Iran, Bourse and the US Dollar; the REAL reason for hostility

more: http://www.theage.com.au/news/business/bushs-iran-plan-a-tim e-bomb-with-explosive-results/2006/03/19/1142703218248.html

Originally posted by Zagros Thanks for the link, having read that, it seems the only ones to suffer from any sanctions against Iran are its people,

That's usually the case, sadly.

for a nation hell bent on bringing nuclear armageddon (as some would you believe), why is Iran even bothering with social welfare and non-oil related economic growth?  Why not channel all of their energy into making nukes?

One of the things that analysing Iran's economy makes clear is that it really does need a nuclear energy programme, odd though that may seem for a country with large oil reserves.

It needs to sell the oil to pay for the imports it needs: it can't afford to use the oil for its own energy production, and needs to find other sources. Ironic really, but true.

You can criticise the Iranian government though for not making this clear, and for trying to pretend that Iran doesn't need anything from the rest of the world. Sometimes being macho doesn't pay.

It seems pretty damn obvious.  I am sure Iran's adversaries are also aware of this situation but they have other designs ont eh region that require all nations therein to be their bitches. simple imperialism, that is all America's involvement is about. Sorry gcle, that rant was not directed at you, I was just writing my thoughts.

Originally posted by Zagros Originally posted by gcle2003 Originally posted by Zagros Originally posted by gcle2003 In the seventies, as Director of Research at Insead, I managed a study commissioned by the Shah's government of the Iranian aconomy and its future. (Though I wasn't one of the people that actually did the study.) It was evident then that Iran was nothing like self-sufficient, particularly in food, and its economic infrastructure badly needed development that could only be financed through oil. Since the study was highly critical of the Shah's government it wasn't very well received, but the conclusion was not substantially challenged. As far as I can see, the revolution and the deposition of the Shah, no matter how justified, did nothing at all to improve the economic situation and if anything worsened the situation by distracting attention from it. The Iran-Iraq war of course didn't help, so I'm not blaming the situation on the Iranians entirely, just being objective. A lot has happened since that time, the shah put into motion a series of five year plans aimed at making Iran self sufficient.  Our study was commissioned as part of that project. In teh last 30 years the IRI have pretty much achieved that ambition, albeit in less effective and more squandering ways. If Iran was completely cut off from the world, economically what would change in Iran?  Not much really. It would starve. http://www.fao.org/es/ess/toptrade/trade.asp?dir=imp&cou ntry=102&ryear=2003 Or search for Iran at http://www.fao.org/documents/show_cdr.asp?url_file=/docrep/0 04/y0252e/y0252e07.htm or, more recently, http://www.tradearabia.com/tanews/newsdetails_snAGRI_article 101146.html Iran is in a worse position, with regard to other oil-producing states, simply because of its population. There would be hardship (there already is), but it would be no worse than that of the 80s.  Unlike most other oil producing nations, Iran has swathes of fertile and arable land. It may have more than the desert countries, but it has a heck of a lot more people. Only 10% of Iran's land is arable. While food production has been improving over the last twenty-odd years, food production per capita has been going down, leading to its current increasing dependence on food imports (including imports of animal and poultry foodstuffs). [QUOTE] And Iran destabilising the US economy would be more of a strategic coup than a propaganda coup, the US would be ill positioned to finance its imperial ambitions should the dollar devalue, It's in a lousy enough position to do that now. (For instance, as recent UN security council votes have shown, it no longer can rely on financial pressures to with smaller members over: they're now much more dependent on the EU than the US, and that's the way they vote.) Devaluing the dollar wouldn't destabilise the US economy, it might even help. If it forced the Chinese to cut the ties to the dollar, US consumers might finally stop queuing up to buy Chinese goods and buy their own instead. (Same goes for Indian outsourcing.) It might lead to inflation, but that would help the US government pay off its debts, and inflation associated with increased employment as US goods became more attractively priced than imports could also be good. Inflation also leads to increased taxation without the government having to pass new taxes, and the US has been deeply in need of increased taxation for over a decade now. This might be a great new way of beinging in taxes by the back door. Which is all of course speculation. Frankly I don't think the oil bourse idea is going to make too much difference to anything. it certainly isn't going to make as much difference to the oil markets as the Iraqi situation has. And look around you - how much actual impact on the world economy has that had? Almost none. Some people and companies are richer and some poorer. The important changes have all come from further east than Iraq and Iran, and will continue to do so. [QUOTE] and it would also get them off Iran's back (if even for five years) giving Iran enough time to become untouchable, unless armageddon was the goal of any potential aggressor or sabateur nation. Lack of those listed agricultural supplements would not cause starvation and even at a worst case scenario, Iran would never be faced with a food embargo.

You said 'If Iran was completely cut off from the world'. If it was completely cut off it would starve. You can't say 'If it was completely cut off from the world it wouldn't be faced with a food embargo.'

http://tinyurl.com/mdsrm has a good analysis of Iran's current economic situation, including the recent decline in the balance of payments with strong growth in imports, although high oil prices have enabled the country to stay in surplus. (In the late 90s it was in deficit.)

With its exports barely covering its imports, and 80% of those exports being oil, Iran is very dependent on the oil price staying high. It should be very grateful to the US for cutting off Iraqi production.

Thanks GCLE, your expertise is quite enlightening.

Originally posted by Zagros Originally posted by gcle2003 In the seventies, as Director of Research at Insead, I managed a study commissioned by the Shah's government of the Iranian aconomy and its future. (Though I wasn't one of the people that actually did the study.) It was evident then that Iran was nothing like self-sufficient, particularly in food, and its economic infrastructure badly needed development that could only be financed through oil. Since the study was highly critical of the Shah's government it wasn't very well received, but the conclusion was not substantially challenged. As far as I can see, the revolution and the deposition of the Shah, no matter how justified, did nothing at all to improve the economic situation and if anything worsened the situation by distracting attention from it. The Iran-Iraq war of course didn't help, so I'm not blaming the situation on the Iranians entirely, just being objective. A lot has happened since that time, the shah put into motion a series of five year plans aimed at making Iran self sufficient.

Our study was commissioned as part of that project.

In teh last 30 years the IRI have pretty much achieved that ambition, albeit in less effective and more squandering ways. If Iran was completely cut off from the world, economically what would change in Iran?  Not much really.

It would starve.

http://www.fao.org/es/ess/toptrade/trade.asp?dir=imp&cou ntry=102&ryear=2003

Or search for Iran at

http://www.fao.org/documents/show_cdr.asp?url_file=/docrep/0 04/y0252e/y0252e07.htm

or, more recently,

http://www.tradearabia.com/tanews/newsdetails_snAGRI_article 101146.html

Iran is in a worse position, with regard to other oil-producing states, simply because of its population.

Age of the Proven Reserves or Age of diminishing returns.(i write with caution)

With oil set to peak in i think 10 yrs time, Iranian oil matters, so when Bush says that we must reduce by 75% the dependancy on oil by 2020, it reflects the approach of the post-peak period. The Age of proven reserves is close to its dawn since it coincides with The Age of diminishing returns from oil exploration. Also the gulf oil is sweet requiring less refinement and pumping cost compared to oil pumped elsewhere. This is y high cost producers in times of low oil prices find it difficult to cope with the costs Vs Profit equation. That is y not all countries that have oil are on the same footing.

The opposite is true in times of higher oil prices when there is money to be made by the producer that have to bear higher production costs.

Now as we approach the oil crunch with gay abandon,the scenario cited above may not sound too bad, but higher oil costs although good for the oil companies, are not so good for the economy, because of its inflationary effects as a result of increase in overall cost of manufacturing and production.-->recession

There r some aspects that have been overlooked in the overall analysis.
Namely, Output is pretty much at maximum and even if it was to b increased by some other oil producer to make up for an abrupt deficit from iranian output, we would still lack the refining capacity to meet that output because of non-use of Iranian refineries. Although i dont think iran refines all its own oil.

It is not as straightforward to wean of iranian oil, for each oil producer has pre set contracts of oil quotas which it is obliged to fullfil. A bit like when in a spermarket a till closes infront of u and u have to move to another aisle where a qeue already exists.

That is where Strategic oil reserves come in. American reserves r at 90 days, but how will developing nations going to cope. This too will have indirect affects on american economy as their dollar dependent economies come suffer in a worst case scenario. Times ahead are indeed getting intresting.

Therefore, even if one major oil refinery is hit or made redundant by whatever means in the prsence of a developed iranian oil crisis, the sophisticated economies are in some trouble. A sign of this pre-emptive strategy has already been observed in the attempted strike on Saudi Refinery. Remember 65% of core Al qaeda have minimum of a bachelors degree. I am sure some of them have degrees in economics too.

Another prospect that needs consideration is the output form Iraq which is at 40% of maximum output(i think). I am sure if Iran wanted it could cause more than a headache. Although america does not import iranian oil directly, but europe does (30%).

Like Zagros mentioned earlier it is a sellers market. Also with demand growing exponentialy it is set to stay that way. I am in total agreement with his observations.

Pikeshot:

U can not just quote total production, rather u need to look at the share of oil exports. China may grow the greatest volume of rice but it doesnt export any for it can not fulfill local needs. Conversely a smaller country with much smaller volumes can export to china any surplus it has. Therefore u can not compare american and iranian outputs.

All in all if the price of oil goes up and stays up, americans at home suffer.

