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Friday, July 24, 2009




Flashdance

Last updated: October 12, 2009

July 24, 2009


Deep Dish - Flashdance (Skylark Remix)



Among several developments in Iran since the suppression of the Green Revolution, the most important of them all is this: There is still no hard evidence to prove that the elections were rigged or Ahmadinejad and Khamenei were planning in advance some kind of a coup d'etat within the country's establishment. Yet, the fact remains that for all practical purposes this is what these two have ended doing. Once things started getting out of control, the Supreme Leader knee jerk reaction and the regime's general inclination towards repression have transformed Tehran into a police state, or better, a Baseej city. And once the Baseejis have been unleashed, all masks and pretensions were removed.

Interestingly enough, this has failed to either silence the opposition within the ranks of the ruling elite, nor to prevent a new brawl, this time between the Supreme Leader and conservative hardliners on one side and Ahmadinejad on the other around some of Ahmadinejad's nominations. In short, the end result of the elections fiasco was a state of everybody at loggerheads with everybody else. I would say that in view of all this to call Ahmadinejad a divisive personality should be considered a wild understatement. Equally important is the fact that while the regime has survived this experience intact, its prestige and appeal beyond the borders of Iran, even in Shia communities across the Middle East and South Asia, was damaged beyond repair.

However, one thing was left largely ignored and unreported in the midst of this mess: Ahmadinejad seems to be planning a comprehensive reform of domestic energy subsidies. From reports by Iranian media (no other media seems to have reported about this at all) it appears that the subsidies are to go and the revenues to be distributed among lower classes or reinvested into development projects. The significance of this step cannot be overstated and if Ahmalalah succeeds to get it done, he may completely redeem his disastrous first presidency. The thing is that while Ahmalalah is certainly a case of clinical idiot, nobody really casts doubt on his ambitions, energy and determination. Neither he is frequently accused of corruption or something. This guy is more of the messianic lunatic type of idiots. And if Ahmalalah directs his energy into reforming the economy, there is a good chance of him getting it done. Here is a graph to illustrate what's at stake here.


Source: EIA

Seeing this chart for the first time may shock some people on realization that 30 years since the fall of the Shah, Iran is still nowhere close to the volume of petroleum production of the Shah era. This is true. Combined with population growth, this means that Iran is still streets behind the achievements of the Shah. Some estimate Iran's income per capita to be still 25% below 1979. In many ways the revolution was not about stagnation or temporary retreat, it was a blow from which Iran has simply never recovered.

Another thing that's very obvious from the graph is a massive growth of domestic petroleum consumption, driven by fuel subsidies very relevant to the subject of this post. The two headed arrow titled "Net Exports" points to 1996 and cuts the graph in two halves. The right one, post 1996, is all about the post revolutionary Iran failing to increase the volume of net exports following its failure to get hold of the domestic consumption. Even more important is this: Iran is lacking refining capacity. So much of the petroleum is exported in the form of crude oil. To maintain its elevated level of domestic consumption, more expensive gasoline and other petroleum products are then imported back into the country and sold at subsidized prices. So in terms of revenues the gap between production and consumption is even smaller than it appears in the graph. Together, fuel, electricity, food and other consumer subsidies account for whopping 40% of the budget.

Besides being an obvious drain on the budget, the subsidies don't provide any incentives for consumers to optimize their energy consumption habits, leading to runaway explosion of consumption. Just abolishing subsidies and redistributing the revenues among the poor and middle classes is bound to work wonders for Iranian economy. Suppressing domestic consumption may dramatically improve Iran's position as oil exporter. In the long run, if the government does something to revive the oil production while keeping the demand at bay, net exports may experience a positive growth boosting the country's forex reserves and improving the general situation in other ways.

