Iran’s Oil Woes Threaten the Mullahs
Ahmadinejad has good reason to be concerned about falling oil prices.
Should this plan go through, it could cause much pain to Iran’s population. The subsidy replacement plan, which involves paying the subsidy money directly into families’ bank accounts — instead of government paying the subsidy amount directly to the electricity company — is not expected to maintain its value in accordance with high inflation levels. This will mean that if inflation levels stay the same until next year, the value of the subsidy received in cash will be 27% less than last year. With falling oil prices, it is very likely that the government will have to go through with this plan. This will lead to serious damage to Ahmadinejad’s popularity. It will also antagonize Iran’s population. The revolution has not brought them edalat (justice). Now high oil prices, their only hope for better economic welfare, are failing them too.
Despite the rising unpopularity at home, what worries Iran’s leadership even more is that, as history has shown them, lowering oil prices could mean having to be flexible with the West. This was first shown in the mid 1980s, when Iran was fighting Iraq. Midway through the war, many countries were calling for a ceasefire, but Khomeini didn’t listen. He was confident that his forces could go on fighting and topple Saddam. In order to finance this ambition, Tehran attacked oil tankers in the Persian Gulf, with the hope of pushing oil prices up. This didn’t work. By 1988, the falling oil price finally forced Ayatollah Khomeini to take the painful decision of accepting a ceasefire with Saddam Hussein, something which he likened to “drinking a chalice of poison.”
The same happened in 1997. The Asian crisis of that year, which led to a crash in oil prices to less than $10 per barrel, was one of the major motivators behind Iran’s rapprochement with the West, headed by the reformist administration of Ayatollah Khatami. Low oil prices were again a factor behind Iran’s Western-friendly policy of temporarily suspending uranium enrichment in 2005. In fact one of the reasons Iran felt confident enough to stop the suspension was that oil prices started increasing sharply in August that year.
What this all could mean is that if oil prices fall to $70 per barrel or below, Ahmadinejad may find it difficult to maintain the same level of belligerence against the West. Things could get much worse for him if Obama is elected. 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.
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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).
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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.
Sep 26, 2008 - 12:04 pm 10. BlogDog: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.
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.”
Sep 26, 2008 - 3:53 pm 12. PoliGazette » Why Ahmadinejad Fears Falling Oil Prices:Blogdog, you and I both.
[...] 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