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With Oil Down, Will Iran Follow?

The recent tumble in global economic growth has fed an equally precipitous fall in energy prices, a trend welcomed by consumers across the world but deeply worrying to many energy exporting nations. Analysts predict most members of the Organization of the Petroleum Exporting Countries, particularly those with large hard currency reserves, will weather the price plunge. As the Economist reports, Iran is at the top of the list of those that may not.

Three rounds of UN sanctions and years of U.S.-backed economic isolation have left Tehran dependent on oil exports for eighty percent of the government's revenue. As oil prices drop further, analysts see an opening for governments eager to temper Iranian power in the Middle East.  How much leverage the decline in oil prices will give the West over Iran is debatable. Mitchell B. Reiss, an expert on nuclear nonproliferation, writes in a new CFR.org forum that plummeting oil prices "will strain an already stressed Iranian economy, giving us more leverage" in forcing changes to the mullah's nuclear posture. Yet Reiss says the global financial crisis could make European partners reluctant to support sanctions against Iran out of a desire to protect jobs and market share. Bruno Tertrais, a senior research fellow at the Foundation for Strategic Research in Paris, meanwhile, argues in the same CFR.org forum that "Europe will not be in a bad position to bargain" if oil prices drag the Iranian economy further, suggesting European support for sanctions could continue.

Beyond the nuclear question, the oil slump could also affect Iran's regional influence, some analysts predict. As the Wall Street Journal reports, while Iran's "petrodollar piggy bank" remains flush, a sustained dip in petroleum prices "may temper Iran's recent...

Continue reading at CFR.org →

 
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