Oil is sticking around $40 a barrel (it closed at $39 and change today). Iran is in trouble.
Iran’s president presented parliament with a sweeping economic package Tuesday that calls for scrapping costly state subsidies for fuel, water and electricity and raising taxes to make up for the steep slide in world oil prices.
The move is a risky one for President Mahmoud Ahmadinejad, who already is facing public disenchantment over Iran’s economic problems as he heads into June elections. Economists have warned that his plan will push up prices, worsening inflation now running at 28 percent.
But it’s even better (or worse) than that.
Iran relies on oil for 60% of its budget, half of which is spent on welfare. Starved for money, Mr. Ahmadinejad proposes to free some consumer prices and cut spending. Corruption, mismanagement (inflation at 25%) and unmet populist promises already made Mr. Ahmadinejad unpopular at home. Now the austerity talk is raising the domestic temperature. In October, a strike by bazaar merchants forced the government to delay a sales tax. The universities are restive again (see “Iran’s YouTube Generation,” Dec. 15) and the government wants to push through a hated gasoline rationing plan.
Apparently, Iran’s budget has oil pegged at $60/bbl. Ouch. Sucks to be you, Mad Mullahs. And will the Mullahs loosen the pursestrings of their Swiss bank accounts? Of course not. Let the peasants eat—um. What’s an Iranian delicacy?
Here’s what I find most satisfying right now: The price of oil went up a dollar or two since the start of Israel’s war on Hamas. Then it pretty much went back down again on the news that demand is going nowhere. When you have a land awash in a commodity that isn’t as desirable today as it was a mere six months ago, well, you either have to utilize other parts of your economy, or you have to just suck up the $100/bbl difference. But when oil revenues make up 60% of your budget—well, then you don’t get to do the things you really want to do.
Is the price of oil stopping the mullahs from ordering Hezbullah to open a second front against Israel? Perhaps. It could also be that they’re keeping Hezbullah in reserve for a possible attack on their nuclear facilities. Omri says it’s because the IDF flat-out stated not long ago that the next time Hezbullah attacks Israel, the IDF will flatten Lebanon. Not just the Hezbullah sections of Beirut. The entire country. Here’s the article he cited:
In any future conflict with Hizbullah, Israel will likely cite the Shi’ite group’s increasing influence within the Lebanese cabinet as a legitimate reason to target Lebanon’s entire infrastructure, government sources have told The Jerusalem Post.
So. Is the price of oil affecting Iran’s decision? Is it the desire to hold Hezbullah in reserve in case Hamas does get totally chewed up and spit out by the IDF? Or is it because the Lebanese know that Israel isn’t making idle threats about infrastructure?
Once again, Omri:
Evaluating Hezbollah – The consensus seem to be that they won’t attack lest the IAF flatten southern Lebanon. There were several mentions about the noticeable lack of activity in the south.
I’ll go with the Israeli sources on this one. They’re better informed. The fact that Iran is going to be facing probable riots in the near future because the price of oil has dropped? Well, that’s just a nice little extra.
Isn’t this then the perfect time for Israel’s long-awaited attack on Iran’s Nuke facilities?
The Israeli civilian populace is already on maximum alert.
There’s already been a Reserve call-up.
Hezbollah is reluctant to attack for anything other than direct action against Lebanon.
International panties are already bunched.
Right now, equipment damaged or destroyed is not just equipment Iran needs to replace – it is equipment Iran can not afford to replace.
If the attacks cause a bump in oil prices, it’s a bump from a low rather than a high. And a lot of that bump will be because of worries that Iran won’t be able to get it’s oil on the market.
If the Gaza war stretches on for a number of months, it becomes more attractive for Iran to give Hamas the first low-yield device, or a dirty nuke produced from scraps. If the program is in desperate rebuilding mode that becomes a lot less likely.
And finally, with the oil and credit markets where they are, Russia will not be extending particularly good credit terms to their good friends in Persia.
One thing we can’t expect is the fabled youth uprising against the mullahs. I think Iran’s gotten very good at playing the game of tightening and loosening restrictions to keep the youth pissed off but disorganized.
Any attack by Israel of Irans nukes would be difficult if not impossible logistically without US help via Iraq Airspace..
Hmm. Regardless of what the reason is Hizbollah isn’t even offering Hamas a “moral support” rocket strike or two in Northern Israel, it’s starting to look like the 2006 Lebanon invasion wasn’t for nothing after all.
You think Israel might realize this, and re-elect Olmert? Or is that what Hezbollah is actually hoping for by not launching rockets?
Ugh. Wheels within wheels make me dizzy. Whatever the case, it’s about time people started realizing that there can be no diplomacy with people who think it’s not just their right, but a moral obligation, to promise everything and deliver nothing, not even a temporary break in their rocket attacks.
Any weak despotic system like Iran’s Government, or Islam in general, needs an enemy to keep the people focused on not blaming themselves and their own government for all of their problems. This makes them very dangerous…
Robert
If Iran needs to keep oil prices up, then they should cut back production. That’ll do it, right?
If they want to maximize the price of oil, they should halt production altogether. Simple economics. I’m sure their Arab brothers in Saudi Arabia will be very appreciative.