Tuesday, January 09, 2007

Iran Short Of Oil?

Awhile back on another blog, I brought up the possibility of Iran's strong desire for nuclear power being based on the fact that Iran was going to run out of oil in the near future. Naturally there was some skepticism.

But today the IHT is running an op-ed piece that makes this very claim.

Iran has ensnared itself in a petroleum crisis that could drive its oil exports to zero by 2015. While Iran has the third- largest oil reserves in the world, its exports may be shrinking by 10 to 12 percent per year. How can this be happening?

In a closed society (which certainly describes Iran), it's hard to tell what's going on. So whether or not these numbers are accurate is anyone's guess. But, I have to say that this is not too far-fetched of a notion.

It seems that there is a plausible reasoning behind it.

Heavy industry infrastructure must be maintained to remain productive. This is especially so for oil, because each oil well's output declines slightly every year. If new wells are not drilled to offset natural decline, production will fall.

This is what is happening in Iran, which has failed to reinvest in new production. Why?

For the mullahs, the short-run political return on investment in oil production is zero. They are reluctant to wait the 4 to 6 years it takes for a drilling investment to yield revenue. So rather than reinvest to refresh production, the Islamic Republic starves its petroleum sector, diverting oil profits to a vast, inefficient welfare state.

The real question here is, why are the mullahs not reinvesting oil profits into exploration and development?

For the mullahs, the short-run political return on investment in oil production is zero. They are reluctant to wait the 4 to 6 years it takes for a drilling investment to yield revenue. So rather than reinvest to refresh production, the Islamic Republic starves its petroleum sector, diverting oil profits to a vast, inefficient welfare state.

Sound familiar? Let's read on.

This colossal revenue loss persists due to the Soviet-style logic of Iran's state-planned economy. Subsidized energy prices force the state oil firm to sell at a loss to the domestic market. Therefore, while Iran could gain billions by fixing the leaks, the state oil firm would be worse off because the maintenance would generate no new revenue. Thus oil and money simply seep into the ground.

Soviet-style state planning is bad enough for any economy, true enough. But the writer of this piece leaves out some important pieces. While the Soviets ran their economy into the ground with this kind of policy, what little profits could be realized were spent on armaments. They were not re-channeled into the infrastructure; they were not contributed back to the people as they often pretended. The entire philosophy of Marx was thoroughly bastardized by this brand of socialism.

Fast forward to Iran and we can see the same thing happening. Not only are they not channeling profits back into the petroleum infrastructure and development, not only are they cheating the people, they are arming Hezbollah, Hamas, and funding the Shia death squads in Iraq to destabilize that nation. Like the worthless "man of the house" that gets his paycheck, drinks, gambles, and chases women with it instead of paying the bills and feeding his children, these mullahs are doing much the same thing here.

If the Soviets tanked out because they spent too much trying to compete with the U.S. in the Cold War, while their people suffered, what can we all surmise will happen if this keeps up in Iran? That's an easy one. But that still leaves us one (maybe two) more burning question(s) that no one person can seem to answer with any clarity. Will they get a nuke before they tank out? And if so, will they use it to threaten the world, when they can no longer provide the most basic of services that any responsible government should provide for its citizens?


Greg said...

LAS: We've talked before about those who would rather put their heads in the sand than admit we have a serious problem on our hands. Personally, I view these types of articles in that light. There is a reason that gasoline is 9 cents/liter in Tehran. It's that they have tons of oil! They also have huge natural gas reserves. They do not need nuclear power.

Even if they did, are we to believe their program is for peaceful means when most of it has been developed secretly; and when the Iranians refuse to submit to intn'l inspections; and when they rebuff offers from the West to give them fuel that can only be used for civilian power generation?

It is plain as the nose on one's face what the Iranians are up to, and it's not planning for the day when the oil runs out. They are planning for a "World Without Zionism," as Ahmadinejihad says.

A.C. McCloud said...

Something sounds just a little too convenient here. Study comes out saying Iran can't afford to invest in their infrastructure leaving them dry by 2015, which becomes a semaphore for holding off any attacks.

If Iran was that desperate the better route would be to do what Iraq is doing--allow foreign investment. All the more reason for their people to rise up and take action now.

LASunsett said...


There is a reason that gasoline is 9 cents/liter in Tehran. It's that they have tons of oil!

Precisely. But if they can't pump it out of the ground because they haven't dug new wells or kept up basic maintenance on the rigs they have, it may go up. People used to paying 9 cents/gal would revolt if they had to pay a dollar a gallon.

LASunsett said...


Something sounds just a little too convenient here.

You could be onto something, it could all be a ruse. But, I had heard this from someone long before now, otherwise I wouldn't give it much credence. I cannot imagine that almost 30 years of mullah rule have produced a vibrant economy, so the claims in this article do not seem so far-fetched. Add to that the enormous amount of support given to terrorists (which ain't cheap) and it seems feasible. But again, it's a crap shoot.

jph said...

they are only short of everything new. ( bad humor, I know).

A.C. McCloud said...

That might be the only rational explanation for Bush and his predecessors ignoring their many pokes in our chest.

Thing is, Bush is running out of time. If Iraq can't be secured and we pull out there's nothing to stop Iran from sweeping in and taking Iraq's Shia-based oil infrastructure, or if nothing else strongarming the Maliki govt into helping them.

Anonim said...

