Hurt Saudi Arabia: Iran’s oil war and policy politicization

The defiant Islamic Republic of Iran has ignored proposals, from members of the Organization of the Petroleum Exporting Countries (OPEC) as well as other major oil-producing countries, to discuss freezing of oil production in order to boost prices and tackle global oil surplus.

Many argued that Iran would become more cooperative after it re-joined the global financial system. Nevertheless, it remains a delusion to make the argument that Iran will join other heavy-oil suppliers to address low oil prices anytime soon, even though the plunging oil revenues have wreaked havoc on several nations. The uncooperative behavior of the Iranian leaders highlights several crucial issues economically and geopolitically.

Mixing economy, oil policy and politics

Iran’s oil policies are not solely driven by economic factors, like other rational state actors, but by geopolitical parameters as well as Tehran’s regional hegemonic and ideological ambitions.

When it comes to shaping and controlling oil policy, two major institutions play crucial roles and have the final say in Iran; the office of the supreme leader, Ali Khamenei, and senior officials of Iran’s Revolutionary Guard Corps. They hold the monopoly and enjoy significant control over Iran’s oil and gas reserves and resources.

First of all, when it comes to Tehran’s oil policy, these main decision-makers do not allow room for maneuvering or cooperation. Other governmental figures, such as the President or foreign ministers, are either not influential or they follow Khamenei’s policies.

Secondly, Khamenei and the IRGC do not analyze supply, demand, and inventories in the market in order to adjust their oil output and oil prices. From their perspectives, Iran’s military expenditures, its geopolitical and ideological influence in the region, as well as the regional balance of power guide its oil policies.

As a result, for Khamenei and the IRGC leaders, they consider only if their country’s defiant attitude of increasing oil production will inflict harm on the economic prowess and national interests of Tehran’s regional rivals.

Finally, Iran is not harmed by the current oil prices. Khamenei used to be satisfied with oil at less than $20 a barrel. As long as the oil prices are even at the current low prices, Khamenei and IRGC leaders will be satisfied with the revenues that they are receiving. They are also increasing their output to four millions barrels a day. That would increase Iran’s revenue to over 500 percent, in comparison to the time when Iran was under economic sanctions.

Oil and military

Iran’s foreign policy is increasingly being defined by the vicious cycle of interaction between soft power and hard power. The soft power in this case is the Islamic Republic’s employment of economic and financial prowess to exert its influence the region. The hard power is deploying its military and Qud Forces (branch of IRGC), using proxies for wars, as well as setting up military bases outside Iran for offensive purposes and support of its allies.

As the IRGC military influence and stranglehold is escalating in several countries – including in Syria, Iraq, and Yemen – its need for financial means is increasing. The Islamic Republic is spending billions of dollars every year in order to maintain Bashar al-Assad’s power, preserve its military, security and intelligence influence in the Iraqi government, in Lebanon through Hezbollah, in Yemen via the Houthis, and in Bahrain through some Shiite groups.

Thanks to the nuclear deal, the United Nations Security Council’s sanctions relief has finally provided the senior official of the IRGC and the supreme leader, Ali Khamenei, with the required financial means to buttress its military stranglehold across the region. More importantly, with Iran’s revenue increasing due to its ramping up of oil exports, the country will invest more in its hard power across the region to tip the balance of power of its favor.

For Iran to become cooperative with other OPEC member and major oil producing nations, the oil prices have to significantly drop even below the current rate. Or, if the regional countries put pressure on Iran through soft power – such as cutting diplomatic ties with Iran – and if they isolate the Iranian leaders, that could also force the Iranian leaders to recalculate their oil policies since geopolitical issues and oil policies are mixed together for them.

Iran views itself as the leader of the Islamic world (not only the Shiites but also the Sunnis). As a result, being isolated by Muslim nations is as powerful as economic sanctions – when it comes to trying to change Iran’s uncooperative behavior and the shift in its aggressive and interventionist policies.
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Dr. Majid Rafizadeh, an Iranian-American political scientist and Harvard University scholar, is president of the International American Council. Rafizadeh serves on the board of Harvard International Review at Harvard University. He is also a member of the Gulf project at Columbia University. Rafizadeh served as a senior fellow at Nonviolence International Organization based in Washington DC. He has been a recipient of several scholarships and fellowship including from Oxford University, Annenberg University, University of California Santa Barbara, and Fulbright Teaching program. He served as ambassador for the National Iranian-American Council based in Washington DC, conducted research at Woodrow Wilson International Center for Scholars, and taught at University of California Santa Barbara through Fulbright Teaching Scholarship. He can be reached at [email protected], @Dr_Rafizadeh.