Low Oil Prices Could Control Iran

Jim Brown
 
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Iran is hurting under existing sanctions and under the lower prices on crude compared to 2008. Most people don't realize that President Reagan conspired with Saudi Arabia to bankrupt the former Soviet Union by flooding the market with excess oil and driving prices down.

Using oil prices to control Iran would have two big benefits. First, Iran needs oil to be in the $100 range to fund their budget and adequately sustain government spending. Iran is a sponsor of terrorism through Hezbollah and other organizations that train and equip anti Israeli groups. They also fund and equip saboteurs to go into other Arab countries and cause trouble.

Iran has a very expensive set of goals today. Those include the current game of nuclear chicken, the aggressive upgrade of their military technology, keeping millions of citizens on the military payroll in order to keep them in line and by subsidizing gasoline and diesel prices to keep their economy moving. Iran spends about $40 billion a year in subsidizing fuel prices. Iran recently raised gas prices by about 25% but they are still cheap. Up to 100 liters (26 gallons) a month can be bought for 38-cents per gallon. Over 100 liters costs $1.50.

Without continued high prices for oil Iran will not have the resources to continue these practices.

The second benefit of flooding the market with excess oil and forcing prices down is the impact on the global economy. Cheap oil promotes rapid growth on a global scale.

President Reagan convinced the Saudis to flood the market will excess oil and Russia could not continue to fund their war machine with a sharp drop in oil revenue. Today the Persian Gulf neighbors to Iran do not want a powerful Iran. They don't want Iran to have a bomb and they don't want their missile technology to improve. The U.S. is currently spending tens of billions to install missile defense systems in the nations around Iran to protect them from potential threats.

If the U.S. privately agreed to kick back to Saudi Arabia a few dollars for every additional barrel they produced the country has the theoretical capacity to push prices to any price they want given enough time. The downside to this is the damage to other OPEC economies that also survive only because of their oil revenue.

They need to decide which is worse. Do they want to lose a little money now to sell their oil for less or be forced to pay more for defense later as Iran upgrades their technology?

$70 oil is the level where most OPEC nations can fund their budgets and justify spending extra money on new exploration and development. Under $60 would be painful. The difference between $60 and $70 would mean a lot of pain for Iran and would mean some programs would not get funded. Civil unrest is already high and raising gasoline prices because they can no longer afford the subsidy would be another way to feed that unrest.

These are the comments that are circulating in the recent op ed commentaries and you can bet there are plenty of discussions at the higher levels on how to engineer this opportunity. Obviously an easier way to control Iran would be to restrict gasoline imports since they import 35% of their consumption. China is the roadblock in that effort. Also, if the U.S. could somehow restrict their sales of oil they would accomplish the same goal and the rest of the OPEC countries would benefit.

Reagan did it to Russia. Can President Obama do it to Iran?

Jim Brown

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