I'm sure you all watched the President yesterday. He is facing a tough situation with time flying fast as AC points out. And tough calls will have to be made. IMO, Bush postponed doing this one more time. Two retired generals (interviewed by Ray Suarez PBS after the speech) articulated what I was feeling the best. They said, a surge of 20-25K troops will not be enough in the face of facts on ground, and especially, in the absence of a strategic position shift. One general put this very succinctly, and said (in my words), we should drop this "we're fighting to bring liberal democracy to Iraq" illusion, and set the goal, implicitly and explicitly, as achieving regional stability. (I'd have said "reinstating it," but that's beside the point.) The other general (I guess, or some other interviewee, maybe David Brooks of NYT) rejected the claim that all this (surge) is happening as requested and supported by the Maliki government. He also pointed out the unfounded hope in Bush's speech: "Iraqi forces will lead this new campaign to quell violence; our surge will help them." It's not going to happen that way, he said.

Couldn't agree more with these critiques... Sooner or later, the administration will have to get tough with the Maliki government or the Shia powerhouses in Iraq, and start working to rein them in.

Greg said...

Sooner or later, the administration will have to get tough with the Maliki government or the Shia powerhouses in Iraq, and start working to rein them in.

Bush gave lip service to this in the speech. Like you, I'm skeptical it will actually happen. The day they arrest or kill Sadr is the day I'll believe we/the Iraqi gov't is willing to do what's necessary.

A.C. McCloud said...

I like that general's viewpoint. Those who say Bush is setting up for our soon-to-be announced withdrawal are wrong IMO. The results of leaving are all horrible--Shia hegemony or a regional war, along with more acreage for terror training camps and a larger threat to Israel. That's not even mentioning the oil.

I think we're giving Maliki one last chance before we muscle an Ayad Allawi strongman back into power.

LASunsett said...

Everyone has made some excellent points. I am not sure what to think about the speech or the new policy.

But beyond all that has been said already, I firmly believe that if we do not allow our troops to shoot at who is shooting at them, it's not going to work. We can put a million more there, and if we tie their hands, it's all going to be for naught. If they fear pulling the trigger in tense and stressful combat conditions and they are afraid to be run up in court, they will not kill. Therefore, the enemy will kill them.

I have serious doubts about the Iraqi government and their willingness to neutralize al-Sadr and his militia. And the thing that really still gets me irritated about the whole scenario is, we had that guy dead to rights in a mosque, when he only had a couple hundred followers. But because we wanted to show that we were compassionate, we wanted to show that we were politically correct, and because we wanted him to get involved in the process, we let the thug go.

Cancer doesn't go away by itself, and this will not either.

Anonim said...

LA, the sad reality is, there wasn't much left in Bush's hand but political correctness. Or, so he and his cadre felt. All stated pre-war physical threat and Al Qaida connection justifications came to naught, and it became, "well, we are cleaning a dirty house." Unconvincing to the world, and deceiving to self? I think so. Now this false pretense is all but expired, but Bush is not ready to acknowledge it. There lies the hopelessness of the current strategy (or lack thereof). That's what the general was pointing to.

Now, how do you make a strategy change? I think, this requires as a start Bush to say "I made a mistake" followed by an honest recount of the history since the March 2003. Not military but political; for you'd have fared no better with a million democracy-spreading troops in search of non-existent WMDs; could be said better, but...

Coming clean with the American public and eye to eye with the region and the world at large as to the current condition thus, you can claim your honest dog in this fight, that is, your national interest for the future. This interest being "regional stability as the first and foremost objective," who wouldn't understand it? Who wouldn't therefore oblige when you say "Iraqi forces should start to take responsibility" for example. Missing in this maxim has been the "or else" part so far. Implicitly it was taken as "or we will leave, so please..." Since nobody in his sane mind believes stability will follow a premature departure, now "or else" will mean "work with us, or you'll be shot at." For regional stability is in "my interest and I am going to fight for it" although "you may see your interest differently." Doesn't it already sound like those "good old wars"? A language everybody understands?

It may also sound like a vindication of Saddam. To some degree, it is so IMO, but the man is dead, and again IMO, the issue is immaterial. The practical problem is, will you really "fight for it"? A sober moral clarity, although a prerequisite, doesn't necessarily translate into a convincing case. How many more troops, how many more billions of dollars may all this take? Can you commit these? Will the American people come around? Will the rest of the West now enter the fold and supply troops and/or funds? These are open questions. And the Iraqi and hostile regional parties involved may well answer them in the negative, and they may see a winnable war of attrition against each other and the US at the same time. But if they believed you, IMHO, most would fall in line. Some grudgingly, some with a sigh of relief, but fall in line they would. In the "grudgingly" category, I see Iran, Al Qaida, certain segments of the Iraqi Shia, and certain Israeli elements (and France, greetings to LA's French audience;). I see a sigh of relief from the rest.

I don't know, I am just thinking aloud. Any gaps or false assumptions? I'd like to hear if anybody cares. Also, I caught that Bush, in his speech, mentioned only Turkey as a regional country to seek some support from. I don't exactly know what to make of this. Unusual? A signal of sorts?..

AC: What do you mean by an "Allawi strongman"? I sort of remember, Maliki was at the beginning promoted as a strong and capable man to replace a weak Allawi.

LASunsett said...


//there wasn't much left in Bush's hand but political correctness.//

I think that almost from the opening bell there has been this pressure to not kill innocent civilians. That, within itself, is certainly a good thing.

But when the Iraqi Republican Guard, the Fedayeen (sp?) Saddam, and other elite fighters dropped their weapon and blended into the civilian population, there was this intense pressure to find them and at the same time, to not inflict civilian casualties. If they go after them (then or now), then they are going to have some collateral damage. It's impossible to have a war without it. So, to base your whole strategy on this, creates an impossible military task and leads to a quagmire like Vietnam had become.

And that is precisely what the anti-war crowd wanted. There are those that want another Vietnam and want the US to lose, only so they can point to what a failure Bush is. And Bush fell into that trap.