4 ms·

Indeed: https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_Iran_Exports_Treemap_2017.svg https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_..

Indeed: https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_Iran_Exports_Treemap_2017.svg https://commons.wikimedia.org/wiki/File:Islamic_Republic_of_... (edited to 2017) 79% of their exports is unrefined crude oil. While exports are not always the whole story, in this case it is extremely relevant. If Iran's economy was 99% domestic and 1% trade, (essentially autarkic) then it wouldn't really matter at all what the price of oil is, as Iran makes everything it needs for itself, whether that be automobiles, medical equipment, financial services, concrete, etc. However, Iran is not autarkic and trade is about 50% of its GDP. In order to complete international trade it requires foreign currency. At the start of the year, Iran had $85B in foreign reserves, according to FRED anyways. It was expected to lose $15B this year, but that was supposed to be while exporting $30B of crude oil. If that $30B is now only $10B, then Iran could lose $35B of foreign reserves this year. They can reduce domestic spending (potentially lowering quality of life for citizens), or they can spin up domestic industry to replace imports, or they can figure out how to increase the $$ value of their exports (potentially by refining the crude oil into higher value products, for example). If they don't do anything, and the trend continues in a straight line, they'd run out of foreign reserves within 3 years. At that point, it would be very difficult for them to buy any of the imports they need and they'd face a venezuela-style situation where citizens would find it impossible to get whatever goods used to be imported. For Iran, this is food, cars, durable goods & machinery, electronics, and textiles: https://atlas.cid.harvard.edu/explore?country=107&product=undefined&year=2017&tradeDirection=import&productClass=HS&target=Product&partner=undefined&startYear=undefined https://atlas.cid.harvard.edu/explore?country=107&product=un...

