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December 02, 2014

Are Declining Oil Prices Iran's Achilles Heel?

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Things have been going well for Iran recently. Its proxy forces have made gains throughout the Middle East region, from Yemen to Iraq. The Islamic Republic has managed to stave off any negotiated agreement with the P5+1 group (U.S., Russia, China, the United Kingdom, France and Germany) that would impose constraints on its efforts to build nuclear weapons. In the meantime, the relaxation in sanctions the P5+1 group offered as an incentive to the Iranian regime to enter into negotiations has allowed its economy to rebound.

But just when everything seemed to be going as planned for the mullahs, world oil demand dropped. This in turn required major oil producers, like Iran, to come to an agreement on whether to decrease production and retain the price of oil, or to maintain production and watch the price of oil decline.

Daniel Yergin, who has written extensively on the worldwide impact of oil, wrote in the Wall Street Journal

The OPEC members in big trouble are the “have-nots”—those with small financial reserves and high government budgets.

These "have-nots" include Venezuela, Russia and Iran.

The official reason given for OPEC's decision to maintain oil production and absorb the price decline is that it wants to maintain market share in the face of aggressive non-OPEC producers. But, Saudi Arabia, the dominant member of OPEC, is deeply concerned with the Iranian nuclear program. Its influence was clearly felt. Like its smaller oil-rich Arab Gulf state neighbors, Saudi Arabia can absorb the revenue decline from lower prices.

Iran will have a more difficult time. Especially if it insists on devoting billions to its nuclear project. Its government budget is heavily dependent on the revenue generated from high oil prices. Oil prices have declined by nearly 40 percent over the last six months.

The unexpected decline in worldwide oil demand may have put an end to Iran's winning streak. As Robert Burns wrote in 1786, "The best laid schemes o' mice an' men often go awry."

Posted by SS at December 2, 2014 12:27 PM

Comments

Drop in oil prices is not good for the West either. This is a poker game, and the player with better hands and bluffing may win the game. The question at this time is not really what kind of hands you may have, the question is how are you going to bluff it as you look for better cards. Let's face it, the Middle- East is leaning towards Iran directly or indirectly. All Iran has to do is to play it right. On the Egypt part of the equation, Egypt has a hard time to control its own people, now it wants to enter Yemen?
Arab uprising is in full swing, the only way for US and its best friends is to deal with Iran ASAP, otherwise Russians and Chinese will help Iranians at any rate to succeed in the Middle- East. This is world Poker game that winner will take it all, at least the Middle-East part of the deal. As I always say; " US make a deal with Iran ASAP otherwise you lose the whole region".
http://www.wallstreetdaily.com/2014/12/08/banks-oil-price/

Posted by: Mustosheer at December 8, 2014 10:08 AM

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