By Dave Anderson:
During the middle part of this decade, all major net oil exporters saw their cash flow increase dramatically. Oil prices increased far faster than depletion and net export declines. This gave quite a few rulers' significant freedom to spend without trade-offs on guns, butter and subsidies to buy off political opposition and to have marginal members of their selectorate stay inside the big tent. And then the Great Crash of 2008-2009 happened and oil went from $144/bbl to a low of $30-something a barrel. Most nations started to use their reserves to cover the gap in cash flow as well as scale back some of the more ambitious spending projects, and unsurprisingly, when the flow of easy cash started to taper off, domestic unrest became a bit more frequent.
Iran is a major net oil exporter; it is its major hard currency earner. Iran has also had significant inflation and a fairly moribund domestic economy. Stagflation, combined with a massive youth bulge and the explicit cause of the Green Movement protests, the dirty election, has fueled a significant challenge to the current Iranian government's legitimacy and power. However, the Iranian government, among others, is getting significant aid by the rebound in oil prices back to the mid-$70s per barrel, as AFP reports:
President Mahmoud Ahmadinejad on Sunday presented parliament an
annual budget which puts expenditure 23.6 percent higher than in Iran's
current financial year, Mehr news agency reported.The budget for
the year to March 2011 was valued at 368.4 billion dollars based on an
oil price of 60 dollars a barrel, compared with the 298 billion dollars
for the current year....Mehr said the budget had taken into account an oil price of 60 dollars
a barrel for the said period, compared with an average of 37.5 dollars
in year to March 2010....The next year's budget is also marked by the start of a major plan to
scrap costly subsidies on energy and goods, in turn reducing government
expenditure.
Scrapping the refined petroleum subsidies will save the Iranian government significant sums, as well as make the country more resilient to international sanctions against POL imports because consumption will decrease. However, these market liberalization attempts will cause short term pain as gas goes from a dime a liter to closer to world market prices. The ability of the Iranian government to offer cash subsidies instead of supported prices because of higher oil earnings, will greatly ease economic discontent over the policy change.
If the US was really serious about creating significant pressure on the regimes of major economic rentiers and oil exporters, we would actually do something about their cash flows by reducing our oil demand with some of the freebies that are available in our economic model, but that would require minimal discomfort on the part of American voters, so we can't have that; instead we saber rattle while funding ruling elites that we don't like.
Not to mention that the federal government subsidizes oil consumption, something that's taken place over a period of more than 50 years, under Democratic administrations and Republican ones.
ReplyDeleteForeign oil is a national security risk. Remember the Arab Oil embargo. We need to explore each and every means to cut our oil imports like: conservation, substitution and even exploration. Conservation is the quickest way, substitution next. Exploration is last because it takes a long time to be productive. I don't think we should increase our oil consumption but I think it is vital to national security to decrease our importation of foreign oil.
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