Tightening the screw: using economics as a political weapon, Washington's battle against Iran gathers momentum as Gulf allies help drive down oil prices to weaken the Tehran regime.


OIL IS IRAN'S economic lifeline. It is also its Achilles heel. And the signs are that the United States, aided by Saudi Arabia and the Arab states of the Gulf, who fear Iranian expansionism as much if not more than the Americans, is waging an economic campaign against the Tehran regime to push down oil prices and drive off foreign investors.

Over the last eight years, Iran has earned some $300bn from oil exports because of high prices. The Bush administration claims Tehran has used much of these funds to finance radical anti-western organisations like Hizbullah in Lebanon, Hamas in the Palestinian territories and Shi'ite militants in Iraq--as well as Iran's controversial nuclear programme.

Iran's oil minister, Kazem Vaziri-Hamaneh, has estimated that Tehran's income from oil sales in the current Iranian financial year ending 31 March will be around $60bn, a 20% increase over 2005-06. But he acknowledged in December that Tehran was finding it increasingly difficult to find outside financing for major oil and gas projects on which the country has pinned its economic hopes.

Right now the Islamic republic's oil industry, its economic lifeline, is extremely vulnerable because of runaway domestic consumption that exceeds even that of the gas-guzzling United States; Iran's growing international isolation is choking off badly needed foreign investment and a domestic spending spree by hardline President Mahmoud Ahmadinejad has drained the treasury.

Ahmadinejad is coming under increasing pressure from conservatives and reformists alike. The Bazaaris, the wealthy merchant families who control much of Iran's economy, have become alarmed about Ahmadinejad's policies. Parliamentarians want to question him on actions they say have resulted in uncontrollable inflation and economic crisis.

Ian Bremmer, an international affairs specialist and president of the risk consultancy Eurasia Group, told the annual security conference at Herzliya outside Tel Aviv on 21 January that the Iranian government's "economic mismanagement" has left it vulnerable to economic action against the regime, particularly in the energy sector. "The Iranian economy is under pressure in a way that Saudi Arabia and Russia are not," he said.

"The political repercussions of the financial squeeze are already visible: it is unnerving politicians, with rising criticism of President Ahmadinejad from different factions within the government as well as the opposition," according to Amandeep Sandhu, an expert on South Asian and Middle Eastern affairs with the University of California at Santa Barbara.

"Ahmadinejad will be forced to cut back in an environment where government subsidies are very much...

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