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Sagging Oil Prices and Iran

Matthew M. Reed

What impact has the fall in global oil prices had on Iran?
 
The oil price collapse since June has had only a modest impact on Iran— so far. But lower revenues have already forced President Hassan Rouhani to significantly reduce budget projections and even decrease Iran’s dependence on oil. More steps may lie ahead, depending on both the market and the results of Iran’s talks with the world’s six major powers on a nuclear deal.

In December, Rouhani presented a budget for 2015 based on an average oil price of $72 per barrel— down from about $100 per barrel in the 2014 budget. But oil has been trading below $50 and it may stay low. So the government has slashed the projected price again to $40 per barrel. Rouhani intends to reduce Iran’s dependence on oil from an average of 45 percent of all revenues to about 31.5 percent.
 
The imploding oil market comes at a time when Iran is already suffering serious economic challenges due to mismanagement, corruption and international sanctions. Inflation remains high even though it has halved to less than 20 percent over the last year.
 
Iran’s currency, the rial, lost half its value in 2012 amid tightened sanctions and has not recovered. The rial’s value climbed after Rouhani took office in August 2013, but it has since fallen again. By the end of 2014, it was trading on the unofficial “open market” for 35,000 per dollar, a modest improvement to the 40,000 per dollar rate at the end of Mahmoud Ahmadinejad’s term.
 
In early December, Iran raised bread prices slightly. More subsidy reform could be on the way to help cope with the shortfall in revenue.
 
Even when prices were high in recent years, sanctions did serious harm to Iran’s economy. But those same sanctions may defer some of the pain from falling prices. Iran’s oil revenues are currently held in customer countries and can only be used to pay for goods and services originating in those countries. For more than two years, revenues have been piling up in banks overseas due to sanctions. By early 2015, they totaled tens of billions of dollars in China, India and other top Iranian customers. Iran may only be adding to these accounts more slowly now that it is selling oil for less.
 
Oil traders and industry sources report that Tehran is offering generous credit terms to customers so there is a delay between oil delivery and payment. If the pain of the price drop is delayed, it won’t be for much longer.

How is Iran’s shortfall in revenue impacting the debate over nuclear talks?
 
Falling oil prices have accelerated the debate in Iran linked to the nuclear file. Supreme Leader Ayatollah Ali Khamenei and hardliners in his corner seem to prioritize Iran’s nuclear program over reconnecting the economy to world markets. They argue that belt-tightening, improvements in self-sufficiency and acceptance of some hardship can allow Iran to maintain its nuclear program— without compromising its revolutionary values. Khamenei calls this his “Resistance Economy” program. The concept, however, remains a catchphrase more than a comprehensive set of policies.
 
President Rouhani, on the other hand, has argued that Iran's economic prospects are directly tied to sanctions and its relationship with the outside world. “Our political life has shown we can't have sustainable growth while we are isolated,” he told a meeting of economists on January 4. To applause, he contended that Iran's foreign policy must serve its economy. Rouhani may not have dismissed Khamenei's “Resistance Economy” outright, but he surely hit a nerve.
 
The hardliner response was immediate and fierce. Days after Rouhani’s speech, Judiciary Chief Sadeq Amoli Larijani insisted thatone must not tie economic issues to nuclear talks.” Connecting the issues and debating them provided “reassurance” to Iran’s enemies, Larijani warned.
 
The debate is far from over but the price collapse is forcing leaders and politicians to pick sides. The supreme leader's allies in the media, judiciary, and military have since warned Rouhani not to incite public opinion against the nuclear program.

What impact have falling oil prices had on Iran’s relations with its oil-rich Gulf neighbors and other OPEC members?
 
Iranian officials have blamed the price collapse on Saudi Arabia and the United States. President Rouhani and Oil Minister Bijan Zanganeh have claimed that the collapse is a political conspiracy. “Those that have planned to decrease the prices against other countries will regret this decision,” Rouhani warned in a televised speech on January 13. “If Iran suffers from the drop in oil prices, know that other oil-producing countries such as Saudi Arabia and Kuwait will suffer more than Iran,” he added.
 
Other officials, like Deputy Foreign Minister Hossein Amir Abdollahian, have called on Saudi Arabia to cut production in order to lift prices.
 
To Riyadh, Iran’s complaints are just noise. Other cash-strapped oil producers also want Saudi Arabia to cut production and keep prices up for everyone else. The Kingdom, however, has little confidence that it or OPEC can prop up prices for long.
 
Instead of gambling on production cuts, the Saudis want to let the market self-correct: They believe in Economics 101. This may take time, but other Gulf and OPEC producers, including Kuwait and the United Arab Emirates, support this strategy. “We cannot continue to be protecting a certain price,” said UAE Energy Minister Suhail al Mazrouei on January 13.
 
Meanwhile, OPEC hawks like Iran and Venezuela can only watch from the sidelines. Venezuelan President Nicolás Maduro visited Tehran in early January to confer with Iranian leaders. “Our common enemies are using oil as a political weapon, and they definitely have a role in the sharp fall in oil price,” Supreme Leader Khamenei reportedly said in a meeting with Maduro.
 
Saudi-Iranian relations were grim before the fall in oil prices. Some foreign policy analysts speculate about whether Saudi Arabia has a secondary agenda, namely slashing prices to hurt Iran. But Riyadh would most likely keep production steady even if it had friendly relations with Iran.

How resilient are Gulf economies compared to Iran?
 
The Gulf states are more dependent on oil revenues than Iran, but they stashed money away over the last half decade to tide them over during busts. Saudi Arabia, Kuwait, the UAE and Qatar are flush with savings, so they can endure lower prices for now. The situation is more challenging for Bahrain and Oman. Unlike Iran, the Gulf states have easy access to international finance and loans.
 
Some sober analysts have argued in Iran’s reformist media that the price collapse will starve the country's oil and gas industry of much needed continuous investment, doing lasting damage. But Iran did weather the last two price collapses in 1999 and 2009.
 
Matthew M. Reed is Vice President of Foreign Reports, Inc., a Washington, D.C.-based consulting firm focused on oil and politics in the Middle East. Follow him on Twitter @matthewmreed
 
Online news media are welcome to republish original blog postings from this website in full, with a citation and link back to The Iran Primer website (www.iranprimer.com) as the original source. Any edits must be authorized by the author. Permission to reprint excerpts from The Iran Primer book should be directed to permissions@usip.org
 

Kerry, Zarif Meet in Geneva

On January 14, Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif held intensive meetings in Geneva on the eve of nuclear talks between Iran and the world’s six major powers—Britain, China, France, Germany, Russia and the United States. The session was intended to “show the readiness of the two parties to move forward to speed up the [negotiations] process,” Zarif told reporters before meeting Kerry. “All issues are hard until we resolve them.”

The U.S.-Iran relationship has become the most critical angle of nuclear talks. The other world powers seem to have deferred to the United States to break ground with Iran. And Iranian negotiators know that Washington will have the final word on sanctions relief in any deal.

 

 
Kerry and Zarif “had substantive meetings for approximately five hours” and “discussed a broad range of issues,” according to the State Department. The two held a morning session and an afternoon session, which included an unusual walk along the streets of Geneva.
 
 
 
 

 

Zarif and Kerry also held  unscheduled late-night meeting.

On January 16, the two met again in Paris. The two had previously scheduled meetings with others, but they carved out time to meet again to continue closing gaps.

 

 

Photo credits: U.S. State Department via Flickr

 

Former US Congressman Visits Iran

Interview with Jim Slattery

Jim Slattery, a former U.S. Congressman from Kansas, visited Iran in December 2014 to attend the “World Against Violence and Extremism” (WAVE) conference, an initiative led by President Hassan Rouhani. He was the first former congressman to visit Iran since the 1979 revolution. Mr. Slattery has been involved in interfaith dialogue initiatives with Iran for ten years, in cooperation with the Catholic University of America, the Peace Research Institute of Oslo, and the Vatican. During his recent visit, he met with senior Iranian officials and discussed the current state of nuclear negotiations between Iran and the world’s six major powers – the United States, Britain, France, Russia, China, and Germany.

You recently became the first former member of Congress to visit Iran since the 1979 revolution. Why did you go? Who did you meet with, and what did you discuss? What did you learn?
 
I went to Iran because I wanted to encourage the Iranians to issue a strong statement condemning violence in the name of religion, especially Islam. I also wanted to learn more about Iran first hand. I am amazed at how few American decision-makers have any personal experience in Iran. Very few American policy-makers have ever been to Iran and even fewer know key leaders in the Islamic Republic. I share President Eisenhower’s view of people-to-people diplomacy.  
 
I met with high ranking members of the Rouhani Government and key leaders in the Majles (parliament). They do not want to be identified in the American media for meeting with me, although some of their names have already appeared in news stories about my trip. But suffice to say I met with the key leaders. I did not meet privately with the president or the supreme leader, but I met with people who are close to them. President Rouhani gave a speech at the WAVE conference strongly condemning violence, particularly in the name of Islam. 
 
We discussed the current state of the nuclear negotiations. I left with the clear impression that the current Iranian government led by President Hassan Rouhani and Foreign Minister Javad Zarif is deeply committed to getting a deal with the United States on the nuclear issue. I think the Rouhani government is prepared to enter an agreement to forego the development of a nuclear bomb. Such an agreement would be consistent with the fatwa issued by the supreme leader. But Iran will insist on retaining an enrichment capability for peaceful purposes consistent with its view of the Nuclear Non-proliferation Treaty.
 
The Iranians are very worried the U.S. mid-term election will make it difficult for President Obama to implement an agreement. The Iranians have little confidence that Congress will have the ability to lift sanctions anytime in the near future. The Rouhani government is prepared to be very flexible in dealing with the technical nuclear issues, but they urgently need sanctions relief. The Iranians think their nuclear program is leverage to gain sanctions relief. The United States thinks sanctions are its leverage to persuade Iran to forego the development of a nuclear bomb.
 
I walked the streets of Tehran freely without fear. Very different than Baghdad. The Iranians I encountered were friendly and interested in the United States. I was impressed with the energy on the streets of Tehran. There are a lot of construction cranes present and the auto congestion is terrible. About every third or fourth car was driven by a woman…Very different than in Saudi Arabia. There were a lot of relatively new cars. 
 
 
 
 
What is your assessment of the mood in Tehran as it negotiates with the world’s six major powers on a nuclear deal?
 
It is hard to get an accurate measure of the mood in Tehran. Young people and the press I met all seemed anxious to see an improved relationship with the United States and Europe.  Keep in mind that 60 percent of Iranians are under age 30, and 60 percent of university students are female. My friends in Iran tell me they are very worried about what they are going to do with all of the educated women! They understand clearly that economic development is key to the stability of the Islamic Republic over the long term.
 
Some lawmakers intend to introduce legislation that would impose new sanctions on Iran if talks falter. What implications could passing such a bill have on the talks?
 
It is a bad idea for Congress to pass additional sanctions at this time. This will only complicate the negotiation process while causing Iranians to question further whether President Obama can implement an agreement because of domestic political opposition in the US. The United States is concerned about whether the Supreme Leader will approve an agreement negotiated by Zarif. So both sides have similar concerns. Additional sanctions at this time send exactly the wrong message, and I fear this legislation could disrupt the talks. 
 
What could a deal mean for US-Iranian relations?
 
A nuclear deal will open the door for immediate cooperation on a long list of critical issues in the region including but not limited to ISIS, Syria, Iraq, Afghanistan, the Taliban, Hezbollah and Israel. Iran would welcome an agreement between the Palestinians and Israel. A deal could also lead to cooperation on oil and natural gas supplies. Iran is a country of more than 70 million people with enormous energy assets and resources with a smart, well-educated population that could become a huge new market for the United States and Europe.
 
You attended the “World Against Violence and Extremism” (WAVE) conference in Tehran. What stakes does Iran have in combatting terrorism in the region?
 
Iran is very worried about ISIS and terrorism in the region. We must not lose sight of the fact that ISIS is Sunni, not Shiite. ISIS hates Shiites as much as they do Jews and Christians. Don’t forget that Iran cooperated with the United States in taking down the Taliban in Afghanistan. Iran is going to play a bigger role in the region - given its geography, history, religion, population and energy resources - whether we like it or not. We must engage Iran at this historic time when its elected leadership wants engagement with the West.  
 

Photo credits: President.ir, Tehran bazaar by Maral Noori, Wikimedia Commons

Online news media are welcome to republish original blog postings from this website in full, with a citation and link back to The Iran Primer website (www.iranprimer.com) as the original source. Any edits must be authorized by the author. Permission to reprint excerpts from The Iran Primer book should be directed to permissions@usip.org

 

 

Iran’s Diverse Coverage of Paris Attack

Several Iranian newspapers ran front page stories on the killing of 12 people at the Paris headquarters of satirical magazine Charlie Hebdo. Some focused on the tragic nature of the attack and labeled it terrorism. For example, Etemad published the headline “Black Wednesday in Paris.” But both conservative and reformist papers criticized Charlie Hebdo for publishing inflammatory cartoons depicting the Prophet Mohammed. And a few hardliner publications shifted the focus to criticizing French policy in the Middle East or rising “Islamophobia” in Europe.

The following is a sampling of the diverse imagery used in Iranian coverage of the Charlie Hebdo shooting.
 
Mardam-e Emrooz
 
The daily ran a picture of American actor George Clooney, who wore a pin with the now viral phrase “Je Suis Charlie” (French for “I am Charlie”) —to the Golden Globes on January 11. The headline read “Clooney: I too am Charlie.”
 
 
Another headline read “Nightmare in Paris” over a caricature of ISIS leader Abu Bakr al Baghdadi.
 

Shahrvand
 
A headline read “Air of Death in France.”
 
 
Shargh Daily
 
Shargh Daily took the bold step of tweeting a photograph of slain editor Stephane Charbonnier holding a cover of Charlie Hebdo depicting an imam and a rabbi. It did not, however, run either photo in print.
 
