Monday, February 19, 2007

Is Iran having money trouble?

An article from Reuters today suggests that Iran may be showing signs of cash-flow problems. Russia has announced it is delaying work on Iran's Bushehr nuclear power plant because the mullahs are pulling the old "check's in the mail" trick with January and February's required payments. Their excuse supposedly has something to do with switching from paying in dollars to paying in Euros: dollars are punctual, Euros are tardy. Sounds kind of like Boeing and Airbus. Who would have though that cash has a work ethic?

But the real reason behind the missed payments is likely a matter not of which currency Iran is using but of how much of it they've got. To cover their current expenditures--including frivolities like lobbing missiles around the region, smuggling arms to terrorists, and confiscating everyone's satellite dishes--the Iranians need oil to remain at or above $65 a barrel. It's under $60 a barrel and will likely remain so for some time. The Saudis can live with revenues at that level, and they can do it with a smile knowing they're screwing their Shiite rivals across the Gulf.

Depending on whom you ask, Iran has between 30 and 80 billion dollars in foreign cash reserves. (The vice-governor of their central bank says they like to keep the exact amount shrouded in "mystery" ... kind of a "hidden Imam" approach to fiscal responsibility.) If you trust the lower figure, their 2006 budget called for spending nearly all of it, apparently in the hopes that 2006 oil prices would be sustained into 2007. Well, not only did that not happen, the ayatollahs' Powerball pool didn't come through either. And Mr. Ahmedinejad hasn't cut back on the spending, unless you count stiffing the Russians as an economic strategy.

Iran's brinksmanship becomes more frightening when combined with the possibility that their pockets are empty. The Shiite penchant for glorifying humiliation and defeat--along with Ahmedinejad's membership in an apocalyptic cult that makes mainstream Islam look nearly rational--could mean a very ugly end-game. The Iranian people are already suffering from double-digit inflation. A confrontation leading to a total blockade of the regime or to all-out war could easily spiral into a crisis with worldwide ramifications, not least among them that it's 13 degrees outside and my furnace is already cycling about every ten minutes. On the brighter side, Iranians are growing increasingly fed up with Ahmedinejad, to the point where he's resorting to shutting down criticisms he apparently cannot answer. We can only hope that the Iranians give the madman the heave-ho before he ruins it for everyone.


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