Ahmadinejad’s Economic Savvy

September 1, 2011 by · Leave a Comment 

‘He’s giving back half of the 60 billion dollars in savings directly to the people in monthly deposits. So every Iranian, man woman and child, is eligible to receive the equivalent of 40 dollars a month.’

By Fareed Zakaria, CNN


Iranian President Mahmoud Ahmadinejad waves to worshippers before speaking at Friday prayers on Jerusalem Day in Tehran August 26, 2011.

REUTERS/Morteza Nikoubazl

From the White House to London’s House of Commons and beyond…few Westerners have anything nice to say about Mahmoud Ahmadinejad.

But there’s one group that has glowing words of praise for Iran’s President – and it’s based not in Tehran, but in Washington.

The International Monetary Fund’s latest report paints a pretty picture of Iran’s economy.

It says growth has hit 3.2%, and will accelerate still further.

Inflation has dropped from 25% to 12% in just two years.

And Tehran has managed to do what every major oil exporter can only dream of accomplishing: It’s slashed subsidies on gas to recoup 60 billion dollars in annual revenue. That one-sixth of Iran’s entire GDP.

Why is this happening? And how can it be despite years of economic sanctions?

What in the world is going on?

Some say the IMF’s numbers can’t be right.

But we have no reason to doubt their work. The fund reasserted this week that its projections were independent of the government.

The real story here is that Iran has actually begun implementing some economic reforms. For decades now, Iranian leaders have tried to wean its people off cheap oil – oil that is subsidized by the government.

Cheap oil that has no connection to real market prices is not sustainable. Iran knows it, and so does every country from Saudi Arabia to Venezuela. But in the same way that any talk of tax increases here in America is considered heresy, people in oil-rich countries believe as an article of faith that they deserve cheap oil.

So how did Iran finally cut out the freebies?

The backstory is a complex game of chess between Ahmadinejad and someone much more powerful – the Supreme Leader Ayatollah Khamenei.

One theory goes like this: The Ayatollah thought cutting subsidies would make Ahmadinejad deeply unpopular. An ensuing revolt would then remove the one man who’s come to challenge the Supreme Leader’s power.

Another theory is that Ahmadinejad felt confident enough to go ahead with the reforms because he’s crushed the opposition Green Movement.

Either way, he’s played a smart hand. He’s giving back half of the 60 billion dollars in savings directly to the people in monthly deposits.

So every Iranian, man woman and child, is eligible to receive the equivalent of 40 dollars a month.

That kind of money won’t make any difference to Tehran’s upper classes.

But that’s not Ahmadinejad’s constituency.

On the other hand if you’re poor, if you have many children, and if you make sure the whole family signs up for the deposits, you’ll probably be saying “Thanks, Mr. President”.

The key thing to note here is that President Ahmadinejad had no choice, and neither did the Ayatollah.

Iran could not afford the subsidies anymore. Its economy is highly dysfunctional with many massive distortions and subsidies. And Washington’s recent targeted sanctions are beginning to bite.

It is now harder than ever before for Iran to do business with the world. Most of the major international traders of refined petroleum have stopped dealing with Iran. Tehran now has to rely on much costlier overland shipments for its exports.

And it is now almost impossible to conduct dollar-denominated transactions with Iran. So we were left with the bizarre case last month of China resorting to the barter system to pay Iran for 20 billion dollars worth of oil.

The IMF has a point. Iran is implementing some needed reforms and as a result its economy is doing better. The irony is that it’s happening – in some part – because of our sanctions. Talk about unintended consequences.


Soaring Saudi Oil Burning to Cap Exports Rise

August 4, 2011 by · Leave a Comment 

By Daniel Fineren

DUBAI, July 5 (Reuters) – Saudi Arabian oil exports may trail far behind rising output this summer as its power stations burn more crude than ever before to keep a booming population cool, part of a trend that is squeezing spare output capacity, analysts say.

Energy minister Ali al-Naimi said Saudi would produce as much crude as needed after OPEC output talks collapsed in early June. Production is expected to rise by about a million barrels per day (bpd) to nearly 10 million bpd in July.

But most of that is likely to be soaked up by a summer surge in air conditioning demand and the ramp up of the huge Rabigh refinery after maintenance, leaving less extra crude from the world’s biggest oil exporter for refineries abroad.

“Available Saudi crude export capacity is getting squeezed from all sides,” John Tottie, senior analyst at HSBC Saudi Arabia, said.

“Rabigh is coming back, you have the increase in exports and then you have the increased summer power generation demand.”

The 400,000 bpd Red Sea refinery was down for maintenance before OPEC met on June 8 but has been ramping up production since then and is nearing full capacity.

Rabigh’s rising crude consumption not a problem for Saudi, which makes a tidy profit selling the refined products, or for a global market that buys them.

It is the booming power generation sector — which has been increasingly burning the country’s biggest export product as limited natural gas is fed to other industry — that is already squeezing spare oil supply capacity and threatens to slash Saudi exports in the long term.

Michael Wittner, chief oil analyst at French investment bank Societe Generale , expects little extra crude from the Saudi summer ramp up to trickle onto global markets.
“The 1 million bpd production increase between May and July is much less than meets the eye,” he said in a research note, pointing to rising Rabigh inputs and a possible 300,000-bpd rise in crude burn by Saudi power plants from May to July.

“Our conclusion is that Saudi crude exports — what really matters for the global crude markets — will increase only by 300,000 bpd.”

Offsetting higher crude burn by upping production at the well head also squeezes spare capacity in the only country in the world with a sizeable cushion to reassure those nervous about supply since the loss of Libyan light crude production in February.

Saudi’s response to the Libyan loss has also come in to question after the International Energy Agency sanctioned the release of consumer countries’ oil stocks to make good that deficit. Some analysts have doubted whether the kingdom may go ahead with such a large increase when its customers have issued their own oil.

Based on scant Saudi government production, export and refining throughput data made available through the Joint Oil Data Initiative (JODI), the International Energy Agency (IEA) estimates the kingdom burnt as much as 920,000 barrels on some July days last year, with August peaks of around 720,000 bpd.

Tottie estimates Riyadh missed out on about $17 billion in potential export earnings from feeding its most valuable commodity into power plants in 2010, up from around $3 billion lost earnings in 2005.

He believes hot peak days could see up to 1.2 million barrels burnt in Saudi power plants in the next two months, which implies a potential loss of export earnings of as much as 3.7 billion a month based on a $100/bbl price.

Saudi industry sources say direct crude burning is likely to average 540,000 bpd in 2011, up from an average of 403,000 bpd last year. But many more barrels will be burnt each day in the summer in an annual burning boom driven by air conditioning demand as temperatures across the Middle East soar.

Jamie Webster, senior country strategies manager at PFC Energy in Washington, expects the burn to average around 885,000 bpd in July and August, hitting highs of around 1.2 million bpd in August.

“This will occur in August when Ramadan will increase electricity demand further as activities are pushed into the night but daytime demand is not diminished,” Webster said.

An oil industry source said he expected this year’s power surge to be particularly pronounced because many people who would usually flee the intense August heat will stay put or fly in to be with their families for the holy month.

Exactly how much crude is burnt will depend on how hot it gets over the next few months, with rare respite from the scorching summer heat likely to help shave something off the demand peaks, but long term weather forecasting is difficult.

PFC estimates that crude demand from the Saudi power generation sector could swing by over 500,000 bpd from the relatively cool first quarter to the much hotter July-September period of 2011. Based on JODI data, HSBC estimates that the average Saudi barrel burn by power plants in the peak demand season of April to September more than tripled from 2006 to 2010 after the government decided to halt construction of gas-fired plants in response to tight gas supplies and focus on oil.

Crude burn has accelerated since 2008, weighing on summer export levels, so a big rise in output was necessary to avoid an even bigger seasonal sag in exports this year.

“The Saudis were already going to increase production precisely because of the increased summertime demand for power generation,” Webster said.

In the longer term, unless the country can find large new sources of natural gas to wean itself off oil power, it could become a serious issue for economies hooked on other uses of oil.

“We estimate that an exclusive reliance on crude oil to meet incremental feedstock needs could require the burning of about 4 billion barrels this decade at a cost of over $300 billion and imply a 2020 burning rate as high as 1.6MMbbl/d,” HSBC said in a study on Middle Eastern fuel issues published in late June.

“This stresses the urgency of meeting power sector demand with natural gas, not oil.”


Hundreds of Yemeni Troops Defect to Rebels

June 30, 2011 by · Leave a Comment 

By Mohammed Mokhashaf and Mohamed Sudam


An anti-government protester with his face painted in the colours of Yemen’s flag shouts as others chew qat during a rally to demand the ouster of Yemen’s President Ali Abdullah Saleh in Sanaa June 28, 2011. The words painted on the protester’s chest read as “Uncover chests”.

