March 15, 2006

Iran's Financial Crack Binge

From a larger story:

Iran's long-term planning calls for vigorous efforts to reduce the size of government and to curb subsidies to state-owned entities, which account for an estimated 75 percent of the economy. But the Ahmadinejad budget boosts spending by 25 percent and envisions a 31 percent increase in spending on state enterprises.
The 2006 budget also calls on the government to use up to $40 billion of its foreign cash reserves -- generated from oil sales -- to meet the fiscal year's spending needs, in spite of long-term plans calling for restraint.

So how much does Iran have in financial reserves? How deep are they digging into the till?

According to the International Monetary Fund, Iran has foreign exchange reserves of $30.6bn (25bn, 17bn) in hard currency and $9bn in foreign, possibly illiquid, assets. Mr Mojarrad estimated total foreign exchange receipts for the Iranian year ending March 2006 at $52bn, with $42bn from oil sales.

By any measure, emptying your foreign reserve bank accounts in one year is a financial crack binge. Inflation's looking to spike up to 30% instead of the previous more "normal" 13%. This looks like an economy that's on the brink of going over the edge into the territory of regime threatening instability when even "normal" levels of support are only at 30%.

So what are its escape routes? Higher oil prices and/or a war of conquest that results in more money/resources for the state are the only two that appear handy. For higher oil prices, somebody else's production needs to be taken out of circulation. Iraq instability and oil infrastructure destabilization throughout the gulf are possibilities. Increasing the availability of exports by reducing domestic oil consumption is a third. If that's not enough and a populace distracting war is needed, the only likely target is Iraq's southern oil fields. Perhaps the US better brush up its war plans with Iran. Oh wait, they already are. I hope they have a "defend the Iraqi border" section.

Posted by TMLutas at March 15, 2006 08:43 AM