Oil-Price Decline Provides Diplomatic Opening to Iran

Last fall, before the world economy had fallen completely out of bed, the International Monetary Fund estimated that oil prices would have to stay at $90 a barrel for Iran to make enough money to balance its books.

Now that the slump in global economic activity has driven oil prices to around $36 a barrel, Iran, which derives 85% of government revenue from oil exports, figures to be awash in its own Washington-like red ink in the coming year. Throw in the fact that there’s no reason to think the oil slump will end soon, and knowledge that energy-industry experts say Iran already has been failing to make the long-term technology investments needed to keep its oil fields producing robustly, and you suddenly have an interesting backdrop for U.S. President Barack Obama’s “let’s talk” overture to Tehran.


The stunning turnaround in Iran’s economic picture also presents an interesting backdrop for Iran’s national elections in June. That’s when the country’s voters, and the clerical establishment that steers the nation, will decide whether to stick with President Mahmoud Ahmadinejad, master of the confrontational stances and bizarre rhetorical flourishes that help keep Iran a step removed from the world economy.

There is a great debate within the U.S. government about just how much the drop in oil prices will affect Iran in the short run. The country was, after all, awash in money just last year, when oil hit $145 a barrel. That helped it bank some hard-currency reserves; the U.S. Central Intelligence Agency estimates its holdings at $70 billion, though it’s hard to know precisely from suspect official figures.

Wall St. Journal