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Saturday, February 03, 2007

Thomas Friedman: Iran's Great Weakness May Be Its Oil

The San Diego Union-Tribune has Thomas Friedman's latest column from Times Select:

Iran's great weakness may be its oil, by Thomas Friedman, Commentary,Union-Tribune: There may be only one thing dumber than getting addicted to consuming oil as a country – and that is getting addicted to selling it. ... Economists have long studied this phenomenon, but I got focused on it here in Moscow after chatting with Vladimir Mau, the president of Russia's Academy of National Economy. ...

Here's the story: The inefficient Soviet economy survived in its early decades ... thanks to cheap agriculture, from peasants forced into collective farms, and cheap prison labor... Beginning in the 1960s, however, even these cheap inputs weren't enough, and the Kremlin had to start importing ... grain. Things could have come unstuck then. But the 1973 Arab oil embargo and the sharp upsurge in oil prices – Russia was the world's second-largest producer after Saudi Arabia – gave the Soviet Union a 15-year lease on life from a third source of cheap resources: “oil and gas,” Mau said.

The oil windfall gave the Brezhnev government “money to buy the support of different interest groups ..., import some goods and buy off the military-industrial complex,” he said. “The share of oil in total exports went from 10-to-15 percent to 40 percent.” ...

By the early 1980s, though, oil prices had started to sink... “One alternative for the Soviets was to decrease consumption, but the Kremlin couldn't do that – it had been buying off all these constituencies,” Mau explained. ... Oil prices and production kept falling as Gorbachev tried reforming communism, but by then it was too late.

The parallel with Iran, Mau said, is that the shah used Iran's oil windfall after 1973 to push major modernization onto a still traditional Iranian society. The social backlash produced the ayatollahs of 1979. The ayatollahs used Iran's oil windfall to lock themselves into power.

In 2005, ... Iran's government earned $44.6 billion from oil and spent $25 billion on subsidies – for housing, jobs, food and 34-cents-a-gallon gasoline – to buy off interest groups. Iran's current populist president has further increased the goods and services being subsidized.

So if oil prices fall sharply again, Iran's regime would have to take away many benefits from many Iranians... For a regime already unpopular with many of its people, that could cause all kinds of problems and give rise to an Ayatollah Gorbachev. We know how that ends...

In short, the best tool we have for curbing Iran's influence is not containment or engagement, but getting the price of oil down in the long term with conservation and an alternative-energy strategy. Let's exploit Iran's oil addiction by ending ours.

    Posted by on Saturday, February 3, 2007 at 03:41 PM in Economics, Oil | Permalink  TrackBack (0)  Comments (22)


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