March 11, 2007

Iran Economic Decline Accelerates

The Iranians, rich in oil but poor in refining capacity, has imposed a gasoline-rationing program and increased the prices for fuel as a result of its continuing economic collapse. The decline comes in part from increasingly effective international sanctions, but mostly result from the economic lunacy psuhed by Mahmoud Ahmadinejad to achieve Iranian self-sufficiency:

Iranians are bracing themselves for a fresh round of belt tightening after their government voted to impose petrol rationing coupled with sharp rises in the price of fuel.

The rationing system will limit Iranians to 22 gallons (100 litres) of petrol a month, two full tanks for a typical family car. It is a direct result of President Mahmoud Ahmadinejad's adherence to an economic model, based on Iranian self-sufficiency, that has caused housing and other living costs to soar.

The basic price of petrol will rise by 25 per cent, but Iranians who need to use more than the permitted amount will be hit by rises of up to 450 per cent.

Economists predict that the knock-on effect on the average Iranian will be dramatic, with retailers expected to pass on the additional costs to consumers.

For those Americans who lived through the 1970s, this will seem very familiar indeed. The price of gasoline acts as a force multiplier in the economy, as goods have to move through the various stages of the market. Transportation costs skyrocket, inflating prices at each stage of the distribution channel. At the same time, consumers have significantly less money to spend, thanks to their own fuel costs, and also due to rising unemployment as producers try to contain other costs to offset the impact of staggering increases in energy bills.

Welcome to stagflation. We've been there, and bought the t-shirts.

In fact, we managed to fight our way out of stagflation by relying on the free market, rather than imposing more government regulation. The Iranians show no sign of thinking in that vein, even if they didn't have limitations from the international sanctions boxing them into a corner with very few options. Ahmadinejad instead doubled down on central economic control when he should have put more money into oil refining capacity, especially during the time when the West dawdled on sanctions over the nuclear program.

It's too late now, and the Iranians will start paying a heavy price for the nation's drive to create a nuclear weapon. Inflation will bankrupt most of its citizens, and the government will have the added burden of feeding an increasingly impoverished nation. So much for Iranian self-sufficiency. So much for Ahmadinomics.


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Iran, the one of the oil capitals of the world, is going to have to start rationing their people's gasoline. vadkinsQT Monster Blog Home [Read More]