Another Sleepless Night
November 30, 2006
by Stanley Reed
This account of the economic situation in Iran by the BusinessWeek makes it look surprisingly similar to Venezuela under the rule of Ahmalala's best friend Hugo Chavez: lavish social programs, neglect of infrastructure, embezzlement of the country's stabilization fund and many more. The nation appears to be growing accustomed to the levels of social spending that are unsupportable even under the current oil prices. Of course the future of the oil market is a big unknown and who knows, but it is obvious that a sudden decline in oil prices should hit Iran hard. Even more, unless Iran starts acting urgently about the situation, its position as an oil exporter would be compromised even at the current price of oil.
Few countries can match Iran in its ability to generate angst among Westerner. . . Yet Iran has a surprising weakness: Its oil and gas industry, the lifeblood of its economy, is showing serious signs of distress. As domestic energy consumption skyrockets, Iran is struggling to produce enough oil and gas for export. . . Within a decade, says Saad Rahim, an analyst at Washington consultancy PFC Energy, "Iran's net crude exports could fall to zero."
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Iran has been producing just 3.9 million barrels of oil a day this year, 5% below its OPEC quota, because of delays in new projects and a shortage of technical skills. By contrast, in 1974, five years before the Islamic Revolution, Iran pumped 6.1 million barrels daily.
. . . In September, Oil Minister Kazem Vaziri-Hamaneh suggested that with no new investment, output from Iran's fields would fall by about 13% a year, roughly twice the rate that outside oil experts had expected. "NIOC (National Iranian Oil Co.) is likely to find that even maintaining the status quo is a mounting challenge," says PFC Energy's Rahim.
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Iran's looming crisis is the result of years of neglect and underinvestment. As in other oil-producing countries such as Venezuela and Mexico, the government treats the oil industry as a cash cow, milking its revenues for social programs. It allocates only $3 billion a year for investment, less than a third of what's needed to get production growing again.
Compounding the pressure are policies that encourage profligate energy use. Gasoline prices are set at 35 cents a gallon, which has helped fuel 10%-plus annual growth in consumption, PFC Energy figures. The national thirst for gasoline far outstrips domestic refining capacity, so Iran will import about $5 billion in gasoline this year, or about 40% of its needs . . .
. . . Ahmadinejad has ratcheted up public spending this year by 21%, to $213 billion, on everything from aid to rural areas to housing loans for newlyweds. He has also promised some $16 billion in outlays from a special $30 billion fund set up to tide Iranians through future hard times . . .
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It's not just oil that Iran is failing to exploit. . . Iran is now a net importer of gas, a situation not expected to reverse before 2010 . . .
In technically terms the solution is obvious: Iran needs to start liberalizing prices on its domestic oil market to suppress the internal demand and to make more oil available for export. But this runs contrary to the reckless populism of Iran's president who prefers to waste Iran's oil wealth as if there is no tomorrow. Another economic collapse would probably put a final end to the roman between the religious clergy dominating Iran and the population that suddenly blossomed anew in the last elections.
It would be good if Israel's government seriously considers ways to lend a friendly help to Iran on its way to its final destination. Diverting a large portion of the military budget into developing alternative energies makes sense. Suppressing oil prices even to the level of $12-18 can do wonders for our security and our situation in the region. Much more than all the Tropheys and SkyGuards to be purchased in the next few years.
And yet we all are human beings after all and it is impossible that an Israeli can read about Iran's troubles without starting painfully agonizing himself over the general unfairness of life that in the future may inflict even more hardships and misery on millions of innocent Iranians living two thousands miles away in Tehran. Shit! Another sleepless night!
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