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Tags: Boko Haram | IMF | Nigeria

Iran Gets Bad End of the Deal

Iran Gets Bad End of the Deal

By    |   Friday, 05 February 2016 09:43 AM EST

One of Donald Trump's stock campaign lines is that the Iran nuclear agreement was "terrible." I'm beginning to wonder if that's true, but in a sense opposite of what he means.

Iran has ended up with a much worse deal than it expected. Remember, Tehran entered the negotiations in the heady days of high oil prices. As the Iranians are discovering, it's a new world out there.

Put yourself in Iran's shoes. The Islamic Republic got serious about negotiating and eventually signed an interim agreement in 2013. That year, oil was hovering around $100 a barrel.

Iran's great rival, Saudi Arabia, was thriving, with an economy that had grown about 6 percent in 2012. Spending lavishly at home and abroad, its 2013 budget had swelled, up 19 percent.

Iran, meanwhile, was isolated with a shrinking economy.

The real prize, for Tehran, was not the return of its funds frozen in banks in Asia and Europe due to international sanctions (totaling around $100 billion).

It was finally getting back into the markets as the second largest oil producer in the Middle East and reaping the riches of the boom.

In 2010, Iranian officials were predicting that by 2015, Iran's oil and gas revenues could reach $250 billion annually. That's what they were banking on when making their concessions.

Last month, Iran's oil began flowing into the marketplace, with prices under $30 a barrel.

Bloomberg News calculates that the country is making $2.35 billion a month on its oil sales. That's not quite the prize that the Islamic Republic was expecting for giving up its nuclear program.

Still, Iran will probably be able to handle the oil bust better than many other petro-states.

Its economy has diversified to some degree and, thanks to sanctions, there is great resilience in both the economy and society, as Moody's points out. This is not the case in many other large countries that are reeling under the hammer blow of falling oil prices.

Look at neighboring Iraq. The New York Times' Tim Arango paints a picture of a country "in the midst of an expensive war against the Islamic State that is now facing economic calamity brought on by the collapse in the price of oil, which accounts for more than 90 percent of the Iraqi government's revenue."

He notes that almost 8 million Iraqis depend on government salaries, which cost nearly $4 billion a month. Total oil revenues are now less than $3 billion a month. A senior Iraq politician told me that Iraq might not survive as a nation if oil prices stay low for long.

Around the globe, Venezuela, long mismanaged by Hugo Chavez and his successor, is on the verge of default and worse. The economy shrank 10 percent last year.

It is expected to shrink an additional 8 percent this year, and inflation now runs at a Weimar Republic-like 720 percent, according to the International Monetary Fund.

As The Washington Post's Matt O'Brien writes, "The only question now is whether Venezuela's government or economy will completely collapse first."

When asked recently what keeps her up at night, IMF chief Christine Lagarde cited petrostates like Nigeria, where 90 percent of exports and 60 percent of government revenue come from oil sales. Surging on the back of this crisis is Boko Haram, which surpassed the Islamic State as the world's most deadly terrorist group in 2014, killing 6,644 people.

As Nigeria's government battles Boko Haram in the north, it also faces the possibility of renewed violence in the south in the Niger Delta, home to much of the country's oil.

At its worst, the southern insurgency there shut down half of Nigeria's oil production. The insurgency ended with a fragile peace and amnesty for the insurgents in 2009.

But the government does not have the cash to follow through on many of its promises. Now it could end up struggling against two brutal movements that could tear the country apart.

There are other oil states, not quite as challenged as these, but most of them with problems. The answer, economists say, is to embrace structural reforms, wean economies away from national resources, and invest in other industries and human capital.

That's hard to do anytime, but especially hard when your country is in free fall.

In any event, oil-producing nations everywhere have governments that desperately need cash, simply to pay salaries and meet basic obligations.

That means they will pump out as much oil as they can, which further adds to supply and keeps prices low.

Welcome to the new world of cheap oil and perilous politics.

Fareed Zakaria hosts CNN's "Fareed Zakaria GPS," and makes regular appearances on shows such as ABC's "This Week" and NBC's "Meet The Press." He has been an editor at large Time magazine since 2010, and spent 10 years overseeing Newsweek's foreign editions. He is a Washington Post (and internationally syndicated) columnist. He is author of: "The Post-American World." For more of Fareed Zakaria's reports, Go Here Now.


© Washington Post Writers Group.

Iran ended up with a worse deal than it expected. The Iranians are discovering, it's a new world out there. Oil-producing nations desperately need cash; they will pump out as much oil as they can, which further keeps prices low. Welcome to the world of cheap oil and perilous politics.
Boko Haram, IMF, Nigeria
Friday, 05 February 2016 09:43 AM
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