The head of Iran’s national bank said the low price of oil, resulting from a protracted supply glut, is a plan concocted by its enemies to undermine the nation’s economy and disarm it of its oil-exporting capabilities.
“And you know the drop in the price of oil was a political measure,” Valiollah Seif, governor of the Central Bank of the Islamic Republic of Iran, said on Friday while addressing the Council on Foreign Relations in Washington.
“Our enemies based on their political approach might try to target our weaknesses, and they thought that this was one of our weaknesses,” he said.
His comments don’t bode well for a meeting in Doha, Qatar, on Sunday among leading crude oil producers to discuss production cuts. The aim of the meeting is to end the economic distress being caused by low prices.
Saudi Arabia, Iran’s archrival in the Persian Gulf, has said it would not agree to curb production unless Iran joins the pact. Iran says it won’t agree to cuts until its production reaches the level it had before international sanctions were put in place in response to its pursuit of nuclear weapons.
“The central bank governor was alluding to Saudi Arabia’s decision to keep pumping oil at a maximum level, which was widely seen — and not just in Tehran — as an effort to pressure Iran on both the nuclear front and for its regional intervention,” Barbara Slavin, acting director of the Future of Iran Initiative at the nonpartisan Atlantic Council, told the Washington Examiner.
Seif is in town for the spring meeting of the International Monetary Fund and World Bank, where he is in discussions on bringing Iran’s banks into compliance with international standards as sanctions against the country begin to be relaxed.
On the sidelines of the meeting, he has been meeting with administration officials, including Treasury Secretary Jack Lew, regarding the ending of sanctions as part of President Obama’s deal to curb its weapons development.
Many Republicans see the nuclear deal as a mistake. One reason is because it would give Iran the ability to begin shipping oil abroad, flooding the market with even more oil and dragging prices even lower, while adding to its coffers to fund terrorism.
Sanctions on Iran’s oil exports ended in January. But it didn’t open the floodgates, per se, although new shipments to Europe are being made and Iran tripled its deliveries to India, which it was supplying on a limited basis under sanctions.
For the time being, however, low prices are keeping new Iranian production at bay. It has the fourth largest oil reserves in the world.
Low oil prices are hurting Saudi Arabia, which suffered a second downgrade of its credit rating this week. The Saudis are likely at least one of the enemies Seif is talking about, in addition to the U.S. and Israel. But he wasn’t specific.
It’s not clear why the enemies of Iran would seek to harm themselves in the process of hurting the Islamic Republic. But there may be real reasons for this view, some of which U.S. energy analysts have proposed over the last year regarding a Saudi strategy to push American shale oil producers, in addition to Iran, out of the market.
“In fact, the tactic has arguably hurt Saudi Arabia more than Iran, which has a more diversified economy,” Slavin said. “Oil now accounts for just a quarter of Iran’s budget expenditures.”
The Saudis refused to curb production last year, which many believe was the only move that could have ended the downward spiral in price. And because the U.S. is awash in oil from the shale boom, it has cut imports and forced more oil onto the global market. Thus, the oversupply dragged prices down to decade lows.
U.S. industry officials say the Saudis refused to cut production to protect their market share.
Low prices have forced thousands of layoffs and rig shutdowns in the United States, as drillers using hydraulic fracturing, or fracking, to produce oil and gas have found the lagging price environment uneconomic.
Only recently has Saudi Arabia begun toying with the idea of negotiating cuts, which the kingdom says Iran would have to approve. Seif suggested that Iran is biding its time for the markets to rebalance at the end of the year, sending prices back up.
In addition to saying lower prices are the work of Iran’s enemies, Seif said the country is weathering the oil market better than most of its rivals, but conceded that economic growth has stagnated.
“You can compare the effect of the oil price shock on our economy and with that of other oil-exporting countries, and you see that our economy is resilient here when it comes to such shocks,” he said.
Seif said the economy is expected to pick up closer to 2017, which concurs with U.S. projections of when oil prices are expected to begin rising, although incrementally.
“Even though growth stagnated in 2015-16, reflecting the sharp decline in oil prices, and the wait-and-see attitude on the part of consumers and investors, it is expected to rebound to about 5 percent in 2016-17,” Seif said.