One school of thought reasons that Iran has simply no other choice. Some of the country's major oilfields were recently reported as rapidly aging due to chronic underinvestment and, given the relentless surge of domestic consumption, this has led many to speculate that somewhere through the next decade Iran may turn into a net oil importer, an absolutely astonishing possibility for a country that right now is one of the world's major exporters. So the reform may be inevitable, but it still makes a lot of difference who and when is going to take this necessary and equally unpopular step. In fact, it's not clear whether the winner of the last elections should be viewed as a lucky guy at all due to Iran's mounting economic and social troubles. The lucky one is going to be the winner of the next elections (or the next coup d'etat) and for reasons I may explain in the next post or an update to this one. Right now it's enough to say that if Ahmalalah goes forward with his reform, he may still end up with some very positive record in Iranian history. However, he should expect no favors on this account from his electorate.

Whether the elections were rigged or not, we may never know due to the mismanagement of the situation by the Supreme Leader who instead of throwing his weight behind Ahmalalah should have called for new and transparent voting. Now the last elections belong to the realm of myths and any misstep of the new government will only serve to exacerbate the myth even more. The energy reform may be a blessing for Iran's economy, but the timing is extremely bad. It's very possible that Iran can afford no more delays due to the global crisis and collapse of oil revenues, but for the regime to follow such a violent and bloody mess with such an unpopular reform may well develop into an equivalent of driving the last nail into one's coffin by one's own hands.


October 2, 2009

Burning money, cooking troubles

This chart from the last Economist gives a very good perspective on the situation of energy subsidies in Iran.

Source: The Economist

As can be seen in the table, Iran is leading the way, and by a wide margin, when compared to other countries by the sheer volume of its energy subsidies. Iran is a big country of course. However, it's also obvious from the table that Iran is still at the top when the subsidies are recalculated per capita, only Saudi Arabia spends more. It spends $786 per person in energy subsidies every year. The subsidies not only account for the lion's share of the budget, but they are also responsible for the out of control domestic petroleum consumption that, according to some, may undermine the nation's position as a leading oil exporter at some point during the next decade.


Hoopalicious techno hooping for her class




PS

The track playing at the background is by Vanjee. For those who don't know, Vanjee is from Haifa. He was mixing here in TA for a while, at Allenby 58. He later moved to the US, where he is apparently very successful. At least Hoopalicious thinks he is awesome :D :D



October 12, 2009

And here we go...

Iran's parliament gives green light to Ahmadinejad's fuel subsidies reform...

TEHRAN, Iran – Iran's parliament on Monday moved ahead with a bill to sharply slash energy and food subsidies, approving one article of a draft law that has the potential of stoking major unrest in a country struggling under international sanctions.

State radio said the article approved by lawmakers would gradually cut energy subsidies over five years, bringing the heavily discounted fuel prices more in line with international prices.

Officials say the cuts are needed to recoup some of the roughly $90 billion spent yearly by OPEC's second largest exporter on subsidies, and to target the funds more directly at helping poorer segments of the population as well as funding infrastructure projects.

Subsidies currently eat up about 30 percent of the government budget at a time when already high spending and the collapse of oil prices last year squeezed the country's economy.

"The plan would prevent an important part of excessive consumption (in Iranian society), as well as injustice in the redistribution of subsidies," state-run Press TV quoted President Mahmoud Ahmadinejad as saying in a live interview on Iranian television Sunday night.

Source: Associated Press

Among its possible consequences, the approved bill has direct bearing on the issue of punitive sanctions against Iran. It's unlikely that the US and its allies can take action to disrupt Iran's oil exports due to the adverse effect this would have on the global energy market and through this on their respective economies. Imposing some kind of embargo on gasoline imports into Iran sounds like a more plausible course of action to take. Under Ahmadinejad the Persians were investing like mad into their refining capacity and switching cars to natural gas. This effort should start paying off in the next few years, dramatically reducing the impact of possible sanctions against Iran. In fact, Iran may yet emerge as one of the leading, if not the leading, gasoline exporters of the world. The incoming reform may dramatically speed up this process if it succeeds to reign in domestic gasoline consumption. In short, while the President of presidents is brooding over his options in Iran, he may soon find that one about sanctions suddenly unavailable.


PS

This means nothing in terms of Israel's options. If it comes to trading ballistic missiles with Iran, the correct way for Israel to proceed in order to avoid creating a global energy crisis and becoming enemy of all mankind, is to target refineries and not oil fields and terminals.

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