Monday, January 5, 2009

Iran and oil prices

External estimates are that 80% of Iran's tax revenue is from oil sales, implying that creating a budget based on the prices expected this year will mean serious cuts to expenses or extreme violations of OPEC export-limiting agreements. Either that, or Iran had a huge budget surplus last year.

On the other hand, President Ahmadinejad says that Iran's economy is entirely independent from oil prices. So, that is an option, I guess. Considering that there isn't an economy in the world that actually is independent from oil prices, though, I find it hard to believe that a nation that relies on oil to pay for 80% of the government budget could possibly make such a claim with a straight face. In this case, I'll trust the external sources and assume that cheap oil means budget cuts in Iran.

It is an important question because budget cuts mean cuts to government services which means a frustrated population looking for a direction for their anger. In the US, Madoff and a few others will be publicly humiliated and imprisoned for life for their roles in the financial problems. In Iran, the government will continue directing the people's anger at the US and Israel. If things get extreme enough, Iran may be forced to start a shooting conflict to satisfy the bloodlust they incite.

No comments: