How will the recent financial banking crisis effect Iran? what, if any, significance does it hold for the Baha’is of Iran? To answer that we first have to look at the economy of the country.
The Iranian economy is primarily based on its fossil fuels. According to the Iranian Central Bank, oil and gas exports accounted for $82 billion in the first quarter of this year. Non energy related exports accounted for only $15.6 billion which comes from mostly pistachios and woven carpets. The energy revenue is about to shrink considerably as oil prices have fallen in international markets from $147 a barrel to $65 a barrel.
A perfect storm is headed towards this teetering economy. Not only will a lower crude oil and natural gas price mean lower revenues for the IRI but a retrenching world economy will mean that Iran’s already thinly stretched trade relationship with the outside world will be strained even more, leaving the economy even more precariously dependent on diminishing petrodollars. As well, the lack of refining capacity means that Iran will have to continue to pay for refined fuel to be imported from Turkey at relatively stable prices. This will further squeeze the economy as their own raw material expenses will be relatively unchanged. Iranians have lived with extremely cheap fuel for their whole lives, paying 3-4 cents a liter. If the government tries to end the subsidies and pass on the real expense of the fuel, there will be an overnight riot engulfing the whole country.
Just this past month, the IRI was impotent to implement a 3% VAT on retail sales. It was first delayed when it met initial resistance but when the delay’s deadline wore out, shopkeepers closed their stores in droves across Iran. The government has also had to back down on its demands for more transparent accounting to get more tax revenues. And a plea for businesses to pay back outstanding and delinquent debts has gone unanswered. Iran’s tax revenues only make up a fifth of the countries budget, so as you can imagine, not very many pay their share of taxes and don’t like to be forced to all of a sudden.
The gigantic oil surplus funds that Iran had amassed has now been totally spent by Ahmadinejad in his desperate attempt to curry favor with those who elected him into power on a platform of “putting oil wealth on the dining room table”. All that this spending spree has accomplished is runaway inflation – by some estimates topping 30%. Food prices alone are running at 40%. Iran’s Central Bank recently acknowledged that almost 25% of the Iranian population live in poverty.
Ahmadinejad will seek another term in office in June 2009 which could coincide with a full blown economic tsunami. If the price of oil and gas continue to go down or simply remain in this range, the economy of Iran will suffer greatly as the government has created budgets based on much higher estimates of oil revenue. Some economists estimate that Iran needs a minimum of $75-80 a barrel to remain standing. As Iran comes under more stress due to lower oil prices, their credit rating and currency strength will also suffer, making imports more expensive. Further damaging the economy.
Ahmadinejad and the Hojjatieh extremists in power are in even more desperate need of petrodollars since that is how they have been able to prop up a diseased economy until now. They have had billions to distribute among the people to buy supporters. But today not only is inflation running wild, fraud and corruption continue to take their toll on Iran’s economy to an unprecedented degree. There is no direct investment of any significance from external sources which leaves the economy without any hope of capital injections. As well, with the recent moves against them, the baazaris who make the bulk of the Hojjatieh Society, are angry at Ahmadinejad.
In ancient Greece, less able sculptors would fill in the cracks of their marble statues with wax, making the imperfections less noticeable. Those that didn’t would advertise their wares as sin cere or “without wax”. The word today is known as sincere – as in truthful, honest, factual. If Ahmadinejad can not depend on the surplus oil revenue that Iran has been lucky to receive for the past few years, he will have less and less “wax” with which to gloss over the many ugly imperfections of Iran’s crumbling facade.
When petrodollars can not sustain this, Iran’s economy will hit a tipping point from which there is no return. Thanks to the mismanagement, cronyism, kleptocracy that has been characteristic of the Islamic regime, Iran’s economy is in tatters and does not need much more than a “flick” to hit the tipping point.
It all comes down to one number which you can watch in your daily newspaper. If the price of oil and gas goes down, Iran will change. The other variable is how fast prices come down. Even if prices don’t fall to extremely low levels, a dramatic decline, like the one we’ve seen so far can be a “shock”. This is because the harder prices fall, the less time the country has to adjust and therefore, the more fatal the shock to the system. If we imagine oil falling according to the trajectory it has set since its high at $147, then we could potentially see $30 by the beginning of next year. Such an outcome would mean that the Iranian regime would not be able to survive in its current form.
No one knows what will happen but under such a scenario the priorities of people is not ideology but simply survival under Maslow’s hierarchy of needs. And if such a scenario does unfold, it will mean a tremendous suffering for all Iranians. Which is why I continue to beg me fellow Baha’is to leave the hell-hole that is Iran. Things are bad now but they could get unbelievably worse. Under such a scenario, the IRI would completely shut out of their normal control mechanisms and the population would be in “everyone for themselves” mode.
If you’ve been reading my previous thoughts, this is nothing new:
It is my humble opinion that if any political or religious change is in the offing it will come as a result of severe economic pressure which itself can only be brought on by a much lower crude price.
My personal observation and analysis regarding this commodity leads me to conclude that it will be either much higher or pretty much at this level in the future, which is why most of my investments for the past 3 years have been related to oil/gas (don’t confuse this with financial advice).
Iran’s Future
As I’ve repeatedly said, no structural change will occur in Iran with the price of oil where it is because it gives the ruling kleptocracts too much leeway to fill in the gaps of a corrupt and decaying regime with petrodollars. After all, the cash that was given to hordes of Basijis (the fanatical militia controlled by Khamenei) to bully voters into supporting a dark horse candidate, has to come from somewhere.
Sundry
The only thing that has changed in my view is that oil is now headed down for a while. OPEC has responded as they usually do, with talk of a restriction in supply. No one believes that they will actually do as they say because they desperately need the income.
A corollary to all this economic talk is that it could have real consequences for the Baha’i community in Iran. Not only as citizens of a decaying regime but also as member of a persecuted religious community. History has shown a pattern where economic turmoil seems to coincide with religious persecution. This has already been studied and analyzed as mentioned in this previous post about Iran.
If you are a Baha’i in Iran, for this and many other reasons, it is time to say Farewell to Iran. As a Baha’i we do not believe in patriotic propaganda, nationalism nor do we exalt or glory in one country over another. We are to glory in being part of humanity. So go be a part of a healthy, open, welcoming society. There are many out there that would be more than happy to have you as a productive member.

