Monday, June 11, 2007

Iraq's War on Iran's Economy

Iraqi consumers are essentially waging war on the mullah regime in Iran because of the folly of Iranian economic policy.


I think it has become fairly common knowledge that Iran must import gasoline despite Iran's oil exports. Iran lacks the refineries to produce their own gasoline in sufficient quantity to meet demand and the government subsidizes gasoline making sure the demand stays high. This is tough to afford even with high oil prices.


One result of Iran's internal price controls is that Iranians find it profitable to smuggle gasoline to Iraq that Iran imports at high cost:


The trade in gasoline gained new attention recently when Iran hiked the price of the subsidized gasoline it sells its people and began looking to ration subsidized gas — all as a way to lower consumption. Most of Iran's problem stems from the fact that it has too little refinery capacity. But Iranian officials also have bemoaned the illicit selling of subsidized gas to neighboring countries, including Iraq, saying that hurts its economy.


The situation is much like a child raiding their parents' kitchen for ingredients to set up a lemonade stand, the child can make several dollars on a hot day selling cool drinks for a quarter that are based on ingredients that cost more than that. But the child doesn't pay the cost of the raw materials. Smugglers turn a profit on their gas exports but Iran pays the bill.


An improving Iraqi economy helps win hearts and minds in Iraq during a war that is fueled by Iranian aid to thugs inside Iraq. An improving Iraqi economy also helps to undermine the Iranian regime by sucking more money from Iran's regime through these cheap gas imports to power Iraqi cars and generators.


It is an intereting contest between literal and figurative car bombs.