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December 1, 2014 2:19 pm

Tehran Regime Warns Against ‘Frenzied Behavior’ as Saudi Oil Policies Punish Iranian Economy

avatar by Ben Cohen

Saudi Arabia is content to let oil prices slide to the detriment of the Iranian economy. Photo: Twitter

Iranians awoke on Monday morning to a 30 percent increase in the price of bread – the most tangible consequence of an economy suspended between the twin pressures of falling oil prices and continuing international sanctions stemming from the Tehran regime’s failure to properly account for its nuclear program.

As a result, Iran’s currency, the rial, has declined dramatically in value. Currency traders reported on Monday that the rial fell by 7.25 percent against the US dollar, after last week’s failure to reach a final deal with international powers over Iran’s nuclear ambitions ended the regime’s hopes for an immediate lifting of sanctions.

In a sign that the regime is concerned by the large numbers of Iranians who spent the weekend trading their rials for foreign currency, Iran’s Economy Minister Ali Tayyebnia rushed to offer assurances of normality.

“There has been no fundamental change in the foreign exchange and the investment markets. We expect to create a stable situation in currency and investment markets,” Tayyebnia said, emphasizing that “people should not exhibit frenzied behavior.”

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According to Reuters, the weakening rial and the fall in oil prices “could create problems for President Hassan Rouhani,” whom the agency describes as “a pragmatist elected last year on a promise of winning relief from the crippling sanctions by patching up relations with the West.”

The most immediate trigger for this latest bout of bad economic fortune to hit Iran was the decision last week by OPEC, the international petroleum cartel which supplies around 40 percent of the world’s oil, not to reduce its collective output to stem falling prices. OPEC’s move has damaged three of its members with faltering economies – Iran, Venezuela and Nigeria – as well as observer member Russia, and the continuing decline in the oil price will impact these countries primarily.

By contrast, Gulf Arab states like Saudi Arabia, Qatar and the UAE are better positioned to weather oil prices at $60 per barrel or lower. Iran’s revenue forecasts are based on the assumption that a barrel of oil costs $100, while its break-even point is estimated at $136 per barrel.

A growing chorus inside Iran is blaming rival Saudi Arabia and its allies for the price fall. In October, government spokesman Mohammad Baqer Nobakht accused “some so-called Islamic countries in the region” of “serving the interests of America and (other) arrogant powers in trying to squeeze the Islamic Republic.”

“They (the West) have forced our oil production from 4 million bpd to 1 million bpd, and this recent fall of oil prices is their latest gimmick,” Nobakht was quoted as saying by the  Mehr News Agency.

In a recent briefing for the Washington Institute for Near East Policy, analyst Simon Henderson noted that “Saudi Arabia’s policies are a key factor shaping prices. Apart from its huge oil wealth — nearly a quarter of proven global reserves — the kingdom is also the leader of OPEC, the cartel of mainly Middle Eastern oil producers who leverage their collective market influence to achieve the best price. Riyadh’s reaction to the latest price shifts will therefore have numerous implications at home and abroad.”

Saudi Arabia “has no desire to ease economic pain on Iran,” Henderson said. The Saudis greatly fear the prospect of an Iran armed with nuclear weapons, while western negotiators are anxious that an Iranian bomb will encourage nuclear proliferation across the region, beginning with the Saudis.

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