I don't know what has gotten into Elliott Abrams, but he saw $400 billion associated with Iran, and went bananas. He says this cannot be true because the Iranian economy could not absorb this much money, even if the deal with China is reported to spread over a 25-year period.
Abrams says he saw the story
in the New York Times, as it came under a headline that read: “China, With $400
Billion Iran Deal, Could Deepen Influence in Mideast,” with the caveat that no
details were made public about the deal. And so, Abrams assumed that this is
Chinese direct investment in Iran even as he spoke of Chinese purchase of
Iranian oil … which means trade and not investment.
In fact, the article that
Elliott Abrams wrote came under the title: “Is Iran being Turned into a Chinese
Gas Station?” and the subtitle: “Or is this recently announced investment deal
sheer propaganda?” It was published on March 20, 2021 in National Review
Online.
Abrams divided 400 billion
dollars by 25 years and came up with the figure of 16 billion dollars a year,
which he says Iran's economy is too small to absorb. Well, I have news for him,
even if Iran's export of oil dwindled down to less than a million barrels a
day, this is how much the country would get-in every year. But Iran's potential
is 4 to 5 million barrels a day. And that brings the yearly figure close to
$100 billion.
In fact, if Abrams had been
listening to his kinfolks who were blowing their entrails out of their bellies,
he would have made a better guess. They were screaming that by dropping the
sanctions on Iran, Obama had given that country a $150 billion gift, which it
spent in less than two years before it had to face the Trump administration's
reactivation of the sanctions regime.
Here is another set of figures
that Abrams should keep in mind in case he plans to speak of someone's finances
again. It cost $11 billion dollars to develop the Egyptian Zohr natural gas
field. That's to drill and connect 12 wells to the main pipeline. Zohr happens
to contain 30 trillion cubic feet of gas. Do you know how much untapped natural
gas Iran has? It's 30 to 40 times as much Zohr.
That's not to mention Iran's
untapped oil reserves that need to be developed, the refineries that need to be
built to the tune of a billion and a half dollars for every 100,000 barrels of
output a day. Do you know what else there is? There is the petrochemical
industries that derive all kinds of products from the crude. Building these
plants runs in the ratio of ten dollars for every one spent on building the
refineries.
But let's ignore oil and gas
for now, and assume that China intends to invest an average of $16 billion in
Iran every year for the next 25 years in manufacturing and service industries
not related to hydrocarbon. Can Iran's economy absorb this much money? To find
out, we need two figures. One is, how much new investment an economy can
absorb? The other is, what's the size of
Iran's current economy?
As to the first question, we
begin by noting that the rule of thumb (not always exact but close) is to the
effect that a one percent growth in a semi-industrial or a fully industrialized
economy, requires investment to the tune of about three percent of new money.
That is, if a country has a GDP of $100 billion a year and wants to have a
growth rate of 3 percent, it should have a savings of $9 billion. If its
population cannot save this much, the rulers invite foreign investors to come
in and invest in the country, or they borrow the shortfall from wherever they
can.
Many of the middle-income,
semi-industrial nations save up to 20 percent of the GDP, thus manage to
achieve a growth rate that approaches 7 percent. There are some exceptions,
such as India, where they save as much as 30 percent of GDP, thus achieve close
to 10 percent growth. As to China, the population there saves as much as 40
percent, which allows the country to achieve phenomenal growth rates; even have
extra money to invest abroad.
But is there a point where too
much savings and too much investment become useless or even detrimental? The
answer is yes, there is such a point. It is where the economy begins to form
bubbles. The level is different for each economy because it depends on how long
the high rates of growth have already lasted, and how much pent-up demand there
was to begin with.
So, we ask, what is the
current GDP of Iran? It is $1.4 trillion when we factor-in the purchasing power
parity. This means the country can easily absorb as much as $280 billion of
domestic savings and foreign investments per year. And if you take into account
the pent-up demand that was caused by the sanctions, you can count on the
Iranian economy absorbing twice as much. And that’s a far cry from the measly
$16 billion that blew Elliott Abrams’s stack.
In fact, you can count on Iran making good use of the money it is getting, but you cannot count on Elliott Abrams, the baker of shit pies, becoming a banker of any kind.