Oil revenue need for economic survival
(The Middle East, July 2003, BNET.com, http://findarticles.com/p/articles/mi_m2742/is_2003_July/ai_n25070522/pg_1?tag=artBody;col1)
In comparison with Arabian Gulf countries, the Iranian economy is much more diversified, with its manufacturing and agriculture sectors comprising one-third of gross domestic product (GDP) and services (including government services) representing about one-half of GDP. Iran's hydrocarbons industry represents only 15% of national output, compared with 30-40% during the early 1970s. However, the non-oil industries urgently require modernisation in order to become more competitive and capable of competing in global markets.
The economy has performed briskly over the past three years, with real GDP growth averaging 5.4% a year, pinned by fixed investments in upstream oil/gas and downstream industries, mainly petrochemicals and steel, stronger energy prices, increased export volumes and government spending, as well as improved business confidence. More impressively, non-oil activities grew by 6% in real terms, reflecting increased manufacturing, construction and agricultural output, and buoyant domestic demand in recent years. But consumer prices (averaging 13% during the past three years) remained high despite 'price controls' over public utilities charges and basic commodities (wheat, rice, vegetable oil, bread and sugar).
Neg Answers- Oil key Econ
Continued oil revenues key to the Iranian economy.
(The Middle East, July 2003, BNET.com, http://findarticles.com/p/articles/mi_m2742/is_2003_July/ai_n25070522/pg_1?tag=artBody;col1)
In comparison with Arabian Gulf countries, the Iranian economy is much more diversified, with its manufacturing and agriculture sectors comprising one-third of gross domestic product (GDP) and services (including government services) representing about one-half of GDP. Iran's hydrocarbons industry represents only 15% of national output, compared with 30-40% during the early 1970s. However, the non-oil industries urgently require modernisation in order to become more competitive and capable of competing in global markets.
The economy has performed briskly over the past three years, with real GDP growth averaging 5.4% a year, pinned by fixed investments in upstream oil/gas and downstream industries, mainly petrochemicals and steel, stronger energy prices, increased export volumes and government spending, as well as improved business confidence. More impressively, non-oil activities grew by 6% in real terms, reflecting increased manufacturing, construction and agricultural output, and buoyant domestic demand in recent years. But consumer prices (averaging 13% during the past three years) remained high despite 'price controls' over public utilities charges and basic commodities (wheat, rice, vegetable oil, bread and sugar).
Neg Answers- Oil key Econ
Oil funds key to Iran economy
(The Middle East, July 2003, BNET.com, http://findarticles.com/p/articles/mi_m2742/is_2003_July/ai_n25070522/pg_1?tag=artBody;col1)
Trade surplus
The external payments position is sound thanks to sustained high oil revenues. Since 1999/2000, Iran's current account balance, i.e. total trade in goods and services, plus (net) capital flows, has remained in surplus, enabling the authorities to accumulate hefty foreign exchange reserves--which in the fiscal year 2003--represented over 10 months of total imports. This surge in forex reserves and a continuous fall in external liabilities have transformed Iran into a net external creditor, with gross official assets equivalent to 312% of total external debt stock. Fitch Ratings, the European rating agency, estimated Iran's net credit at $28bn as of March 2003. Other traceable assets are $15bn in term deposits with foreign banks reporting to the Bank for International Settlements. The oil windfalls of recent years have boosted state deposits in the 'Oil Stabilisation Fund' (for above budgetary receipts) and reduced costly short-term debts. The Islamic republic's debt burden (below $8bn) is low by global standards. With annual GDP at $100bn plus aggregate forex earnings of between $28-$31bn, debt repayments are manageable.
Moreover, improved external confidence in economic prospects and perennial trade surpluses have facilitated Tehran's return to the global capital markets, after a 23-year absence, with two successful Eurobond issues (totalling $1,049m) in the second half of 2002. These bonds (issued by the government) were reasonably priced at 4.25% above the benchmark euro swap. In the near-term, major corporations--notably National Iranian Oil Company (NIOC), National Iranian Gas Company and National Petrochemicals Company--may issue the first-ever 'corporate' Eurobond. The NIOC--which holds sole rights over oil/gas exploration and development--should appeal to investors because of its low commercial risks. Iran boasts the world's third-largest proven gas and fifth-largest oil reserves and ranks among the top energy exporters. Therefore, any future bond offerings from NIOC should be successful because of its ability to offer solid collateral secured by export-receipts.
Neg Answers- Oil key to Econ
Sustained oil prices key to Iranian economic growth.
(The Middle East, July 2003, BNET.com, http://findarticles.com/p/articles/mi_m2742/is_2003_July/ai_n25070522/pg_1?tag=artBody;col1)
The economy could expand at 5% per annum and external accounts remaining healthy, lead to increased forex reserves and lower debt. This scenario envisages oil prices averaging above $20/barrel over 2004-06 period and the key hydrocarbons industry receiving large foreign investments, thus underpinning higher oil/gas output. But the economy could take a severe hit if oil prices start falling in response to higher world production.