redis_mlc 6y ago
All oil and gas exporters become dependant on that revenue. It's human nature to spend it all.
- opo 6y ago
  People can choose to do that, or they can choose to save and invest the money. Norway's oil fund is around 1 trillion dollars. >...The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund. https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Norway https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...
  - sadfklsjlkjwt 6y ago
    An increasing proportion of Norwegian spending is already covered by the revenues from the Oil Fund. This crisis has seen a near perfect storm of massive increase in welfare spending, massive fall in the value or the Oil Fund's assets and massive decrease in the price of oil (and hence the input for the Oil Fund). It will be very interesting to see what happens with the fund in the next 10-20 years. EDIT: To be clear I am glad the fund exists. It has been and is a much better way of using the natural resource bonus. However, I strongly suspect that Norway will use the entire fund cushioning the transition away from being an oil producer.
    - jacobush 6y ago
      Not a bad use.
      - teknopaul 6y ago
        Countries under sanctions, obviously, cannot choose what to spend their money on. If you impose sanctions you are essentially government planning another country. I agree with the article's principal point that this is very likey to go horribly wrong somewhere soon. Prevention is better than cure. Even from a purely selfish viewpoint.
    - zrail 6y ago
      > I strongly suspect that Norway will use the entire fund cushioning the transition away from being an oil producer My very cursory understanding of the Fund is that cushioning that known inevitable circumstance was the entire point in the first place.
- ashtonkem 6y ago
  Norway stands as an obvious counter example; they’ve invested a huge amount of their oil money into a sovereign fund, and have a fairly robust economy too.
  - selectodude 6y ago
    Sure, but Norway is really the exception to the rule. Dutch disease is pretty much universal.
    - ashtonkem 6y ago
      It’s not though. America’s an oil producing nation, as is the UK and Norway. Dutch disease is common, but hardly universal. There are known mitigation techniques that can be applied, including a sovereign wealth fund.
      - dredmorbius 6y ago
        As I just commented elsewhere in thread,[1], the US is an exception. But there are multiple factors: 1. The US ceased being a net oil exporter, and began importing oil, in 1950, over 70 years ago.[2] 2. When the US was an oil exporter, both global oil use and industrial capacity were far lower than today, and cargo shipping costs much higher. The US was among the early industrialised nations (with the UK, Germany, France, and Italy, generally), all (save Italy) with major coal reserves. For the US to meet industrial demand it largely needed to self-provision. 3. WWII. 4. Even within the US, oil-producing regions and industrial regions tended to be quite distinct. Norway became an oil exporter quite recently (major production largely coming online in the 1990s), and its economic and industrial policy has been excellent. The UK similarly, though it's arguably been hindered by a legacy industrial system as well as its role as a major finance centre (another form of Dutch disease). ________________________________ Notes: 1. https://news.ycombinator.com/item?id=23060290 https://news.ycombinator.com/item?id=23060290 2. With fracking, over the past 5 years or so, the US has exported ... some petroleum-based products, mostly lease condensate and natural gas liquids (NGLs), very light fractions of petroleum. This is unsuitable for motor fuel (its octane rating is too low, and much is sold to Venezuela and Canada, effectively to make their tar-like oil more soluble. This is likely a tem-orary circumstance.
- zeckalpha 6y ago
  Or you can invest in energy alternatives like nuclear, like Iran has attempted.
pm90 6y ago
In addition to everything you said, the compounding factor here is that sanctions 1) Make it harder for Iran to take advantage of foreign financial markets and 2) Make it harder for them to get the best value for their exports. Sanctions may not sound very bad but they’re economic warfare on a larger time scale. I felt the world was healing somewhat when the Obama admin eased sanctions on Cuba and got the Iran nuclear deal where Iran was offered a reasonable path to becoming a part of the global economic system. The current administration has completely butchered that and I suspect most Americans don’t understand how much damage it’s done to the region which will take years to repair.
- Fjolsvith 6y ago
  > I felt the world was healing somewhat when the Obama admin eased sanctions on Cuba and got the Iran nuclear deal where Iran was offered a reasonable path to becoming a part of the global economic system. I am not an expert on it, but it seems to me that while Iran may have been offered a "path" to join the global economic system, they were not mature enough to "play nice" in the global playground.
  - garrettgrimsley 6y ago
