Iran is falling on a double-edged sword, escalating coronavirus infections and deaths, and then the plummeting price of oil on the world markets. It appears to be a no-win situation, and Iran hasn’t seen such a drop in the price of oil since the U.S. invasion of Kuwait in 1991. The Islamic Republic relies heavily on revenue from its oil wells, and at the moment they are faced with the lowest price per barrel in decades.
Monday, March 2, made for a very nervous market, with the impact of the coronavirus affecting the world economy and the demand for oil. Brent crude futures, the global oil benchmark, were down 22%, the last trading at $35.45 per barrel. U.S. oil was trading at $33.15 per barrel, a decline of nearly 20%.
“$20 oil in 2020 is coming,” tweeted Ali Khedery, a former U.S. official in Iran and onetime Middle East expert with Exxon. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc.—may prove existential 1-2 punch when paired with COVID-19,” reported Fox News.
Since 2016, Saudi Arabia and Russia have been joined by the OPEC+ alliance, however, on Friday it all came to a halt when they couldn’t agree on deeper cuts in response to the worldwide spread of the coronavirus. The Saudis wanted more cuts, but Russian President Vladimir Putin rejected the cuts, as he was concerned it may give the U.S. oil producers too much of an advantage. Saudi Arabia declared on Sunday it intends to open its spigots and force prices down.
“By yielding our own markets, we remove cheap Arab and Russian oil to clear a place for expensive U.S. shale oil and ensure the effectiveness of its production,” Putin told Russian state media on Sunday.
“If a true price war ensues, there will be plenty of pain in the oil markets,” Badr Jafar, president of Crescent Petroleum, a United Arab Emirates oil company, told The New York Times. “Many will be bracing for the economic and geopolitical shocks of a low-price environment.”
In Iran, the tightened sanctions imposed by President Trump in September 2019 are creating economic chaos. At the time, the president said of Iran’s economy, “It’s going to hell,” speaking in the Oval Office where he was hosting the Australian prime minister. “They’re practically broke. They are broke.”
The official count for infections by the coronavirus in Iran is more than 7,000 with 237 deaths, experts believe the official count is way below the actual number. Tehran downplayed the virus amid fears of the low turnout in February.
“Iranian officials have actually managed to aggravate the public panic they wanted to avoid—and have undermined their own legitimacy in the process,” said Washington Post Global Opinions writer Jason Rezaian.
“People are terrified, and they have no trust in the state’s ability to manage the crisis. It’s hard to blame them,” he said.
“Its reflective tendency to lie about crises, recently on display with the shooting down of a Ukrainian airliner, adds credence to reports that the first signs of the outbreak were evident on Feb. 13, six days before the government owned up,” commented Bloomberg Opinions columnist Bobby Ghosh.
“The fall in oil prices could actually have more of an effect on the country than Western sanctions had had over the past several years,” said Justin Dargin, a Middle East energy expert from Oxford University.