January 8, 2007

WHY KHAMENEI NEEDS THE REFORMERS:

Iran actually is short of oil (Roger Stern, January 8, 2007, International Herald Tribune)

For the mullahs, the short-run political return on investment in oil production is zero. They are reluctant to wait the 4 to 6 years it takes for a drilling investment to yield revenue. So rather than reinvest to refresh production, the Islamic Republic starves its petroleum sector, diverting oil profits to a vast, inefficient welfare state.

Employment in the loss-making state-supported firms of this welfare state is essential to the regime's political survival.

Another threat to exports is the growth in domestic demand. Iranian oil demand is not just growing, it's exploding, driven by a subsidized gasoline price of about 9 cents a liter. This has created a 6 percent growth in demand, the highest in the world.

So Iran burns its candle at both ends, producing less and less while consuming more and more.

Absent some change in Iranian policy, a rapid decline in exports seems likely. Policy gridlock and a Soviet-style command economy make practical problem-solving almost impossible.

The regime could help itself by making it easier for foreign firms to invest in new production. Remarkably, it has not done this even though the decline in exports, which provide more than 70 percent of state revenue, directly threatens its survival.

While signs of a petroleum crisis in Iran, are numerous, neither the Bush administration nor its critics have recognized them.

Posted by Orrin Judd at January 8, 2007 1:17 PM
Comments

It's interesting that the international journalists don't read the business section - You have to really try hard not to find stories in the American papers' business sections about how state run oil ventures in Venezuela, Bolivia, Iran, Mexico, Russia, Norway & Saudi are having difficulty increasing their oil output.

Posted by: KRS at January 8, 2007 2:29 PM

We could exacerbate the situation with a few "accidents" to their port, transportation, and production facilities. It is long past time when we should return their support of the terrorists in Iraq with a little guerrilla activity of our own.

Posted by: jd watson at January 8, 2007 3:33 PM

Confused enemies--who would have thought it?

Posted by: Lou Gots at January 8, 2007 4:06 PM

America's asymmetrical warfare option against the Islamists (and a whole gaggle of others - Putin and Chavez plus the goons they support) is to sending less money to them by decreasing our dependance on oil.

The less money they have, the less they can give.

This should have been a major strategy to implement after 9/11. Our failure to do so is our greatest self-inflicted wound.

Posted by: Chris Durnell at January 8, 2007 4:25 PM

While signs of a petroleum crisis in Iran, are numerous, neither the Bush administration nor its critics have recognized them.

That's idiotic. Not only has the Bush administraiton recognized it, they've been doing their level best to nudge it along, as witness recent reports that we're working to constrain Iran's access to the financial markets for oil field repair and development, reducing their access to oil equipment, etc.

Don't let the progressives here about that; they'll have a canary.

The point is, we've been working quietly to hit the thug states that have lots of oil (perhaps some of that isn't part of an overall policy but just reaction to thugs), and it's beginning to have some substantial impact.

Posted by: Steve White at January 8, 2007 5:15 PM

They have nothing to do with Iraq. That's just a manufactured pretext.

Posted by: oj at January 8, 2007 5:20 PM

"Progressives?" Whatever is the gentleman talking about? I recall that the Communists in THE FORMER SOVIET UNION used to employ that term as a euphemism for themselves. Perhaps that is what is intended.

Posted by: Lou Gots at January 8, 2007 6:01 PM
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