The publication also tweeted caricature from Charlie Hebdo mocking al Baghdadi.
 
Ghanoon
 
Iran
 
A headline read “Terrorists staged a bloody show in Paris, killing 12 people.”
 
 
Ebtekar
 
 
Photo credits: Mardam-e Emrooz via Facebook and other headlines via Iran Front Page news
 
Tags: Media, Offbeat

Iran Condemns Paris Shooting

On January 9, President Hassan Rouhani condemned violence perpetrated in Islam’s name. “Those who kill and carry out violent and extremist acts unjustly in the name of jihad, religion or Islam provoke Islamophobia whether they wish it or not,” he warned in a meeting with International Islamic Unity Conference delegates in Tehran. Rouhani did not directly reference the recent attacks by Muslim extremists in Paris. But his comments came two days after gunmen killed 12 people at the headquarters of satirical weekly Charlie Hebdo. The attackers reportedly said they aimed to avenge the Prophet Mohammed, who the magazine had depicted in political cartoons along with other religious figures. Two suspects, brothers Cherif and Said Kouachi, were killed in a raid on a printing plant on January 9 by French security forces.

The following are excerpted remarks by Rouhani and other Iranian leaders.
 
President Hassan Rouhani
 
“Those who kill and carry out violent and extremist acts unjustly in the name of jihad, religion or Islam provoke Islamophobia whether they wish it or not.”
 
“We are very happy that Muslim people in the region from Iraq, Syria, Lebanon and Palestine to Pakistan and Afghanistan resist extremism, violence and terrorism and achieve new victories on a daily basis.”
—Jan. 9, 2015 in remarks to the International Islamic Unity Conference in Tehran
 
Foreign Ministry Spokesperson Marziyeh Afkham
 
“All acts of terrorism against innocent people are alien to the doctrine and teachings of Islam.”
—Jan. 7, 2015 in remarks to the press
 
“Taking advantage of freedom of expression and ideological extremism, and character assassination of respectful figures of religions and nations, as well as insulting divine faiths and their values and symbols, which are respected by those religions, are not acceptable and are condemned.”
 
“These acts are a continuation of the wave of extremism and unprecedented physical and ideological violence prevailing worldwide during the past decade.”
 
“Inappropriate and double standard policies in dealing with violence and extremism have led to the spread of those acts and behaviors.”
—Jan. 8, 2015 in remarks to the press
 
Former President Mohammad Khatami
 
I condemn in the strongest terms these attacks which are an example of the ominous and inhumane consequences of terrorism and extremism in the East and West. But the U.N., international organizations, governments, civic institutions, and the elite are expected to do more than mere condemnation.
 
Terrorism and violence are not a war between religion and freedom; they are not a conflict between the East and West; nor are they part of confrontation between religions, ethnicities and nations. They are a grave new threat that has multiple roots. They should be uprooted and the world should be pulled back from the brink of "extremism."
 
In September 2001 New York’s Twin Towers were brought down as a result of an appalling terrorist act. Subsequently the threat of “terrorism” which already existed came to surface. The Islamic Republic of Iran condemned those attacks hours after they were carried out. Iran also put forward the concepts of “Dialogue among Civilizations” and “World Coalition for Peace” as a solution.
 
However on the other side of the world, some thought they could eliminate the ominous phenomenon – whose flag was believed to be borne by groups like Alqaeda – through forming a coalition to wage “war on terror”.
 
If that method worked, why is that today we are witnessing the spread of terrorism around the world; [why is that] the waves of terrorism have struck Paris and have created havoc everywhere, from the easternmost to the westernmost corners of the world, in Iraq and Syria, in Palestine and Lebanon, in Afghanistan and Pakistan, in Nigeria and Myanmar and elsewhere in the world. Violence, bloodletting and terror have tightened the screws on people – from Shiites, Sunnis, Izadis, Christians and Jews to religious scholars, intellectuals, politicians, children, the old and the youth.
 
Furthermore, the use of force and violence against these groups – as the experience has proved – will do nothing but deepen deviant tendencies and help them grow. Also it will help depict them as the oppressed [victims] and help them bring on board more suppressed people.
—Jan. 18, 2015 in a letter to U.N. Secretary General Ban Ki Moon (translation via Iran Front Page)
 
 
Tehran Friday Prayer leader Ayatollah Seyyed Ahmad Khatami
 
“We strongly condemn the terrorist attack in France and believe that Islam does not allow the killing of innocent people, be it in Paris, Syria, Iraq, Yemen, Pakistan or Afghanistan.”
 
“U.S. dollars, U.K. pounds and the European Union’s euros are to blame for these killings.”
—Jan. 9, 2015 in a sermon
 

 

Tags: Terrorism

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