Reidblog [The Reid Report blog]

Despite record-high oil revenues, its economy is frail and unable to create the jobs the country needs. Iran is fraught with social tensions and its politics are fractious and polarized. Its domestic problems will be important constraints to its international influence.

Iran's economy has been in the tank and shows no signs of imminent recovery -- this, despite a surge in oil prices that generate a flood of revenues for the government. [Oil provides some 80% of export earnings and around 40-50% of government revenue.] Inflation is running at around 14%, and official unemployment is 15% even though among its huge, young population it is far higher. Iran's economy is smaller than that of Egypt and Saudi Arabia and, like them, it does not create enough jobs for all the young workers that each year enter the labor force. Chronic unemployment is an important and growing problem. Combine this economic frailty with a youth bulge -- 70 percent of the population is under 30 --and the potential for internal instability becomes apparent.

By a "dominant" Iran I guess we mean "militarily superior", which can only mean nuclearized since a nuclear Israel is in the region. Consequently, threatened countries will also strive to acquire the nuclear weapon. Countries with Shiite majorities run the risk of "Iraqisation". Hezbollah and Hamas would harden their position on the Israeli-Palestinian conflict, making a peaceful settlement even more unlikely. Hence, less safety and stability.

This scenario, however, is deterministic and flawed. Deterministic because it is far from certain that religious and sectarian sentiments would prevail over national and ethnic ones. Flawed because it does not account for the internal dynamics of Iranian politics. If it is true that conservatives hold the levers of power in the country and have managed so far to quash the reformist movement in the political arena, that does not mean that the Iranian society's thirst for liberal reforms has disappeared. The persistence of a pro-reform current in Iran could still tone down the conservatives' hardline stance on foreign policy.

Alas, it could also produce the opposite effect, which we are already witnessing. Using the Israeli-Palestinian conflict as a pretext to label reformists as traitors -- soft on Israel and the US -- Iran silences them. This brings us to a major element of Iranian foreign policy: the Israeli-Palestinian conflict as a geo-strategic resource. A recent Zogby International poll found that 60% of respondents in Arab countries are in favor of Iran developing nuclear weapons. In the same poll, Israel and the US are perceived to be the region's biggest threats. Iran's leadership is playing to this audience.

Venezuela -- Thomas L Friedman recently argued that "the price of oil and the pace of freedom always move in opposite directions." It's his "First Law of Petropolitics." Indeed, rising oil prices work as a psychotropic drug on the minds of petro-state leaders. Here's a corollary to Friedman's First Law: the price of oil and anti-American bullyism move in the same direction.

Iran's ambivalence over time - "now we say nothing will keep us from a nuclear program," "now we think we might give the EU's proposals a chance," etc. is proof at hand. Venezuela's Hugo Chávez would not say the things he keeps saying about US foreign policy if the price of oil was $20 instead of $68 a barrel. Sadly, we cannot expect anything but high prices in the foreseeable future, and therefore even more frightening, defiant rhetoric is in store.