Oil could cure economic ills in Iran

25 September 2009

Ahmadinejad has proved to be a poor steward of the economy. Without improved economic performance, the regime’s opponents are likely to increase

The Iranian government is doing its best to pretend that life has returned to normal following the presidential elections in June, despite ongoing protests against their outcome.

A new cabinet is in place and Iran is preparing to restart multilateral talks over its controversial nuclear programme. The international community could impose more sanctions unless progress is made.

But it will become far harder for President Mahmoud Ahmadinejad’s government to cope with its critics, whether at home or abroad, if it cannot revive its ailing oil industry.

Ahmadinejad proved to be a poor steward of the economy in his first term in office and there is little reason to believe his performance will improve following his re-election. Ahmadinejad’s proclivity for short-term spending to boost his popularity helped send both unemployment and inflation to their current levels of more than 20 per cent.

Ahmadinejad’s economic mismanagement has also robbed the oil industry of badly needed investment.

Despite Iran’s vast oil and gas reserves, and the rising value of energy exports, which climbed from $53.8bn in 2005-06 to an estimated $91bn in 2008-09, oil output has stayed at about 4 million barrels a day.

Iran needs to attract tens of billions of dollars in investment each year to expand its oil output. With or without sanctions, it is a tough task.

Unless Masoud Mirkazemi, Iran’s newly appointed oil minister, can solve this problem, the potential for the government to turn around the economy will be severely limited. And without improved economic performance, the regime’s opponents are likely to increase.

At the moment, the potential threat posed to the government’s ambitions by further inter-national sanctions is far outweighed by its mismanagement of the oil industry. Just as the regime’s most prominent political opponents are inside the country, so too are its main economic dangers.

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