More Bad News for Iran
Back on 13 August I posted about the reported 50 percent increase in the Iranian debt during the past year, despite high oil prices. Today, 29 August, Asharq Alawsat carried an Agence France Press (AFP) report that Iran is falling behind its planned targets for oil production. According to National Iranian Oil Company Managing Director Gholam Hossein Nozari: “Crude oil production could reach 4.5 million bpd by the end of the state's fourth five-year development plan (2005-2010), well under the original production target of 5.0 million bpd said Tuesday. “ In fact, Iran cannot even meet its current OPEC production quota—5 million bpd—and is currently pumping about 4 million bpd. The short fall of a million bpd at current prices means the loss of $70 million per day, or annually almost $26 billion through 2010!
The reason? It’s simple: lack of capital and aging oil fields that need modernization. And how do the Iranians plan to solve their problem? They’re going to invite foreign investors. That’s right. The Islamic Republic of Iran, which castigates the Shah’s regime for selling the country out, and blames the US for overthrowing Muhammad Mossadegh because he nationalized Iran’s oil industry, is now going to turn to foreign investment. And, of course, despite the Iranian record of nationalization and its current policies, European and Chinese oil companies will be lined up to offer bids: unless, of course, Iran is hit with UNSC sanctions.
I’d make two points. First, Iran is far more vulnerable to economic sanctions than most people think. Second, Ahmadinejad’s spending on his international game—military support for Hezbollah, Lebanese reconstruction, bankrolling the rebuilding of the Syrian military, and a simultaneous and extensive expansion of the Iranian military—is hindering internal development and accelerating the accumulation of foreign debt. In the mid- and long-term, Iran would be much better off if it used its capital to increase oil production, and thereby revenue, instead of using those dollars, many of them borrowed, to re-arm Bashir Assad’s Syria.
Ahmadinejad is playing a high-stakes game, not only internationally, but also internally. He is living well beyond his means. As has been true of so many other leaders in the Middle East, the Shah among them, Ahmadinejad is short-changing internal development in order to hastily make his country a regional power. Time will tell if he is a better manager than was the Shah, or if Ahmadinejad is mortgaging Iran’s future.
The reason? It’s simple: lack of capital and aging oil fields that need modernization. And how do the Iranians plan to solve their problem? They’re going to invite foreign investors. That’s right. The Islamic Republic of Iran, which castigates the Shah’s regime for selling the country out, and blames the US for overthrowing Muhammad Mossadegh because he nationalized Iran’s oil industry, is now going to turn to foreign investment. And, of course, despite the Iranian record of nationalization and its current policies, European and Chinese oil companies will be lined up to offer bids: unless, of course, Iran is hit with UNSC sanctions.
I’d make two points. First, Iran is far more vulnerable to economic sanctions than most people think. Second, Ahmadinejad’s spending on his international game—military support for Hezbollah, Lebanese reconstruction, bankrolling the rebuilding of the Syrian military, and a simultaneous and extensive expansion of the Iranian military—is hindering internal development and accelerating the accumulation of foreign debt. In the mid- and long-term, Iran would be much better off if it used its capital to increase oil production, and thereby revenue, instead of using those dollars, many of them borrowed, to re-arm Bashir Assad’s Syria.
Ahmadinejad is playing a high-stakes game, not only internationally, but also internally. He is living well beyond his means. As has been true of so many other leaders in the Middle East, the Shah among them, Ahmadinejad is short-changing internal development in order to hastily make his country a regional power. Time will tell if he is a better manager than was the Shah, or if Ahmadinejad is mortgaging Iran’s future.