Neg Answers- Iran Economy key to world economy
Collapse of Iranian economy will kill the global economy
(The Business, 4/7/07, “Conflict with Iran could double oil prices”, http://en.baztab.com/content/?cid=1516)
IT is no coincidence that the first reference to a game called chatrang, from which today's chess is derived, is to be found in a 1,400-year-old Persian text. For the ayatollahs in Tehran, to whom international relations boils down to a giant chessboard, the 15 British sailors and marines held hostage by the Iranian government for the past two weeks are mere pawns in a battle of wits being played out between East and West.
After inflicting immense humiliation on Britain and exposing it as a paper tiger, Tehran appears to have pulled back from the edge before all-out-confrontation became inevitable. But even though the current dispute is likely to be resolved diplomatically, it is a harbinger of far worse strife to come.
The events of the past few days show that investors and the financial markets continue to underestimate the extent of geopolitical risk in the global economy, and especially the Middle East. The Iranian situation is a ticking time-bomb that needs to be defused at some point over the next few years if it is not to explode, blowing apart the global economy.
If the United Nations doesn't eventually implement meaningful sanctions on Iran to prevent it from building a nuclear bomb, a unilateral military strike on Tehran's nuclear facilities will become increasingly likely. If the US or others don't act, Israel will do so in extremis, as it simply cannot accept a nuclear Iran, complete with a fanatical leadership which regularly hints at its annihilation and holds conferences that question whether the Holocaust ever happened.
That the price of oil would soar into three figures in the event of hostilities breaking out in earnest is now widely accepted. Simon Wardell, oil analyst at Global Insight, is one of the many economists who argues that the price of oil could surge rapidly past $100 (£51, e75) per barrel in these circumstances. Such a rise would shake the foundations of the global economy, trigger a huge destruction in asset prices and could easily plunge the world into recession.
Part of the reason for the widespread complacency is that in the past two years the world economy has shown itself fairly immune to fluctuations in the oil price. Western economies are less dependent on oil than they were during the oil shocks of the 1970s, while emerging economies have been growing so fast thanks to the march of globalisation and their free-market reforms that they too were able to shrug off increased energy prices. But a sustained rise in the price of oil to three figures would be an altogether different proposition.
Even though the consumption of oil by developed economies actually fell last year, as higher prices prompted businesses and consumers to cut back, the oil market has become exceptionally tight because of surging demand from emerging economies. Despite accounting for just 9% of global gross domestic product (GDP), the Bric economies - Brazil, Russia, India and China - consume 27% of the world's primary energy, 17% of its oil, 19% of its gas and about half of its coal, according to Datamonitor.
Their appetite is seemingly insatiable. In 2002, Chinese demand for oil was 5.16m barrels per day (bpd). By the third quarter of 2006, this had increased to 7.39m bpd. The US Energy Information Administration predicts that by the fourth quarter of 2008, this will have increased to 8.6m bpd. By then, total world demand for oil will exceed projected supply by 0.6m bpd, forcing nations to tap into their strategic reserves.
All of which explains Tehran's huge leverage. Iran accounts for 11.5% of global oil reserves and 15% of gas reserves, according to the most recent BP Statistical Review of World Energy. It currently exports between 2.3m and 2.5m bpd of crude oil, which means that the world oil market is extremely sensitive to the merest hint of a disruption in supplies from the Islamic Republic.
Nobody is more worried about this than the Chinese leadership, whose legitimacy depends on continuing to produce economic growth of 10% or so a year. It takes China 231.3 tonnes of oil to produce $1m worth of GDP, compared with just 141.2 tonnes in Britain. The Communist Party fears that a spike in oil prices could derail China's growth and blow the lid off the simmering social tensions caused by the regime's kleptocratic nature.
This explains China's current attitude towards Iran, which has been largely supportive. Its timeframe is strikingly short-termist: it is reluctant to support any action that might cause the price of oil to rise, even though it must know that in the long-term a nuclear Iran cannot conceivably be good for global stability and hence energy prices.
Beijing hopes that striking ever more deals with dubious African and Latin American regimes to ensure at least a semblance of security of supply could cushion it from any longer-term fallout from war in the Middle East. But the Iranians are well aware of China's paranoia and always threaten to slow oil production whenever UN sanctions are on the agenda, ensuring that China, a permanent member of the Security Council, will always be highly reluctant to vote for meaningful action.
There can be no doubt that, for the moment at least, the world oil market could not cope with the loss of Iran's exports without intense disruption. Even a temporary reduction in output would force the oil price above the $83 (adjusted for inflation) level it reached during the oil crises of the 1970s.
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