Russian oil production costs average at $84 a barrel. Any price drop below that would surely shut down oil production there. But more importantly, the Russian government had based its budget for this calendar year with oil forecast at a price of $110 a barrel. Revenues from taxes and fees from the russian oil and gas industry make up over 50% of Russia's Government income. With Oil prices currently forecast to drop to $60 a barrel by the end of the summer, newly elected (nudge, nudge, wink, wink...) Putin faces imminent bankruptcy.
Strangely, Iran's government too had forecast Oil at $110 a barrel for this year (which is offset by three months from Russia's year). With the imminent reduction of Iran's total oil exports because of sanctions, combined with a significant drop in oil prices and the fact that Iran has had to basically 'give away' oil at well below market prices to any available buyers...Iran too is facing imminent bankruptcy.
There is now an oil glut in the world. New production from Brazil, Azerbaijan and Iraq combined with serious reduction in demand because of the economic slow down in Europe and import substitution in the US (with ethanol from Corn) has created a glut. And prices are forecast to keep droping. Its the perfect time to impose sanctions on Iran, and at the same time undermine Putin. I, for one, had been shocked that 'serious' sanctions had NOT been placed on Iran for over 30 years despite the rhetoric in the west. I had always privately believed that the west was supporting the mullahs and secretly working with them. But of coarse, any sanctions on oil in the past would have caused more damage on the west than Iran directly. Prices would have caused serious inflation and economic collapse in the west. Both Iran and Russia have not changed for the better, and now is the time that the west can afford a fight. Times have changed.
So what are Putin's and the Mullah's survival options? Well they have to find a way to lift up the price of oil! Right?
20% of the world's oil travels through the straits of hormuz and any restrictions on this traffic could drive prices sky rocketing! Even without restrictions, just the mere threat is enough to push prices back up. It suits both Russia and Iran.
Iran for sure would not be 'threatening" if it did not feel it had a strong position to counter moves against it. And strength in this case, means it must have Russian backing - whether tacit or explicit.
Russia for sure has been cosying up to Iran in recent times. Iran, that was once a stalwarth ally of the west, is now in many ways a Russian sattelite. Russia has been supplying Nuclear technology to Iran, but also many key components for its defense industry. We all know of news stories of countless Russian planes have dropped out of the sky, as Iranian airlines have beaten sanctions by buying rundown Russian planes at retail ticket prices. The Russians have done well milking Iran and Iranians. Its only taked 42 years for Iran to build a nuclear power plant.
But also Iran has joined Russia and China in a military alliance called the Shanghai Cooperation Treaty. Its not quite NATO, but it has placed Iran squarely in their camp strategically. China has NOT joined the west in sanctioning Iranian oil. And in recent weeks has even doubled its purchasing volumes.
I am sometimes shocked at how 'sophisticated' Iran military has become and how 'sophisticated' its international posture has evolved. Then I realize that these yoyo mullahs are being coached quietly in the back rooms by the Russians.
What I find so surprising is that these same Mullahs must realize that the Russians were Saddam Husseins number one arms merchant. They also killed literally hundreds of thousands of Russian sympathisers and communists inside Iran right after the revolution. They even supported the Afghan fighters against Russian occupation. Yet they have now reconciled themselves with working with the 'devil'.
One major problem with all this, is that if in fact the Russians stand up behind the Mullahs in any sort of a battle, it really could result in World War III. Western response needs to be measued and calculated. It can't be that some Cowboy ship captain in the Persian Gulf decides on his own to shoot down a plane with anti-aircraft weapons and ends up starting World War III.
It is a tragedy that a once strong ally of the west has now succumbed to Russian influence. Its very sad. Very sad. How did we get here?
In the long-run one has to be happy that the Mullahs and Putin are both on their way out. If oil prices drop as they should, I will be counting the days, hours, even minutes and seconds it takes to pull the carpet from both these scum bags. Putin has destroyed Russian democracy and replaced it with corrupt and evil hench men. What was once a booming economic tiger has dwindled to near bankruptcy. As for the Mullahs, they have pissed on both Islam and Iran. Iran is neither Islamic nor a republic...its a Mullah Mafia regime. If both Iran and Russia are transformed, and become strong vibrant and transparent markets, they could transform the world's economic demise.
Let's hope the desired changes take effect. And lets hope these sanctions stick. And lets hope all this maneuvering by the Mullahs and the Russians adds up to nothing. Maybe by this time next year, we can visit a newly open, secular and democratic Iran. I might even fly via Moscow and celebrate a newly democratic russia at the same time.
We are living in very interesting times.
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