REUTERS/Suhaib Salem

ADEN/SANAA (Reuters) – At least 26 Yemeni government soldiers and 17 militants linked to al Qaeda were killed on Wednesday in heavy fighting for control of a stadium near the southern city of Zinjibar, officials said.

The military setback, following reports that 300 of his soldiers had defected to the opposition, was another blow to President Ali Abdullah Saleh as recovers in Saudi Arabia from injuries sustained in an attack on his palace in early June.

Yemen, the poorest Arab state and a neighbor of the world’s largest oil exporter, Saudi Arabia, has been shaken by months of protests against Saleh’s three-decade rule, a resurgent wing of al Qaeda and a separatist rebellion in the south.

The United States and Saudi Arabia fear that al Qaeda may use the chaos to launch attacks in the region and beyond.

Yemeni officials said the militants seized control of the stadium from government forces, who have been using the facility — built recently to host a regional football tournament — to support troops fighting to dislodge the militants from Zinjibar.

An official said losing the stadium, located near a military base from which government forces had been launching attacks on Zinjibar, exposed a military base that had been used to launch attacks on the militants in Zinjibar. A counter offensive to retake the position was in progress, he said.

“The militant control of the field will leave the back of the camp from the east exposed,” the official said.

Yemeni officials had been reporting successes against the estimated 300 militants who seized control of Zinjibar in May in the midst of a groundswell of popular protests against the nearly 33-year autocratic rule of Saleh.

His opponents say his forces handed over the city to the militants to bolster his argument that his departure would lead to an Islamist takeover of the Arabian Peninsula state.

Yemeni air force planes had killed at least 10 gunmen in attacks on Zinjibar earlier on Wednesday, a local Yemeni official said. One strike mistakenly hit a bus traveling from Zinjibar to Aden, the official added, killing five passengers and wounding 12 other people.


Earlier in the day, opposition officials reported that more than 300 members of Yemeni security forces, including 150 from the Republican Guards led by Saleh’s son Ahmed, had defected to rebels.

“From the podium of the Square of Change in Sanaa, an announcement has been issued that 150 soldiers from the Republican Guards, 130 Central Security soldiers and 60 policemen have joined the revolt,” an opposition message said.

No government officials were immediately available to comment on the report.

If confirmed, the mutinies would be a serious reverse for Saleh, who has spent the past three weeks receiving medical treatment in Riyadh for wounds suffered in the June 3 attack.

The defections are the latest in a series by security forces since the anti-Saleh uprising began in February. Most prominent was the defection in March of Brigadier General Ali Mohsen, who has since sent in his troops to guard protesters in Sanaa.

The protests have culminated in battles between Saleh loyalists and gunmen from the powerful Hashed tribal federation in Sanaa that brought the country to the verge of civil war.

Months of unrest have cost Yemen $4 billion, a senior Yemeni official said on Wednesday, adding the Arab state was in talks with potential donors to help plug a gap of $1.5 billion in government commitments for projects funded by Sanaa.

“We are talking with the IMF, the World Bank and donor countries, whether Gulf Arab states or others. There may be some discussions next week with the IMF,” Abdulla al-Shater, deputy planning and international cooperation minister, told reporters on the sidelines of a financial conference in Saudi Arabia.

Yemen has been largely quiet with a ceasefire in place since Saleh was injured in the attack, which investigators say was caused by explosives planted in the palace mosque where he and several senior government officials were praying

Saleh, 69, who has not been seen in public since the attack, has resisted pressure from the United States and Saudi Arabia to hand over power to his deputy, Abd-Rabbu Mansour Hadi, under a Gulf nations’ initiative to end the crisis.

Hadi has been running the country in Saleh’s absence, but the opposition wants the president to officially hand over power to him to pave the way for new elections.

Officials have said the president will soon make his first public appearance since the attack with a recorded message to be broadcast on Yemeni state television.

Officer Killed

In further violence, a bomb killed a colonel when it exploded in his car on Tuesday night in the port city of Aden, a security source said on Wednesday.

The source said that Colonel Khaled al-Yafi’i was the commander of a military outpost guarding the Aden Free Zone business park’s entrance.

The outpost was targeted by a car bomb on Friday that killed four soldiers and a civilian and injured 16 other people.

No one has claimed responsibility for the colonel’s killing, but Islamist militants affiliated with al Qaeda are active in southern Yemen.