Iranian leadership, however, view the decline in the price of oil with great concern. Speaking at the Second International Gas Conference in Tehran, a gathering that includes leading oil and gas producers, Iranian Oil Minister Gholam Hossein Nozari called on OPEC members to stabilize prices at over $100 a barrel. “A price of US$100 and below is not suitable for anybody, neither oil producers nor oil consumers… OPEC members need to respect their output quota to avoid a worsening of the oversupply.”
At this point, Iran stands alone in its concern over the current price level for oil. But what is there motive? Is it simple greed - the higher the price of oil, the greater the revenues? To an extent, greed does play a role. However, there seems to be real fiscal concerns at hand for the Islamic Republic. Mohsin Khan, Director of Middle East and Central Asia at the International Monetary Fund, argues,
Iran’s break-even price is $90 a barrel, and that is a big issue in Iran right now. … If prices dip below $90 a barrel, and we have seen it touch $89 earlier this week, then they would have to tighten their public expenditure policy, and probably cut subsidies, which would be an issue for the government there – the public would not be content.
For other oil producing nations, Khan believes break-even threshold is much lower. “The UAE will have a fiscal balance at an oil price of $23, if it goes below they would run a deficit. For Qatar, the break-even price is $24 a barrel.” Saudi Arabia’s standard of $49 a barrel is the highest amongst the Gulf Cooperation Council countries on account of its high spending “on a lot of projects right now, and oil money is used to fund these projects.”
Iran’s struggling economy might not be able to sustain a prolonged period of low oil prices. The economy is the primary issue in the upcoming presidential elections and the political factions are fractured over how to fix it. Seeing the strain that subsidies have put on his inflated budget, President Ahmadinejad is considering abolishing many of them - a move that could cause inflation to spike if not done slowly and cautiously (the official inflation number is already at 26%).
So, maybe one good thing that could happen is the people finally rise up against the mullahs and join civilization. Notice how the mullahs keep the people happy with subsidies? Sound familiar? Sounds like the Obama economic plan...Interesting, don't you think?
Hugo and Venezuela are getting worried, also:
The Mideast worries and talks about reducing output, but the one with the most reason to worry is Hugo Chavez. No one, and I mean not one single petty tyrant in all the oil-financed tyrannies in the world, is as dependent on oil revenues to maintain himself in power. Venezuela relies on oil income for more than 40 percent of its budget and Chavez squanders every day millions of dollars of oil revenues while oil production has fallen by a quarter since he won power.
The official rate of inflation is 22.5 - the highest in Latin America. However, inflation in some sectors, such as food, is 50%. The Venezuelan economy is in tatters now and will get a lot worse.
And even Putin is feeling the pinch.
There is always a bright side, and this may be our bright side to these troubling economic times.
