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The Oil Weapon Can Fell the Ayatollahs

Mass protests are nothing new in Iran. But nearly 40 years into the failed experiment of the Islamic Republic, an end may be near.

Iran’s economy is in shambles and its public finances are teetering. Given that about 60% of Tehran’s budget comes from petroleum exports, the best way for the U.S. to hasten regime change is to tighten sanctions while closely coordinating with regional allies to increase global oil supplies and lower prices. The State Department’s recent announcement that countries will face stringent sanctions if they don’t halt Iranian oil imports by Nov. 4 is a crucial first step. Tehran’s mullahs cannot survive a sustained oil price of $60 a barrel with practically no export revenue.

Regime change in Tehran is vital to Saudi Arabia’s national security. Stopping Iran’s efforts at establishing regional hegemony is the kingdom’s highest foreign-policy priority. Riyadh is already spending tens of billions of dollars combating Iranian destabilization campaigns from Syria and Lebanon to Yemen to even Morocco. With some $500 billion in foreign reserves and one of the cheapest oil extraction costs in the world, the Saudis can weather lower oil prices for years.

Three main factors are pushing Iran to the financial breaking point: public-debt obligations on the brink of default, President Hassan Rouhani’s massive subsidies to politically powerful farming communities, and the mounting costs of its attempts to foment chaos throughout the Arab world.

For the U.S., sustaining a policy of economic pressure will require unprecedented cooperation. There are three preconditions for success, one of which is already being met.

First, Saudi Arabia and Russia—the world’s top two oil exporters—have reached an agreement to increase output. The Saudis plan to ramp up production to as much as 11.5 million barrels a day to drive down prices and eventually make up for lost Iranian oil. Since Moscow is in a position to benefit from a policy freeing it from production quotas and in no position to stop it, it agreed.

Second, as Iran suffers from its lack of indigenous capital and technology to increase sustained oil production and exports, Saudi Arabia and its allies, especially the United Arab Emirates, should join the U.S. in instituting sanctions against the few international oil companies that will still be willing to invest in Iran’s upstream industry.

Third, because Iran lacks access to foreign financial markets and U.S. banks are banned from doing business there, its remaining hope is European, and to a lesser extent Asian, banks. The Treasury should send a clear message to foreign financial institutions, including those based in Dubai, that they’ll lose access to U.S. capital markets if they float new credit to Tehran in any form after Nov. 4.

If President Trump, Saudi Arabia’s King Salman and their allies wish to end the widespread terror caused by this so-called Islamic Republic, they should commit to using oil as a nonlethal weapon.

This article was originally published by The Wall Street Journal. Mr. Obaid is a visiting fellow at the Belfer Center for Science and International Affairs at Harvard’s Kennedy School of Government.