Iran’s Ayatollahs Will Struggle to Survive the Oil Slump

https://www.gatestoneinstitute.org/15923/iran-struggle-oil-price

Iranian President Hassan Rouhani has tried to put a brave face on the latest setback to hit the regime, claiming that Iran is unlikely to suffer as much as other countries from the oil price drop because it is less reliant than others on crude exports.

At a time when Iran’s Islamic regime is already facing unprecedented pressure over its handling of the coronavirus outbreak, as well as its disastrous handling of the economy, the global slump in oil prices could well prove to be the final straw for the ayatollahs.

Even before this week’s dramatic collapse in global oil prices, which saw the key gauge of U.S. crude prices, the West Texas Intermediate benchmark, tumble into negative territory for the first time in history, the mullahs were already under intense pressure over their catastrophic running of the country during their four decades in power.

A combination of the regime’s clumsy attempts to cover up the true extent of the coronavirus outbreak in Iran, combined with the disastrous impact the US sanctions are having on the Iranian economy, have resulted in the regime facing the most sustained period of domestic dissatisfaction since the 1979 revolution.

With the collapse in the global oil market, the pressure on the ayatollahs is set to increase even further as they risk losing a vital income stream at a time when the country’s economy is already on its knees.

According to recent estimates by the International Monetary Fund (IMF), Iran needs global oil prices to reach the highly unlikely benchmark of $195 a barrel just in order to meet its budget requirements for 2020.

With current predictions suggesting oil prices are likely to remain around the $19 a barrel mark, the ayatollahs are facing the prospect of an economic Armageddon: the oil slump means there is little prospect of a revival in the country’s economic fortunes for the foreseeable future.

With inflation running at 35%, and the country facing widespread unemployment, the ayatollahs have become increasingly dependent on the country’s oil revenues to keep the economy functioning. Their ability to generate revenue from oil sales, though, has already been severely affected by the impact of US sanctions, with Iranian oil exports declining from their pre-sanctions level of two million barrels of oil per day to around 300,000 — a decline of more than 80%. Now, following this week’s slump, even that modest amount is under threat.

The scale of Iran’s deepening economic crisis is reflected in the regime’s recent decision to seek $5 billion in emergency funding from the IMF, its first request for outside help since the 1979 revolution.

Iranian President Hassan Rouhani has tried to put a brave face on the latest setback to hit the regime, claiming that Iran is unlikely to suffer as much as other countries from the oil price drop because it is less reliant than others on crude exports.

If that were truly the case, then Tehran would not be asking the IMF for a bailout, and Mr Rouhani, together with Javad Zarif, Iran’s Foreign Minister, would not be begging Washington to remove sanctions.

The truth of the matter is, for all the regime’s attempts to claim it has everything under control, that the country is teetering on the brink of collapse, and the ayatollahs are fast running out of options to save themselves.

One indication of the growing disconnect between the regime and ordinary Iranians is the claim by the Islamic Revolutionary Guard Corps (IRGC) that it has successfully launched a military satellite into orbit for the first time, an undertaking that seems completely inappropriate for a country teetering on the brink of bankruptcy.

In times of crisis, the regime has often resorted to stirring up tensions in the Gulf, and elsewhere in the Middle East, as a means of increasing pressure on the US and its allies. To that end, Iran’s IRGC have been accused of conducting a number of confrontational operations in the Gulf this month, including the temporary seizure of a Chinese tanker in the Strait of Hormuz, which proved to be deeply embarrassing for Tehran, as China is one of the few countries still buying its oil.

There has also been an increase in Revolutionary Guard patrol boats harassing US warships operating in the Gulf, a development which has prompted U.S. President Donald Trump to order the US Navy “to shoot down and destroy” Iranian gunboats if they continue with their provocative actions.

The ayatollahs may still believe they can survive the current crisis, but the reality is that their prospects of overcoming all the obstacles they face, from coronavirus to the collapse of the Iranian economy, become more challenging by the day.

Con Coughlin is the Telegraph‘s Defence and Foreign Affairs Editor and a Distinguished Senior Fellow at Gatestone Institute.

https://www.gatestoneinstitute.org/15923/iran-struggle-oil-price