UAE Oil Gulf Petrochem PipelineKarim Sahib/AFP/Getty ImagesA Gulf Petrochem storage terminal sits near the Strait of Hormuz on February 27, 2013 in the United Arab Emirates. Shared with Iran, the Strait of Hormuz is a checkpoint for roughly 20% of the oil traded worldwide.
The Saudi decision to cut oil prices has caused the price of US light crude to fall below $90 a barrel. Given increased US output — the United States has become the world’s largest oil producer — the price of oil may decline further. That’s good news for the American consumer, for the transportation sector, and for the economy writ large.
It can be a disaster, however, for Iran.
It’s a dirty little secret that while American politicians of both parties like to credit themselves and their support for sanctions that create economic pressures felt by the Islamic Republic, the bulk of the pain that ordinary Iranians feel rests solely on their leadership and its gross mismanagement of the Iranian economy.
The Iranian budget depends overwhelmingly on oil. Every year, Iranian authorities set their budget on the assumption that oil will be at a certain level — in recent years reportedly around $90/barrel. When the price of oil exceeds that level, Iran has extra money to engage in soft power strategies or to support its proxies and their “export of revolution.”
When the price of oil falls below the level upon which Iran’s budget is based, it means the Iranian government cannot make payroll, potentially for hundreds of thousands of employees of both government and state-owned industries.
In order to avoid this, Iranian authorities seek to increase the price of oil by any means necessary. If diplomacy doesn’t work — and Tehran was unable to head off Riyadh’s diplomacy in this case—then it often seeks to increase prices by making the market jittery.
The Iranian government cannot make good on its frequent rhetoric to close the Strait of Hormuz, but every time an Iranian general threatens to, the price of oil increases a couple of dollars a barrel.
When rhetoric alone isn’t enough, Iran might resort to other actions: if a mine is “discovered” in the Persian Gulf — even without Tehran’s return address imprinted upon it — the insurance rates for tankers would increase immediately alongside the price of oil. Should the price of oil decline precipitously, Iranian actions might be even robust.
While it would be a mistake to ever assume economic motivations trump ideology in Iranian decision-making, sometimes Tehran feels it can kill two birds with one stone. Iranian terrorism in Beirut in 1983, for example, came against the backdrop of declining oil prices.
The American left often retreats upon the chant “no war for oil” whenever the United States enters a conflict in the Middle East. Even if Iraq and Kuwait have oil, when one looks at the broader history of American intervention in the Islamic world — in Bosnia, Kosovo, Somalia, Lebanon, and Afghanistan — it is clear that oil is not the motivating factor.
Not so for Iranian generals and clerics, however, whose desire to maintain a high price for oil can be enough to motivate bluster and aggression.

More from American Enterprise Institute: