Oil prices keep on soaring——Confrontation between Iran and America play an important role
Name: XuPu Student ID：S07655
Research paper supervisor:Dr.Seku Conde
Minzu University of China
2007-2008 Academic Year
Abstract — as we all know, the price of oil have kept on soaring since last year and this trend will continue. There are many reasons why the rising of oil prices. This paper points out one major reason that the confrontation between Iran and American play an important role. In this paper, we first analyze the current situations, then the basis of this two countries’ economy and their history background. After that, we discuss the measures America takes to hold back Iran, and Iran’s corresponding countermeasures. At last, we get a conclusion that oil price is one of the weapons Iran hold to deal with America which will be a disaster to the whole world economy.
Key words: oil industry, Islamic revolution, nuclear program, terrorism, trade sanction, oil weapon
I. Introduction
In modern society, there is no doubt that oil play an important role. Almost every aspect of industry needs petrolic products. This world would pause even without oil only just for one day. Therefore, oil price is the focus of the world economy. But recently, the oil prices keep on soaring and reach to one and another peak. According to the newest market price, crude oil prices reach more than $130. “World crude prices are expected to reach $150 per barrel by the end of summer”, Iran's representative to the Organization of the Petroleum Exporting Countries (OPEC) was quoted as saying on Sunday.[1] So this trend will continue at least for a period of time.
Oil’s meteoric rise to more than $130 a barrel looks like more than just another economic bubble — growing demand and tighter supplies are likely to keep prices high. Some analysts say even $200 a barrel would not be out of the question. The latest price surge — pushing crude to record heights in recent weeks, and to nearly double its level a year ago — has some key components of a classic bubble, when market prices climb far above their intrinsic value. The burst comes when investors realize the assets are overvalued.
Growing worldwide thirst for crude, in large part from the rapidly developing economies of our country, means frustrated consumers probably won’t get any relief.
There are many reasons why the prices so high such as the fall of US dollar, financial background, and the unstable situation in some of rich in oil regions. In this paper, we focus on the reason listed in the last — the relationship between America and Iran, one is the most advanced country and another is the world's fourth-largest oil producer. We hold that the confrontation between Iran and American play an important role in keeping oil surge. We divide the content in several parts to analyze this problem.
II. The economy structure of Iran and America
The structure of Iran economy is listed as follows. Agriculture contributes just over 11% to the GDP. Wheat is the most important crop, and Barley, corn, sugar beets, fruits (including citrus), nuts, cotton, dates, tea, hemp, and tobacco are also grown, and livestock is raised .[2] Textiles are the second most important industrial product. Tehran and Esfahan are the chief textile-producing centers. Traditional handicrafts such as carpet weaving and the manufacture of ceramics, silk, and jewelry are important to the economy as well.
The Iranian economy heavily dependent on oil, which accounted for 15 percent of the total value of gross domestic product (GDP), 50 percent of state revenue, and 75 percent of total exports from 1996 to 2007. It is estimated that Iran's oil reserves are about 93 billion barrels, or 10 percent of the world's total. Iran also possesses the second largest natural gas reserve in the world, estimated at about 20 trillion cubic meters, or 15 percent of the world's reserves.[3] Iranian modern industry is almost related to the oil. It is obviously that oil can be treated as the mainstay industry of Iran.
Then, let’s analyze the America. The United States has a capitalist mixed economy, which is fueled by abundant natural resources, a well-developed infrastructure, and high productivity. According to the International Monetary Fund, the United States GDP of more than $13 trillion constitutes 20 percent of the gross world product. The largest national GDP in the world, it was slightly larger than the combined GDP of the European Union at purchasing power parity in 2006. The country ranks eighth in the world in nominal GDP per capita and fourth in GDP per capita at purchasing power parity. The United States is the largest importer of goods and second largest exporter. Canada, China, Mexico, Japan, and Germany are its top trading partners. [4]The leading export commodity is electrical machinery, while the leading imports include ores and metal scraps, petroleum and petroleum products, machinery, transportation equipment (especially automobiles), food, clothing, computers, and paper and paper products. And among all the leading imports, oil accounts for a large percentage. America has an extreme thirst for oil.
Graph 1 (WTRG Economic http://www.wtrg.com)
From the graph 1, we can find that American tremendous demands for oil. The consumption of oil keeps on soaring since 1983. So we can imagine the oil play an important role not only on industries but also on people’s daily life. Then we notice the price of oil. It almost stable from 1983 to 2002.However, since 2003, the price abruptly rises to a high level, and this trend continues even now, maybe it will last for a long time.
As the main oil exporting area, Mid-east has a significant influence on US economy. Iran is one of the most oil production countries in this area. So the Iran’s oil supplies will affect America’s benefit. But as we all know that the relationship between Iran and America is complex.
Graph 2 (WTRG Economic http://www.wtrg.com)
From the graph 2, we can find the relationship between oil production and price in OPEC Countries. We can find a strange situation. From 1990 to 2002, when the production rises, the price falls down. But since 2003, the price increases too along with the rise of production. The purpose of this paper is to give one reason why this phenomenon appears — Iran’s influence.
III. History background and Islamic Revolution
Iran has a long and rich history. Some of the world's most ancient settlements have been excavated in the Caspian region and on the Iranian plateau; village life began there c.4000 B.C. The Aryans came about 2000 B.C. and split into two main groups, the Medes and the Persians.[5]
In 1935, Reza Khan was subsequently elected hereditary shah, thus ending the Qajar dynasty and founding the new Pahlevi dynasty. Reza Shah Pahlevi abolished the British treaty, reorganized the army, introduced many reforms, and encouraged the development of industry and education. At the Tehran Conference in 1943 the Tehran Declaration, signed by the United States, Great Britain, and the USSR, guaranteed the independence and territorial integrity of Iran.[6]
In 1954, Iran allowed an international consortium of British, American, French, and Dutch oil companies to operate its oil facilities, with profits shared equally between Iran and the consortium. After 1953 a succession of premiers restored a measure of order to Iran; in 1957 martial law was ended after 16 years in force. Iran established closer relations with the West, especially America, joining the Baghdad Pact (later called the Central Treaty Organization), and receiving large amounts of military and economic aid from the United States until the late 1960s.
In 1971, Britain withdrew its military forces from the Persian Gulf. Concerned that Soviet-backed Arab nations might try to fill the power vacuum created by the British withdrawal, Iran increased its defense budget by almost 50%, and with the help of huge U.S. and British defense programs, emerged as the region's strongest military power. Although Iran renounced all claims to Bahrain in 1970, it took control (Nov., 1971) of three small, Arab-owned islands at the mouth of the Persian Gulf.
So at that time, the relationship between Iran and west countries especially America is harmonious. They can be seen as very close friends. America provided military and economic aids for Iran. For example, America supplied Iran with the most advanced battle plane F-14. This kind of battle plane is the honor of the US air force. Only the true friends of America can have rights to own this kind of plane. We can find how highly the America focuses on Iran. So in response, Iran provided America plenty of oil and natural gas to satisfy America’s profit, follow America’s instructions. Just like America’s puppet.
The rapid growth of industrialization and modernization programs within Iran, accompanied by ostentatious private wealth, became greatly resented by the bulk of the population, mainly in the overcrowded urban areas and among the rural poor. The shah's autocratic rule and his extensive use of the secret police led to widespread popular unrest throughout 1978. The religious-based protests were conservative in nature, directed against the shah's policies. Khomeini, who was expelled from Iraq in Feb., 1978, called for the abdication of the shah. Martial [...]
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