed to help saddam’s forces attacked the Iraqi Army instead. Then the Iraqi army was getting its butt kicked because they had inferior air force capability. However after the first two years of the war Iran lost a large part of their air power whereas Saddam got helicopters, jets, and surface to surface missile technology as well as aerial info from the US; thus cementing the stale mate.

I demand a certain level of factuality!

Sep 29, 2008 - 11:17 pm 18. PAUL:

Two final things, first Iran’s inflation has far outpaced its growth in GDP which is why Iranians in Iran are seeking hard assets. Secondly its time to get real about our energy problem, clean coal is reasonable but relatively expensive, nuclear power will take at least 6 more years to have an effect even with the plants that are being built (which should be done in 4 to 5 years) but if no state wants to take on the nuclear waste it won’t get any INVESTMENT money, and lastly drilling is a offshore drilling is a shameless attempt by oil companies to maximize profits (cuz it’s cheaper to drill there) while having ZERO effect on crude oil prices. The oil hope for drilling is to find a large natural gas reserve which would still need the US to changing its energy infrastructure to support liquified natural gas (to transport it, to liquify it, to make new cars run on nat gas without modification, etc).

Sep 29, 2008 - 11:28 pm 19. EckerNet.Com » Blog Archive » Deep Thoughts With Kevin:

[...] Bad News : The financial industry is a mess. Good news : The side-effects puts Ahmadinejad in serious jeopardy. [...]

Oct 6, 2008 - 12:25 am