Don’t Bomb Iran

Saudi Arabia is pumping more oil than normal, deliberately reducing the global price of crude in an attempt to damage Iran’s  economy say several reports. Iranian oil extraction is much more expensive than the Saudi’s costs, and Iran’s economy is already under great strain and dependent on oil exports. Allegedly with US encouragement, this strategy is seen as a way to limit Iranian funding of Palestinian groups, increase domestic pressure on the Tehran regime, and to support Iraq’s Sunnis by limiting Iran’s  spending power in Iraq. Saudi is also allegedly going to try giving large sums of money to Lebanese and Palestinian groups to buy support away from Tehran. UK Times newspaper excerpt below

New US strategy on Iran emerges from Davos
Anatole Kaletsky

Times Online      January 25, 2007

Meanwhile, the Lebanon conference is demonstrating that the US-Saudi coalition can easily match and exceed the financial subsidies channelled by Iran to Hezbollah, Hamas and its other regional proxies. In doing this the Saudis’ involvement is crucial because of their ability to spend large sums of money without the budgetary and political oversight faced by Washington. At best, Saudi open-handedness would persuade key players, not only in Lebanon but also in Iraq and Syria, to desert the Iranian camp. At a minimum, Saudi efforts to buy support in the region would tempt Tehran into a bidding contest which the Iranian economy could simply not afford.

This brings us to the final and most interesting strand in the anti-Iranian policy nexus: the price of oil. Iran’s economy depends entirely on oil sales, which account for 90 per cent of exports and a roughly equal share of the Government’s budget. Since last July, a barrel of oil has fallen from $78 to just over $50, reducing the Government’s revenues by one third. If the oil price fell into the $35 to $40 range, Iran would shift into deficit, and with access to foreign borrowing cut off by UN sanctions, the Government’s capacity to continue financing foreign proxies would quickly run out. Iran has reacted to this threat by calling on Opec to stabilise prices but, in practice, only one country has the clout to do this: Saudi Arabia. Earlier this month, in a highly significant statement, Ali al-Naimi, the Saudi Oil Minister, publicly opposed Iranian calls for production cuts to halt the decline in prices. Mr Naimi’s pronouncement was cast as a technical matter unconnected with politics, but it seemed to confirm private warnings by King Abdullah that his country would try everything to thwart Iran’s hegemony in Iraq and throughout the region, whether by military intervention or more subtle economic means.