What Iran's Oil "Musical Chairs"<br /> Could Mean for the Region

What Iran's Oil "Musical Chairs"<br /> Could Mean for the Region

by | published June 3rd, 2011

You could write it off as just the latest machinations in Middle Eastern politics.

But I believe what has unfolded in the fight to control Iran's oil ministry may be a precursor to similar events elsewhere in the region… and even more disturbing developments.

In mid-May, iconoclastic Iranian President Mahmoud Ahmadinejad abruptly fired Oil Minister Masoud Mir-Kazemi and took “caretaker” control over the ministry (and oil sector).

Now, Kazemi is himself a close confidant of the president. He was initially appointed in 2009 because there are few individuals left to tap among Ahmadinejad's dwindling inner circle.

The circle surrounding the president is under increasing pressure from a very conservative judiciary controlled by clerics. In fact, a number of his friends are under investigation for corruption.

(One advisor is even about to be indicted on a charge of sorcery! Only in a country like Iran…)

All of this has pitted Ahmadinejad against his former ally, the nation's supreme religious leader, Ayatollah Ali Khamenei. It also strains a deeper political connection between the president and elements in the Revolutionary Guard, the dominant military contingent, and one with strong political impact.

Ahmadinejad had further said he himself would lead the Iranian delegation to the OPEC meeting next week (June 8 ) in Vienna. Iran has assumed the one-year-long presidency of the cartel, providing the country a platform to spin its policy ideas. But having a head of state in a meeting designed for ministers would throw the session into disarray.

The Iranian president agreed to appoint somebody else to attend, although we still have not been told who that person would be. He also has been forced to retreat on the broader issue.

The politics quickly became acrid, with the Majlis (Parliament) threatening to sue the president over his actions.

Running out of close confidants who are available for a ministerial post – and who remain unindicted – Ahmadinejad yesterday relented and appointed a temporary oil head, Mohammad Aliabadi.

His choice, however, will renew the political disagreements with the legislature all over again. That's because the fellow has no experience in oil: Aliabadi's most prominent role is chair of the country's Olympic committee.

This is all happening against rising Iranian political infighting by components of the Revolutionary Guard and the clerically run charitable sector against other factions resisting their attempt to wrest control of oil proceeds.

(This issue emerged well before Ahmadinejad entered office. Yet his strong support from, and continuing obligation to, certain Revolutionary Guard leaders may well have intensified the problem.)

What the Guard and the Charities Have to Do With Oil

First, the Guard is suspected of being centrally involved in the ongoing smuggling of oil products into and out of Iran, thwarting attempts to bring domestic gasoline consumption under control.

As long as overall usage remains high, Iran is dependent upon importing gasoline.

That, in turn, requires a commitment of $5 billion in hard currency reserves to purchase volume abroad. And that is only the official figure – the one released by the Majlis. Some sources say the real number is at least 40% higher.

Such purchases are rendered more difficult by U.N. and European Union (E.U.) sanctions that restrict access to international banking, thereby increasing the price Tehran has to pay for the imports. (See “How to Profit from the New Iranian Sanction,” March 31, 2010.) The sanctions a

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lso oblige the use of more expensive financing options, often run through Dubai or Singapore, that accelerates the budgetary problems back home.

As for the charities…

They were set up to provide assistance for those maimed and injured in the 1979 Revolution and the subsequent Iran-Iraq War.

But the clerics running the programs control domestic social programs and have occasionally used that leverage to advance agendas – including support for Ahmadinejad's election campaigns.

Those in charge of the charities also have a standing desire to participate directly in the oil and gas sector. Some of the larger charities have entered into joint financing ventures with foreign producers to develop fields.

However, the real focus of the charities' attention in the sector is the huge South Pars offshore gas project.

It's suspected that funding from the charitable trusts was used to finance several of the Iranian company initiatives to develop phases of South Pars, with the approach accelerating as sanctions have increased and Tehran has been forced to rely upon the abilities of local enterprises.

