Ahmadinejad and Chávez are in an odd position–spending heavily enough to fuel inflation, but not well enough to meet rising expectations. Ahmadinejad, in particular, faces rising discontent. In the face of charges of economic mismanagement he has turned conservative, basing this year’s budget on an oil price of $34, down from $42 last year. But Iranian M.P. Mohammad Khoshchehreh, a former economic adviser to Ahmadinejad, says this is for show. The “real price in the budget is $46,” which the government “has managed to conceal through accountancy tactics.” Chávez isn’t even faking caution. Fresh off a big election victory, his ‘07 budget is based on an oil price of $29, up from $26 last year, at a time when his attacks on private business have weakened the non-oil sector. Venezuela is increasingly vulnerable to oil prices, “and more and more public spending is needed to produce a percentage point of economic growth,” says Venezuelan economist Luis Zambrano. “It’s a vicious circle, which always ends up back at the price of oil.”
Only Putin is thinking ahead. In 2004, as petrol-spending began feeding inflation, he began funneling every dollar of oil revenue above $27 a barrel into a surplus fund that now holds $100 billion, a huge cushion if oil prices tank. But he had early warning: Russians remember how the 1980s collapse of oil prices to $10 a barrel helped undermine the Soviet empire. Today’s empire builders, be warned.