    I am also not an expert on it, but I think you ought to read up on it some. Even after the US withdrew from the JCPOA, Iran continued to comply with the terms of the agreement until at least Feb-May 2019 [0, 1, 2]. Keep in mind that this is long after the US announced in October 2017 that they would not re-certify [3] that Iran was complying with the agreement and in May 2018 when the US withdrew [4] from the agreement. In the October 2017 briefing, President Trump mentions that Iran "has committed multiple violations of the agreement. For example, on two separate occasions, they have exceeded the limit of 130 metric tons of heavy water." I looked into it and found the relevant language in paragraph 14 of Annex 1 of the JCPOA [5]. From page 24 of the PDF: "All excess heavy water which is beyond Iran's needs for the modernised Arak research reactor, the Zero power heavy water reactor, quantities needed for medical research and production of deuterate solutions and chemical compounds including, where appropriate, contingency stocks, will be made available for export to the international market based on international prices and delivered to the international buyer for 15 years. Iran's needs, consistent with the parameters above, are estimated to be 130 metric tonnes of nuclear grade heavy water or its equivalent in different enrichments" Refer to IAEA reports [6] dated 26 February 2016 [7], 9 November 2016 [8] for the two occasions that are referenced. Iran's needs of heavy water were estimated to be 130 metric tonnes. Beyond that, they would have to sell and deliver the water to an international buyer. IAEA reports indicate that this is what Iran was doing. Paragraph 10 of the Nuclear section of the JCPOA contains more language relating to heavy water. From page 9 of the PDF: "There will be no additional heavy water reactors or accumulation of heavy water in Iran for 15 years. All excess heavy water will be made available for export to the international market" Again, it appears that this is in-line with what Iran was doing. Heavy water in excess of 130 metric tonnes was sold and delivered to international buyers. In addition to the 130 metric tonnes stored within Iran, heavy water was allowed by the Joint Commission to be stored outside of Iran, with some sources [9] calling this a loophole in the cap. Regardless of whether or not you believe that exceeding the 130 metric tonnes of heavy water constitutes a violation, there's a dispute resolution mechanism included in the JCPOA. See paragraphs 36-37 on pages 19-20 of the PDF. The US could have used this dispute resolution process to address concerns about violations of the agreement, but did not. I will take your "path" to refer to the JCPOA. It should be clear that rather than Iran first stepping off this path, it was the US that did so. It was not after all processes set forth in the agreement were exhausted that the US left the agreement, but instead the decision is made in lieu of engaging in dispute resolution. Note that in the withdrawal briefing [4] President Trump made no references to violations of the JCPOA by Iran, but instead lists criticisms of the JCPOA itself. Given that the US did not utilize the dispute resolution mechanism process established by the JCPOA, and the fact that criticisms of the JCPOA greatly outnumber the Iranian violations of the JCPOA, it is my view that the withdrawal from the JCPOA by the US was not in response to Iran straying from the path. There are a couple of other grievances that President Trump cited in his October 2017 [3] briefing, but I could find no support for them, and so I don't address them here. [0] https://www.iaea.org/sites/default/files/19/06/gov2019-21.pdf https://www.iaea.org/sites/default/files/19/06/gov2019-21.pd... [1] https://news.yahoo.com/iran-still-holding-end-nuclear-deal-iaea-report-161005676.html https://news.yahoo.com/iran-still-holding-end-nuclear-deal-i... [2] https://www.reuters.com/article/us-iran-nuclear-iaea/iran-stays-within-nuclear-deals-main-limits-while-testing-another-idUSKCN1T11PW https://www.reuters.com/article/us-iran-nuclear-iaea/iran-st... [3] https://www.whitehouse.gov/briefings-statements/remarks-president-trump-iran-strategy/ https://www.whitehouse.gov/briefings-statements/remarks-pres... [4] https://www.whitehouse.gov/briefings-statements/remarks-president-trump-joint-comprehensive-plan-action/ https://www.whitehouse.gov/briefings-statements/remarks-pres... [5] https://assets.documentcloud.org/documents/2165399/full-text-of-the-iran-nuclear-deal.pdf https://assets.documentcloud.org/documents/2165399/full-text... [6] https://www.iaea.org/newscenter/focus/iran/iaea-and-iran-iaea-reports https://www.iaea.org/newscenter/focus/iran/iaea-and-iran-iae... [7] https://www.iaea.org/sites/default/files/gov-2016-8-derestricted.pdf https://www.iaea.org/sites/default/files/gov-2016-8-derestri... [8] https://www.iaea.org/sites/default/files/16/11/gov2016-55.pdf https://www.iaea.org/sites/default/files/16/11/gov2016-55.pd... [9] https://isis-online.org/uploads/isis-reports/documents/Closing_Heavy_Water_Loophole_21Dec2016_Final.pdf https://isis-online.org/uploads/isis-reports/documents/Closi...
RobertoG 6y ago
This is a great comment. I would add that, in order to spin up domestic industry or increase the value of their exports they need expertise and technology. Due to the sanctions that will not be easily available to them. This is really economic warfare.
- dredmorbius 6y ago
  The resource curse is another major hindersnce. Countries with both a large, long-term energy-export sector (that is, oil) and a significant high-end industrial base are ... rare. The US and Norway come to mind. Few others. The US was the first country to the oil game, Norway one of the last. And Norway's industrial capacity ain't tremendous, but does exist. The UK had already fallen enough by the time North Sea oil came online, and its economic policy was sufficiently poor, that it didn't recover. Most major industrial countries have, or had, a large coal resource. Japan being a notable exception. Saudi Arabia, Venezuela, Russia (mostly), Nigeria, Iran, Libya, Indonesia: little industry. Even in the US, oil states (Texas, Oklahoma, Louisiana, California, Alaska) tend not to be heavy-industry states (CA being the possible exception). Those were Michigan, Pennsylvania, New York, Ohio, Illinois, mostly, old rust belt.

