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Iran nearing collapse? Supreme leader Khamenei Photo: EPA
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Iran on verge of disaster

Op-ed: Iranian economy nearing collapse as world continues to tighten its economic grip

Published: 06.07.12, 17:13 / Israel Opinion

Never withdraw into a fortress, Machiavelli warned. Those who do so are trapped within their own walls and have nowhere to run. They are surrounded, thereby becoming an easy target for their enemies. Yet Iran is doing the exact opposite of this advice. It withdraws into itself, thereby turning into an isolated pariah state that experiences the kind of economic blows no country has experienced since World War II.

 

It is true that Ahmadinejad and his colleagues are fooling the West in the nuclear talks, yet the Iranians know well how dangerous their situation is, on the eve of a decision of historical significance. They are aware of the dangers, yet nonetheless continue to withdraw.

 

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On July 1st, the European Union's full oil embargo on Iran will go into effect, and from that moment on Tehran shall lose one quarter of its sales revenues. At this time already, the Iranians have no customers for their oil, and tankers carrying some 30,000 barrels without a buyer are docked in the Persian Gulf.

 

Iran can store up to 80,000 oil barrels in its 39 tankers before it needs to shut down oil wells. Such move would be destructive, as paralyzed oil wells sustain grave damage that prevents them from returning to full capacity later on. At this time the West presses states like China, India, South Korea and South Africa, and they too are minimizing oil acquisitions from Iran.

 

Yet this is not the only blow to be sustained by Iran that day. In early July, the large insurance companies will stop insuring Iranian tankers and any vessel carrying Iranian oil. In light of this, South Korea, Japan and other states have announced that they will be forced to halt their Iranian oil purchases. Iran has no ability to insure the tankers itself. China may insure some of them, but the costs in such case would be huge.

 

Iran's economic future never looked grimmer. It currently suffers from a huge deficit, wide-ranging unemployment, a worthless currency, reckless inflation, and young people who only want to flee the isolated state. Many of them have succeeded in doing so.

 

On top of this, grave sanctions have already been imposed against Iran, such as disconnecting it from the global clearinghouse system and the boycott on companies that maintain ties with Iran's central bank or its oil industry.

 

Beware Soviet lesson  

Yet there is another immense force currently being utilized against Iran: The policy of Saudi Arabia, which boosted its oil output to a 30-year high, thereby causing a deliberate decline in oil prices. Only months ago, commentators warned that oil prices will rise to $150 or $200 per barrel, but now the price has dropped below the $90 mark.

 

China's and the West's oil consumption is declining in any case as result of the economic recession, and the growing Saudi output produced a situation whereby supply is higher than demand, prices are dropping, and Iran's customers are switching to Saudi Arabia. The Kurds in northern Iraq are doing the same and have also boosted their oil production.

 

The Saudis are doing it on purpose. They are highly interested in drying up Iran, among other things against the backdrop of Tehran's support for Syrian President Assad. Saudi Arabia can allow prices to drop to $80 a barrel before being hurt, and such prices are indeed drying Iran up and causing huge damage. After all, some 80% of Iran's revenues come from oil.

 

Western intentions are clear: Bringing about Iran's economic collapse, in the hopes that this will prompt the fall of the Ayatollah regime. An experiment of such scope had not been undertaken in the modern era, even not against the former Soviet Union.

 

Yet instead of securing a compromise before its economy collapses, and before the many minorities and dissidents hit the streets, Iran continues to fortify itself and pretend that everything is fine. How long can it persist? Is the Soviet Union's fate waiting for Iran around the corner?

 

 

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