Cutting Iran Down to Size

Strategic masters or fumbling mullahs?

Ask an average Iranian what they think of Britain and the British and the responses will vary from cunning to cutthroat to clever. As a journalist based in Iran several years ago, I would often hear middle class Iranians rail against the British in one breath, and in the next breath, describe them as strategic masters controlling the world and goading, Rasputin-like, their overmuscled, impressionable “American friend” into wars and quagmires.

There is, of course, history here, when the British have been, well, cunning and cutthroat and clever in overthrowing rulers, buying off politicians, securing mineral concessions on exploitative terms, and generally meddling in Iranian affairs. But times have changed, and coups are harder to organize in the gentlemen’s club, whiskey glasses clanking. British diplomats posted in Iran, often frustrated by the stifling nature of the political environment and their inability to achieve their aims, would often marvel at their reputation. As one British diplomat told me: “I only wish half of it were true. Life would be much easier for us.”

But dig further and there is a grudging respect inherent in the accusation: Ah, those clever British, the undercurrent of the narrative goes, they may be constantly exploiting us, but they understand Iran better than anyone. Enter British Prime Minister David Cameron, who seemed to utter an essential truth of today’s Iran, one that might leave ordinary Iranians shaking their heads in wonder at those “clever” British while angering Iranian government officials.

In Parliament last week, the Conservative leader ridiculed the oft-repeated Western fear narrative that the Islamic Republic of Iran is a country “run by genius politicians who are strategic masters.” Using terms like “basketcase” and pointing out that Iranians “can’t even refine enough of their own oil” and noting their widespread use of the death penalty, Cameron concluded that “we should be describing the regime as much more backward rather than bigging them up.”

Indeed, Cameron is right. When the Islamic Republic of Iran falls, many secrets will be spilled, of human-rights abuses, of torture, of election fraud, but one of the worst-kept secrets of all—one that all Iranians understand but few Westerners pay much heed to—is the general incompetence of the regime to deliver on the basics: a strong economy, adequate infrastructure, environmental security (i.e pollution-choked Tehran), moderate food prices. Ordinary Iranians spend far more time concerned about the price of tomatoes than the state of the country’s uranium enrichment.

Let’s start with the most obvious example: the oil sector. Oil accounts for some 80 percent of hard currency earnings and 50 percent of fiscal revenues. Handled wisely, the Iranian state should have a large oil sovereign wealth fund, a thriving sector, and possibilities for endless future growth. Clearly, this is a sector that Iran’s “strategic masters” should handle well. Instead, it is dramatically underperforming its potential and headed for a decade of steady production declines.

Today, Iran produces less than two-thirds of what it was producing before the revolution in 1979 when production peaked at 6 million bpd. That graph is steadily moving down, with Iran producing in the 3.6-7 million bpd range today and declining. In fact, an Iranian Parliament report last year warned that unless production increases and domestic consumption decreases, Iran will have virtually no oil to export within a decade.

Despite the skilled work of technocrats in Iran’s oil ministry and in the fields (most international oil players give them high marks), the Islamic Republic’s political strategic masters repeatedly get in the way of an efficient, well-managed sector. Increasingly, contracts are politicized and awarded to entities affiliated with the Islamic Revolutionary Guards Corps (IRGC), who have little or no experience in managing complex exploration and production. Tales of corruption within the oil ministry are rife. The National Iranian Oil Company (NIOC) is the second-largest oil company in the world; it also happens to be among the seven most corrupt, according to Transparency International, joining ranks with state oil companies from the likes of Nigeria, Angola, and Congo. It’s not the engineers and geologists who are corrupt, but the strategic masters in politics.

Further, Iran’s nuclear program, coupled with a confrontational foreign policy, has led to a raft of United Nations and unilateral state sanctions that have spooked most global energy majors into retreating from the Iran market. Chinese state-owned companies are the last ones standing in Iran, and even they have shown themselves far more willing to sign multi-billion dollar contracts and far less willing to actually expend those billions. “The Chinese are dragging their feet,” is an oft-spoken lament of Iranians in the oil sector.

Cameron’s references to Iran being unable to refine its own oil? Years of strategic masters’ mismanagement has meant that Iran’s refining capacity is weak, causing it—a country with the world’s third largest oil reserves—to import some 25 percent of its gasoline needs.