Well May Be Drying Up
Two things have allowed Iran to scorn international calls for a cease-fire and pursue its long stalemated war with Iraq. The first is an apparently undiminished supply of young men ready to sacrifice themselves for a cause that has already taken the lives of hundreds of thousands of their countrymen. The second is a steady flow of oil revenues to pay for the tools of war. No serious signs have yet emerged that young Iranian men have lost any of their fervor for battle. But signs are beginning to emerge that the vital oil revenues Iran must have to finance its war may be in danger of drying up.
The reputable Middle East Economic Survey reports that boycotts of Iranian oil imposed earlier this year by the United States and France, as well as major cutbacks in oil purchases by Japan, are starting to have an impact. Iranian oil production has fallen sharply in recent weeks, partly because of the damage done by Iraqi attacks on oil installations, but also because important markets have disappeared. Iran’s October oil sales may have been as low as 1 million barrels a day, about half of what they were in August.
In response, Iran appears to be undercutting its agreement with fellow OPEC members and offering oil at discount prices. Meanwhile, the Economic Survey reports, at least seven tankers carrying up to 13 million barrels of Iranian oil have been sent off to Rotterdam in a speculative search for buyers. In an effort to lure customers, Iran is reported to be offering to absorb all delivery, insurance and freight charges on this oil.
These inducements could help boost Iran’s revenues, at least in the very short term. In the longer term, of course, oil dumped at a discount only works to knock down the floor price on oil that OPEC has struggled to maintain. When oil prices fall, as they have been doing, the temptation rises to cheat on production quotas imposed earlier. But adding yet more oil to surplus supplies only puts further downward pressure on prices.
Western economists think that Iran’s war costs may run as high as $10 billion a year. The International Monetary Fund, meanwhile, estimates Iran’s 1986 oil revenues at no more than $6.6 billion. Unlike Iraq, which has been able to borrow heavily from its fellow Arab oil producing states, Iran has no easy source of foreign credit. It must pay for the war it refuses to stop fighting out of its own earnings.
With those revenues falling, the time may be drawing close when Iran has no choice but to accept a cease-fire in the Persian Gulf, because continuing to fight will have become a luxury it can no longer afford.
