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Oil drop ends crude swagger

As prices rose to $147 a barrel, nations such as Iran, Russia and Venezuela had revenue to back their ambitious policies, and bluster. But the dip to $70 may put a dent in plans. Engine stalls, and so may ambition

October 20, 2008|Ramin Mostaghim and Borzou Daragahi | Special to The Times

TEHRAN — Iran's envoy to OPEC has been a busy guy. As oil prices plunged in recent weeks, Mohammad Ali Khatibi has been working the phones and traveling in a frenetic attempt to get the oil-producing cartel to agree to reduce supply to keep the price from dropping further.

"I think the low price is a real damage to the future of production," he told media.

Iran has reason to worry. Not only is its budget heavily dependent on revenue from oil exports, but international sanctions have exacerbated the economy's weaknesses. And to top it off, the crisis comes as Iran is trying to reclaim its status as a regional superpower, which it lost 30 years ago after the Islamic Revolution and the start of the war with Iraq.

Oil is the centerpiece of that ambition.

Oil revenue funds Iran's nuclear technology program, a point of great friction with the West. It also finances a state-heavy economy that keeps the social peace by providing jobs, subsidies and entitlements.

"Less oil revenue means less capital reserves, more shutting down of factories, less importation of consumer goods, less welfare, more joblessness, more discontent among people," said Reza Kaviani, an economist in Tehran.

Few believe the country's supreme leader, Ali Khamenei, would abandon the uranium enrichment program just because oil prices are dropping. After all, the program was humming along just fine when oil was at $9 a barrel.

But lower oil prices could nonetheless moderate Iran. The plunge comes before a presidential vote in June that will stand as a referendum on Mahmoud Ahmadinejad, who came to power on a populist platform promising to fix the economy but instead focused his energies on a strident foreign policy. In a speech last week, he warned that Iranians were consuming too much of Iran's oil and natural gas:

"We should be consuming less than half, or even a third, of the amount we now consume."

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daragahi@latimes.com

Special correspondent Mostaghim reported from Tehran and Times staff writer Daragahi from Beirut.

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