All of these considerations have led to a significant shrinking of the Ahmadinejad political support base, as figures develop different alliances in advance of a new presidential election round.

Ahmadinejad is – in a very real sense – a lame duck.

Bringing us full circle back to why this is such a disturbing regional development…

If this were a development peculiar to politics in Tehran, we might dismiss it as having only tangential effect upon production and global supply.

But this model is likely to be replicated elsewhere – and that is a much more dangerous prospect.

Political Oil Moves Destabilize the Global Market

The unrest in MENA (Middle East / North Africa) continues to intensify. Deaths in the streets are daily occurrences in Yemen and Libya, while the problem in Bahrain is worsening despite troops from neighboring Saudi Arabia.

As we have seen, heads of state limited by atrophy among supporters – or outright opposition from the population – will attempt to retain power. And that will result in the oil sector becoming the dominant political football.

That's because, besides being the primary source of revenue in many MENA countries, oil provides a huge source of patronage jobs and paybacks. Those are always valuable to elected leaders.

However – and this is the important matter to remember from all this – these moves to control oil for political purposes destabilize the global market. Traders do not like questions of supply security to creep into the way they calculate supply.

And Iran further complicates the situation by introducing religion into the fight.

In a region where disagreements between Sunni and Shiite have already created so many problems with oil production right next door, in Iraq, these new Iranian developments are anything but reassuring.



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  1. Dean Patelis
    June 3rd, 2011 at 11:07 | #1

    Interested in IRAQ and oil production and impact on world oil prices. Can they maintain stability and be accepted into world banks. Tks.

  2. June 3rd, 2011 at 13:38 | #2

    Try to not let cultural prejudges creep into your evaluations. Like I say, “Never sell witchcraft (sorcery) short”!

    June 3rd, 2011 at 15:02 | #3

    Can someone explain to me the differences between the Energy Advantage approach and the Inner Circle and do you have an opinion as to which performs better?

  4. Ian Fletcher
    June 5th, 2011 at 08:08 | #4

    Certainly looks like curtains for Mahmood. But it’s been looking that way
    for long. How does he survive? Fascist inertia. Until The Arab spring
    transforms into Farsi spring, sideways I’m afraid.
    As a translator, I often come across Irani collegues who tell this guy’s
    days are numbered. That there is a wide demographic rift between the old
    Revolutionary Guard and average Iranians. The regime’s credibility is zero.
    ianfletcherif@hotmail.com Barcelona

  5. Sandra Windsor
    June 5th, 2011 at 18:29 | #5

    some say Iraq dinar to revalue up to over $8.00 from 0.1170 cents?

  6. Aristo Kiziroglou
    June 7th, 2011 at 10:54 | #6

    Dr. Kent, I have already written you here about the subject below but I may have missed your reply ? Could you kindly let me/your readers know (e.g. in your weekly letter) if there is any truth in this Chinese “Oil Colony” and how important it is. If true, this may be a game changer for the whole oil industry and for those who have a significant stake in it. Many thanks.

    New Chinese “Oil Colony” Discovered
    Chinese workers are rushing to complete work on
    this $12 trillion source of emergency oil.
    The location of this oil could be worth a fortune to investors…
    But you must ACT NOW.

    Dear Reader,
    Right now, the Chinese are frantically rushing to put the finishing touches on a massive new source of oil…
    Workers have been coming and going around the clock. They work long shifts, taking as few breaks as possible. Their goal is to finish by summer.
    Experts say there could be as much as 100 billion barrels of untapped oil involved — roughly $12 trillion worth at today’s prices.
    When they’re done, China will immediately pump this oil into its economy.

  7. Dolia G.
    June 27th, 2011 at 14:02 | #7

    One thing that I would like to know, Is oil will be is lower is now, Or will go sky rock Again. That reason is I do not know if I Hold my position and for How long.


  8. hal neiman
    July 5th, 2011 at 14:01 | #8

    kent, I have heard that a huge oil and natural gas discovery in israel.
    First, is it true? and how will it affect the overall situation. i was told that the oil alone could supply the u.s. for 80 years.

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