Iran’s crumbling source of revenue
From the UK Telegraph:
Iran’s oil exports are plummeting at 10pc a year on lack of investment and could be exhausted within a decade, depriving the world economy of its second-biggest source of crude supplies.
[snip]
“They need to invest $2.5bn (£1.28bn) a year just to stand still and they’re not doing it because it’s politically easier to spend the money on social welfare and the army than to wait four to six years for a return on investment,” he said.
“They’ve been running down the industry like this for 20 years.”
Prof Stern said Teheran faces impending disaster since it relies on oil revenues for 70pc of its budget.
“They cannot afford to carry out their threats to shut off oil supplies,” he said. “There is no oil weapon, it’s just a bluff.”
Could Iran’s pursuit of nuclear technology be exactly what it seems, then? A desperate attempt to get ahead of a power crisis?
The report said Iran “could need nuclear power as badly as it claims,” speculating that economic motives may be mixed up with the drive for nuclear weapons.
Mixed motives indeed.
This report worries me more than any of the speculation, hyperbole, or rhetoric I’ve read about Iran and its pursuit of nuclear technology, because an alternative source of energy, useful as it might be locally, won’t replace the revenue stream upon which Iran depends.
If Iran has put nothing into the industry upon which they rely for 70% of its budget, they clearly have something else in mind for revenue. If it’s not oil… then what?
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15 Responses to “Iran’s crumbling source of revenue”
Maybe this is why Iran is so cranky
A recent post on the same topic.
and:
Seems to me that stopping the oil isn’t a weapon, it’s a promise. Whether the oil isn’t availbale because Iran stopped exporting it, or the oil isn’t available because Iran can’t produce it, the oil isn’t available. Either way, we don’t have the oil. Bad for Iran (no revenue), Bad for us (no feeding the addiction)
Seizing Iraq’s oil reserves, no doubt!
I understand that the most recent estimate is that the US gets more than 70% of its energy needs from relatively friendly sources. Perhaps a few years of growth in efficiency and alternatives can free us of the more political consequences of our addiction.
This may be the single most effective policy for promoting a more flexible and effective foreign policy in the East.
It seems to me that this isn’t all bad news.
Key paragraph:
Iran is doing what a lot of authoritarian, yet oil rich regimes like to do (c.f. Venezuela, Russia), they’re using their oil money to prop up their otherwise untenable regimes by buying off the local populace and building their military.
Neither of these strategies can continue indefinitely (as the article points out) without serious investment.
But at the same time diverting funds away from the military and social programs would undermine their regime.
At some point the government will either open itself to reform as a way of survival, or collapse under its own dead weight.
It seems to me prudent policy to do whatever we can to encourage the former, as the chaos engendered by the latter prospect will truly benefit no-one.
Oh, and all this provides yet another example why a serious effort to both develop alterative energy sources and increase fuel efficiency is critical to the US’ national interest.
IMHO — “Peak Oil” discussions, etc., are functioning as a distraction. The biggest problem is not the finite aspects of this particular resource; it’s the geopolitical ramifications.
I agree with Paul that it would be effective to replace our “unfriendly” suppliers with an alternative… and yes, efficiency factors in (as it does in peak oil debate, too). Ultimately, however, the best solution is energy independence, and diverse sources at that.
Assuming these economic reports to be correct (anybody have anything contrary?), the odds are probably very high that what Holly suggested, or something very similar, are what Iran has in mind. But Iran won’t be the only country who will go this way.
It sounds like Iran’s problem has to do with do with the neglect in investing in oil production infrastructure capacity cathching up with them. Does their problem also involve the actual exhaustion of oil reserves. If the problem has less to do with oil reserve exhaustion then it does with investing in infrastructure, seizing Iraq’s reserves won’t get them much.
10 year of santions imposed on Sadam’s government followed by 3 years of war has not done a lot to make Iraq’s oil production infrastructure anything to risk going to war over. The Iranians are mostly Shites, but they are also Persians. The Iraqis wouldn’t not accept them with welcoming arms. I doubt they would find Iraq to be profitable place to conquer and hold. In fact it would probably turn out to be as much of a drain for them as it is for the United States.
Caliblogger said, “At some point the government will either open itself to reform as a way of survival, or collapse under its own dead weight.”
Or the third possibility — that the regime will try to avoid both outcomes via hostile actions regionally.
Although we’ve heard their president yammer on ad nauseum about destroying Israel, that won’t fix their economy. For that matter, supplying terrorists (the other commonly-held reason advanced for aggressively confronting Iran) won’t fix it, either.
As PK says, Iraq’s infrastructure is also a mess.
So what, then, do they have in mind?
Thus spake polimom: Or the third possibility — that the regime will try to avoid both outcomes via hostile actions regionally.
I agree, indeed shoring up one’s regime by focusing on an external threat, real or no, is so common a strategy that I suppose I took it for granted.
My point though, would be that such a strategy has no long term viability, because, as you point out, it does nothing to remedy their internal structural problems.
So to reframe my earlier question, what should we be doing to contain such agressiveness in the short term, while at the same time encouraging reform in the long?
I don’t claim to have a clear answer to that question, but I believe it to be the correct one to ask.
For infrastructure improvements Iran needs access to capitol markets, and for that to happen the nuclear issue will need to be resolved. Even if Iran develops a weapon as oil production declines and the finances get tighter there will be a great deal of reluctance to keep the nuclear program. As far as the southern Iraqi oil fields goes there is always the possibility that Iran could calculate a seizure after the US leaves. It does not need to be a military operation, they can finance a political “ally� in Iraq and be “invited� to unify the Shiites. This would be a desperate act but the history of the middle east has plenty of precedents, and this type of unification makes Iran the major player in the Middle East, just the outcome Saddam was going for.
It is striking how similar Iran’s economic position is today with Japan’s in 1941. This source is a bit inflammatory but at least he has his facts right:
Whether or not one agrees with the author’s conclusion, it is a fact that the US government put Japan “between a rock and a hard place” six months before Pearl Harbor, and that any clear thinker in possession of the basic facts about the Japanese economy should have been able to see it.
Fast forward to today. The UN Security Council has just slapped sanctions on Iran over its nuclear program, the removal of which can be prevented–indefinitely–by the US veto in the Security Council.
Iran has been essentially frozen out of the Western (i.e. commercial) Oil &Gas industry for decades by the US government’s post-Hostage Crisis sanctions. Now, China and Russia (which had no trouble supplying Iran while ignoring US sanctions) will be hard pressed to ignore the Security Council’s sanctions–especially since they both voted for them.
I don’t know what FDR was thinking would happen in 1941. I’m not sure what the Security Council thinks will happen now.
It’s tempting to say that Iran appears to have been put “between Iraq and a hard place” but not only would the pun be painful, the analogy is scary . . .
Taking Iraq’s oil fields wouldn’t do Iran any good because they’d still have the same problem with huge amounts of money that would have to be spent to bring the infrastructure up to par for production to generate the revenue they need.
Jim S , it wouldn’t be logical for Iran to invade Iraq esp. considering international condemnation. But the considerable expense of building nuclear weapons isn’t logical either. Never underestimate the ability of national leaders to make irrational decisions, Japan attacking the US at Pearl Harbor for example.
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