The Kennel

The “Oil Weapon” is Unleashed Against Iran

The Saudi moves to reduce the price of oil in order to put more financial pressure on the Teheran regime may, as Mr. Dorsch maintains, only be marginally successful, but the decline of Iran's oil infrastructure continues unabated. This is happening not just because the mullahs eschew western oil companies (and their technical know-how), but also because the government has created a negative feedback loop by mandating subsidized gasoline for domestic consumption thus eviserating any financial incentive to invest in maintaining or improving both E&P and refining operations in Iran with either private or public money. Iranian production is steadily declining, and as the government needs the oil export revenues to prop up their diseconomic policies, something has to give here.

Iran's best chance is to strike a deal with someone to [a] rescue their dilapidated E&P and refining infrastructure and [b] extend protection against the USA. What are the prospects of such a regime-saving deal?

The Russians are helping with nuclear technology - presumably hoping the USA will be goaded into attacking yet another Islamic country, thus weakening us still further - but don't need Iranian oil so they are not the answer. India wants the oil but is aligned with the USA. China wants the oil but has no practical way to get it -
neither Pakistan nor Afghanistan would allow delivery overland if the USA nixed it and the USN could easily blockade Iranian maritime traffic. So as things stand, it probably doesn't pay for the Chinese to invest a lot in the Iranian oil infrastructure.

So in assessing the likelihood of things getting hot in the Gulf - thus driving the price of oil back north - it really comes down to a question as to whether the Iranian regime's stubborn insistence on the primacy of religious principles over economic realities causes them to crash and burn domestically before they can develop nukes...or, more pragmatically, on the assessments of the US/Israeli intelligence services with respect to the outcome of this horse race. If the risk the nukes will win grows large enough, things could boil over in a hurry. Otherwise, the pot will likely just keep simmering until regime change in Iran throws a new ingrediant into the stew...at which point we will all need to reassess the menu.

Brad Hessel