Khamenei’s Pipe Dream: A Future Free of Oil Dependency

Ayatollah Ali Khamenei, in a speech on Iran’s economy given on June 3, 2020, said: "In the sphere of economy, the meaning of development is that we cut the umbilical cord of the country's economy from oil ... to create an oil-free economy. This is real development."

This is not the first time Iran’s Supreme Leader has spoken about an oil-free economy. This term is one of his favorite keywords that has been mentioned many times in various speeches.

As a search for the term "economy without oil" on Khamenei’s official website shows, he has mentioned this issue 70 times in speeches or announcements since 1994. Khamenei’s initial grasp of the idea of an oil-free economy actually had more to do with a longstanding grievance over Western countries extracting oil from Muslim countries without proper compensation. But Khamenei’s thinking later evolved to more closely focus on the idea of freeing the Islamic Republic from an over-dependence on oil.

Khamenei has been repeating this mantra for 26 years – as can be seen from a speech he gave on April 23, 1994.

"My real dream – which may not be realized soon – is to close the oil wells and build our economy on non-oil goods and products. That is to say, to assume that this country [Iran] does not have a commodity called oil. This may not be implemented in in the coming years or any time soon, because Iran's enemies, during the period of the dependent and corrupt Pahlavi regime, have sabotaged so much and have made our nation and country so dependent on oil, that it is not easy to leave it behind."

An oil-free economy is not only Khamenei’s dream but the dream of many development economists and experts. The important point, however, is this: who is cursing oil and why?

Ayatollah Khamenei, while sitting on the barrels of oil, talks about cutting off the umbilical cord of oil revenues without mentioning that if it were not for oil, he would certainly not be in this position and the political, economic, and military organizations under his supervision would never be able to expand and could not engage in adventures inside and outside the country.

Iran without oil

If Iran did not have oil, it would either have to comply with the norms of economic development and become a country like Turkey, or it would be forced to surrender to the fate of underdevelopment, turbulence and chaos.

If Iran did not have oil, there would probably never have been a revolution; but even if there was a revolution, without oil, it would never have led to the establishment of the Islamic Republic.

Oil money gave the leaders of the Islamic Republic the chance to move Iran past its initial revolutionary unrest, and the dangers of civil war, to strengthen the new country’s government. 

And certainly, without oil, the new Islamic Republic would never have been able to withstand the recurring social and political discontent seen in Iran since the 1990s.

But if Iran had no oil, its government may have had no choice but to make its peace with Iranian society. A government that depends on taxes rather than oil revenue must keep its people happy and pursue economic prosperity. No oil wealth would mean that the government would not be able to put its agents on the streets, criticize or control people’s dress, it would have been required to open its doors to foreign investors and tourists.

A government without oil wealth would never have been able to organize militia forces to be used for internal repression. It would have had neither the funds nor time; it would have seemed a useless endeavor. When a government can interact with society, or at least a major portion of it, what need would there be for a costly repression?

Without oil, a state must look at the world in terms of cost and benefit, not abstract ideologies that have no basis in the real world. An oil-free state, even on the scale of today's Turkey, when it sees the closing of opportunities, withdraws from its slogans and makes peace with the United States and Israel and any country that it needs.

But Iran, reliant on oil revenue, is at war with the world. The Iranian government would never be able to pursue its regional adventures in Syria and elsewhere if it had no oil. Billions of dollars of Iran's military presence in the region are covered by oil revenues.

If Iran did not have oil, it would never have been able to finance and militarize militant groups in Iraq, Lebanon, and the Palestinian Territories, all beyond Iran's borders.

Ideology and peace do not match. Ideology has a cost and its cost to Iran is provided by oil revenues: from domestic ideology, which has led to the formation of large and costly organizations and institutions, to global ideologies, that have made Iran a problematic country in the world.

Iran would probably never have a problem with Israel, if it had no oil; even if there was a period of political tension between the two countries, there would have been no choice but to resolve it because a government without oil needs peace and tranquility to survive.

Iran would also be unable to afford its 40-year enmity with the world’s largest economy, the United States, if it did not have oil wealth. A country cannot fund an ideological culture war if there is no free money to inject into the state.

Enmity is different from competition. Enmity is an abstract notion and an illusion – competition is an objective and concrete phenomenon. China's competition with the US, for example, has a logical and economic basis. China’s leadership does not issue an order saying negotiations with the United States are prohibited and forbidden – which has happened in Iran. A form of competition that relies on prohibition, the notion of some things being “haram,” or forbidden, and “halal,” or permitted, is meaningless. But normal competitions are conducted through calculation, logic, negotiation and compromise.

Normal or even relatively normal governments do not have the time and money for ideological enmity. They define their relationships not by imagination but by objective national interests. Benefits are seen as intertwined with the economic and social interests of society.

What are the objective social, economic and political benefits of Iran’s ideological war with the US, Israel and other states? And what are the costs?

Khamenei’s defense of an oil-free economy is a meaningless contradiction to the very source of the Islamic Republic’s wealth and thus its ideological power. Anyone can talk about an economy without oil; but for Khamenei, who has repeated this phrase for decades, it is a pipe dream and a clear “violation of his intentions” as the Supreme Leader of the Islamic Republic.

And whether Iran’s economy could in fact actually leave oil behind is a separate question.

In the next part of this report, IranWire will calculate the cost of liberating Iran's economy from oil revenues and what needs to be done to compensate for that choice.