redis_mlc 6y ago

All oil and gas exporters become dependant on that revenue. It's human nature to spend it all.

opo 6y ago
People can choose to do that, or they can choose to save and invest the money. Norway's oil fund is around 1 trillion dollars. >...The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund. https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Norway https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...
- sadfklsjlkjwt 6y ago
  An increasing proportion of Norwegian spending is already covered by the revenues from the Oil Fund. This crisis has seen a near perfect storm of massive increase in welfare spending, massive fall in the value or the Oil Fund's assets and massive decrease in the price of oil (and hence the input for the Oil Fund). It will be very interesting to see what happens with the fund in the next 10-20 years. EDIT: To be clear I am glad the fund exists. It has been and is a much better way of using the natural resource bonus. However, I strongly suspect that Norway will use the entire fund cushioning the transition away from being an oil producer.
  - jacobush 6y ago
    Not a bad use.
    - teknopaul 6y ago
      Countries under sanctions, obviously, cannot choose what to spend their money on. If you impose sanctions you are essentially government planning another country. I agree with the article's principal point that this is very likey to go horribly wrong somewhere soon. Prevention is better than cure. Even from a purely selfish viewpoint.
  - zrail 6y ago
    > I strongly suspect that Norway will use the entire fund cushioning the transition away from being an oil producer My very cursory understanding of the Fund is that cushioning that known inevitable circumstance was the entire point in the first place.
ashtonkem 6y ago
Norway stands as an obvious counter example; they’ve invested a huge amount of their oil money into a sovereign fund, and have a fairly robust economy too.
- selectodude 6y ago
  Sure, but Norway is really the exception to the rule. Dutch disease is pretty much universal.
  - ashtonkem 6y ago
    It’s not though. America’s an oil producing nation, as is the UK and Norway. Dutch disease is common, but hardly universal. There are known mitigation techniques that can be applied, including a sovereign wealth fund.
    - dredmorbius 6y ago
      As I just commented elsewhere in thread,[1], the US is an exception. But there are multiple factors: 1. The US ceased being a net oil exporter, and began importing oil, in 1950, over 70 years ago.[2] 2. When the US was an oil exporter, both global oil use and industrial capacity were far lower than today, and cargo shipping costs much higher. The US was among the early industrialised nations (with the UK, Germany, France, and Italy, generally), all (save Italy) with major coal reserves. For the US to meet industrial demand it largely needed to self-provision. 3. WWII. 4. Even within the US, oil-producing regions and industrial regions tended to be quite distinct. Norway became an oil exporter quite recently (major production largely coming online in the 1990s), and its economic and industrial policy has been excellent. The UK similarly, though it's arguably been hindered by a legacy industrial system as well as its role as a major finance centre (another form of Dutch disease). ________________________________ Notes: 1. https://news.ycombinator.com/item?id=23060290 https://news.ycombinator.com/item?id=23060290 2. With fracking, over the past 5 years or so, the US has exported ... some petroleum-based products, mostly lease condensate and natural gas liquids (NGLs), very light fractions of petroleum. This is unsuitable for motor fuel (its octane rating is too low, and much is sold to Venezuela and Canada, effectively to make their tar-like oil more soluble. This is likely a tem-orary circumstance.
zeckalpha 6y ago
Or you can invest in energy alternatives like nuclear, like Iran has attempted.

pm90 6y ago

In addition to everything you said, the compounding factor here is that sanctions 1) Make it harder for Iran to take advantage of foreign financial markets and 2) Make it harder for them to get the best value for their exports. Sanctions may not sound very bad but they’re economic warfare on a larger time scale. I felt the world was healing somewhat when the Obama admin eased sanctions on Cuba and got the Iran nuclear deal where Iran was offered a reasonable path to becoming a part of the global economic system. The current administration has completely butchered that and I suspect most Americans don’t understand how much damage it’s done to the region which will take years to repair.

