A POTENTIALLY HUGE DROP IN OIL PRICES WOULD COMPOUND IRAN’S ECONOMIC PROBLEMS
Many economists predict a substantial drop in world oil prices unless the USA and Europe can resolve problems quickly.
Like many Third World countries with one-dimensional economies, Iran has become overdependent on one resource for its revenue–oil in this case. What happens then if shrinking demand should cause a substantial drop in world oil prices? What makes Iran even more vulnerable are decades of economic corruption and short-sighted mismanagement.
Corruption is almost inevitable in a closed society that lacks the treansparency and natural checks provided by free press, free speech and democratic elections.
Economic mismanagement, especially by the Republican Guard–is worsened because of a decision to encourage cheap imports to keep prices down and the people contented.
A side effect of that policy has been to drive hundreds of Iranian companies and much of its agriculture out of business, making the economy more one dimensional than ever. What happens when Iran, faced with lost oil revenues, can’t afford those imports? Where can Iranians find necessities?
While gloating over economic problems in Europe and the USA, Iran’s leaders miss the likelly boomerang effect at home. Few are widely traveled or well read in history and economics so they fail to understand the fragile nature of worldwide global interdependence–ties which can’t be avoided in the modern world. They resemble a man who gloats as he watches the other half of his lifeboat sink.
It’s simple: What happens in one place can effect everyone else. This is especially true in the case of economic behemoths such as the USA, Europe, China and Japan.
Consumers and corporations faced with economic problems always cut fuel consumption. There are many ways to do so. Compounding the effect on oil prices is that–as western economies sag–China, Japan and others experience huge drops in sales. Shipping fewer goods and cutting production, they too consume less oil than predicted.
Recall the Arab oil boycott during the Carter presidency. As intended it hurt western economies but it took oil prices would take a decade to recover.
What makes Iran’s situation worse is that food inflation is also threatening stability in Iran, as a recent report in the Financial Times noted.
http://iranian.com/main/news/2011/11/08/food-inflation-threatens-stability-iran
