fbpx

The Saudi Lever Over Iran

Writing in the Australian paper The National, Roger Stern and Bernard Haykel see the current situation in Iran as similar to the twilight of the Soviet Union:

Next, the kingdom should reprise its greatest peacemaking performance: the 1986 oil price collapse. Saudi Arabia has been given little credit for this effort, which secured western victory over the Soviet Union in the Cold War. Here’s the story: while some other Opec members cheated on their quotas by overproducing in the early 1980s, Saudi Arabia cut its production to defend the price of oil. In 1985, after years of sacrifice, the Saudis reversed course and opened the taps to regain market share. The consequent price collapse bankrupted the Soviet Union, which relied on oil for its only hard-currency earnings.

Iran’s situation now is like the Soviet Union’s then. If it does notcomply immediately with international demands for transparency onweapons development, Saudi Arabia could force a drastic reduction ofIran’s revenue by producing some or all of its four million barrels aday of spare capacity. Iran’s Opec production quota violations haveapproached historic highs, so there is a strong precedent for such aSaudi production increase.

Of course, Saudi Arabia relies on oil earnings just as Iran does,but it has nearly half a trillion dollars of currency reserves, morethan enough to defend its budget even if revenues decline for a while.Most Gulf states enjoy comparable finances. Iran, by contrast, spendsalmost all its revenue trying to buy off dissent. Any revenue declineis a threat to the emerging Iranian police state.