Fjolsvith 6y ago
> I felt the world was healing somewhat when the Obama admin eased sanctions on Cuba and got the Iran nuclear deal where Iran was offered a reasonable path to becoming a part of the global economic system. I am not an expert on it, but it seems to me that while Iran may have been offered a "path" to join the global economic system, they were not mature enough to "play nice" in the global playground.
- garrettgrimsley 6y ago
  I am also not an expert on it, but I think you ought to read up on it some. Even after the US withdrew from the JCPOA, Iran continued to comply with the terms of the agreement until at least Feb-May 2019 [0, 1, 2]. Keep in mind that this is long after the US announced in October 2017 that they would not re-certify [3] that Iran was complying with the agreement and in May 2018 when the US withdrew [4] from the agreement. In the October 2017 briefing, President Trump mentions that Iran "has committed multiple violations of the agreement. For example, on two separate occasions, they have exceeded the limit of 130 metric tons of heavy water." I looked into it and found the relevant language in paragraph 14 of Annex 1 of the JCPOA [5]. From page 24 of the PDF: "All excess heavy water which is beyond Iran's needs for the modernised Arak research reactor, the Zero power heavy water reactor, quantities needed for medical research and production of deuterate solutions and chemical compounds including, where appropriate, contingency stocks, will be made available for export to the international market based on international prices and delivered to the international buyer for 15 years. Iran's needs, consistent with the parameters above, are estimated to be 130 metric tonnes of nuclear grade heavy water or its equivalent in different enrichments" Refer to IAEA reports [6] dated 26 February 2016 [7], 9 November 2016 [8] for the two occasions that are referenced. Iran's needs of heavy water were estimated to be 130 metric tonnes. Beyond that, they would have to sell and deliver the water to an international buyer. IAEA reports indicate that this is what Iran was doing. Paragraph 10 of the Nuclear section of the JCPOA contains more language relating to heavy water. From page 9 of the PDF: "There will be no additional heavy water reactors or accumulation of heavy water in Iran for 15 years. All excess heavy water will be made available for export to the international market" Again, it appears that this is in-line with what Iran was doing. Heavy water in excess of 130 metric tonnes was sold and delivered to international buyers. In addition to the 130 metric tonnes stored within Iran, heavy water was allowed by the Joint Commission to be stored outside of Iran, with some sources [9] calling this a loophole in the cap. Regardless of whether or not you believe that exceeding the 130 metric tonnes of heavy water constitutes a violation, there's a dispute resolution mechanism included in the JCPOA. See paragraphs 36-37 on pages 19-20 of the PDF. The US could have used this dispute resolution process to address concerns about violations of the agreement, but did not. I will take your "path" to refer to the JCPOA. It should be clear that rather than Iran first stepping off this path, it was the US that did so. It was not after all processes set forth in the agreement were exhausted that the US left the agreement, but instead the decision is made in lieu of engaging in dispute resolution. Note that in the withdrawal briefing [4] President Trump made no references to violations of the JCPOA by Iran, but instead lists criticisms of the JCPOA itself. Given that the US did not utilize the dispute resolution mechanism process established by the JCPOA, and the fact that criticisms of the JCPOA greatly outnumber the Iranian violations of the JCPOA, it is my view that the withdrawal from the JCPOA by the US was not in response to Iran straying from the path. There are a couple of other grievances that President Trump cited in his October 2017 [3] briefing, but I could find no support for them, and so I don't address them here. [0] https://www.iaea.org/sites/default/files/19/06/gov2019-21.pdf https://www.iaea.org/sites/default/files/19/06/gov2019-21.pd... [1] https://news.yahoo.com/iran-still-holding-end-nuclear-deal-iaea-report-161005676.html https://news.yahoo.com/iran-still-holding-end-nuclear-deal-i... [2] https://www.reuters.com/article/us-iran-nuclear-iaea/iran-stays-within-nuclear-deals-main-limits-while-testing-another-idUSKCN1T11PW https://www.reuters.com/article/us-iran-nuclear-iaea/iran-st... [3] https://www.whitehouse.gov/briefings-statements/remarks-president-trump-iran-strategy/ https://www.whitehouse.gov/briefings-statements/remarks-pres... [4] https://www.whitehouse.gov/briefings-statements/remarks-president-trump-joint-comprehensive-plan-action/ https://www.whitehouse.gov/briefings-statements/remarks-pres... [5] https://assets.documentcloud.org/documents/2165399/full-text-of-the-iran-nuclear-deal.pdf https://assets.documentcloud.org/documents/2165399/full-text... [6] https://www.iaea.org/newscenter/focus/iran/iaea-and-iran-iaea-reports https://www.iaea.org/newscenter/focus/iran/iaea-and-iran-iae... [7] https://www.iaea.org/sites/default/files/gov-2016-8-derestricted.pdf https://www.iaea.org/sites/default/files/gov-2016-8-derestri... [8] https://www.iaea.org/sites/default/files/16/11/gov2016-55.pdf https://www.iaea.org/sites/default/files/16/11/gov2016-55.pd... [9] https://isis-online.org/uploads/isis-reports/documents/Closing_Heavy_Water_Loophole_21Dec2016_Final.pdf https://isis-online.org/uploads/isis-reports/documents/Closi...

RobertoG 6y ago

This is a great comment. I would add that, in order to spin up domestic industry or increase the value of their exports they need expertise and technology. Due to the sanctions that will not be easily available to them. This is really economic warfare.

dredmorbius 6y ago
The resource curse is another major hindersnce. Countries with both a large, long-term energy-export sector (that is, oil) and a significant high-end industrial base are ... rare. The US and Norway come to mind. Few others. The US was the first country to the oil game, Norway one of the last. And Norway's industrial capacity ain't tremendous, but does exist. The UK had already fallen enough by the time North Sea oil came online, and its economic policy was sufficiently poor, that it didn't recover. Most major industrial countries have, or had, a large coal resource. Japan being a notable exception. Saudi Arabia, Venezuela, Russia (mostly), Nigeria, Iran, Libya, Indonesia: little industry. Even in the US, oil states (Texas, Oklahoma, Louisiana, California, Alaska) tend not to be heavy-industry states (CA being the possible exception). Those were Michigan, Pennsylvania, New York, Ohio, Illinois, mostly, old rust belt.