 

Originally posted by gcle2003 Originally posted by hugoestr Let's not forget that the world has a limited oil supply. The Iranian strategy, at this point, is brilliant: First there is the currency hit. If countries refuse to buy Iranian oil with Euros, there will be a lower supply of oil, raising the oil prices. Both will hurt the U.S., but just a little at a time. Whoops! If countries refuse to buy Iranian oil with euros, then Iran will have to sell it for dollars. Or whatever. Saudi could probably afford to cut back oil sales like that; so could the Gulf states. But not Iran, which needs the money. Moreover the reason Iran needs the money is to buy stuff from abroad. So the effect on currencies will depend on what currency its suppliers want. Looking at the figures for where Iran does get its imports, there's a fair chance it would be able pay euros for much of it, but basically it's a 'finger in the wind' situation. If you're buying goods from Germany, that's not a guarantee that Germany will price you in euros. Much more important in all this, as various people have pointed out, is whether the Far Eastern countries (plus the Saudis and the other Bush allies) continue buying dollars to invest in the US. I have to say that my respect for Iranian strategist keeps rising. The are making the most of the current situation in very creative ways. They certainly know how to play to the gallery.

Thanks, glce! So they have set up a game of chicken. Who is the one who will chicken out first? Iran or Asia? In them mean time, they rock and threaten the world economy.

It will all come down to that wants the goodies the most. Will Asia convert dollars into Euros because they really, really want Iranian oil? Will Iran hold back from buying international goods? For how long?

So far the Iran is playing chicken the way that game theory teaches one to play it: make it loud and clear that you are the reckless, crazy player. This probably means that they must see themselves in the weaker position.

To know if they will actually follow through with the reckless behavior would require knowing enough about the character of its leadership. I don't know enough to make this judgment.

Also, what you are saying is that if all entities doing business with Iran refuse to accept Euros, then the effect is minor. So here is the solution that your entry implies: Western governments would need to force their businesses to deal with Iran only in dollars.

Look, I oppose the current Iranian administration. But one should be objective here: they are good strategists. They are the weaker party, to a large extent, but they still find ways of leveraging whatever power they have.

Originally posted by hugoestr Let's not forget that the world has a limited oil supply. The Iranian strategy, at this point, is brilliant: First there is the currency hit. If countries refuse to buy Iranian oil with Euros, there will be a lower supply of oil, raising the oil prices. Both will hurt the U.S., but just a little at a time.

Whoops! If countries refuse to buy Iranian oil with euros, then Iran will have to sell it for dollars. Or whatever. Saudi could probably afford to cut back oil sales like that; so could the Gulf states. But not Iran, which needs the money.

Moreover the reason Iran needs the money is to buy stuff from abroad. So the effect on currencies will depend on what currency its suppliers want. Looking at the figures for where Iran does get its imports, there's a fair chance it would be able pay euros for much of it, but basically it's a 'finger in the wind' situation. If you're buying goods from Germany, that's not a guarantee that Germany will price you in euros.

Much more important in all this, as various people have pointed out, is whether the Far Eastern countries (plus the Saudis and the other Bush allies) continue buying dollars to invest in the US.

I have to say that my respect for Iranian strategist keeps rising. The are making the most of the current situation in very creative ways.

They certainly know how to play to the gallery.

Originally posted by prsn41ife Originally posted by Genghis Originally posted by prsn41ife Originally posted by pikeshot1600 Originally posted by prsn41ife Originally posted by pikeshot1600 Iran self sufficient?  Hmmmmm. yea, you didnt know that? self sufficient in almost every thing. Well, I have seen several sources, economic and geographic, that would disagree on that one.   im not even going to bother explaining this to you Go ahead I'd like to hear, and even if Iran is self sufficient as you claim and I doubt, if the world goes into Depression and can't afford or merely buys less Iranian oil, that's going to have a very bad effect on their economy.  Even if Iran does make a lot of things by itself, I'm sure it funds a lot of that with oil money. first of all, i have to say this: the world will always by oil unless an alternative is found and made cheapily accessable. with that said, if there was a world wide depression, the world would still need oil to get their economies back up. its not like they are just going to stop buying oil.  countries will still import oil more than anything else. now to iranian self sufficiency: 1) iran is very industrialised, it makes its own cars, planes, military jets, trucks, farm equipment, ships (im not talking about little boats, im talking about battle ships, cargo ships, etc...), subs, tanks, missiles, industrial equipment, commercial equipment (refrigerators, radios, tv's, basically a lot of different consumer products), helicopters, etc... 2) iran is the only nation in the middle east with natural resources other than oil. therefore, iran is relatively self sufficient in raw materials. 3) iran has become self sufficient in agriculture. it has announced a few years ago that it is able to feed its entire population with out having to import food (this has been done by commercialising farming and making miles and miles of farmland through out the country, even in the deserts!). 4) iran, on its own, has made a series of technological break throughs. 5) iran will be making and sending its own satellites in space (this will become 100% if the next satellite launch, which is supposed to be iranian made and launch with an iranian missile is successful. iran already has one satellite in space). foreign investment in iran right now is close to nothing outside of the oil sector. this means that foreign countries dont really have that much of an effect on iran's economy. iran will not be as devastated as the rest of the world in case a depression hits.

Wow, anecdotal evidence! I stand corrected.

As for oil though, eventhough demand is very inelastic, if the price increases too high it will result in some economies being made such as people carpooling more and oil-fired powerplants being replaced, as well as alternative energy research increasing, and new oil sources outside of Iran being developed.