Along with American tourists planning vacations in Europe and foreign manufacturers facing more competition from U.S. goods, Iran has fallen victim to the declining dollar.
Last week Iran waded into the Organization of Petroleum Exporting Countries in Vienna fighting for a higher oil price to offset the damage that the falling dollar has done to the Iranian economy, already badly strained by the seven-year war with Iraq. Oil is traded in dollars, which means that oil income has become less valuable as the U.S. currency has plummeted.
For other members, there were more important concerns -- adjusting production quotas to end cheating, which is threatening to undermine even the current $18-a-barrel OPEC price.
The prospect of stable or declining oil prices next year is bad news for oil producers, but it spells relief for fiscal and monetary policymakers in the United States and elsewhere, according to oil analysts and economists. And that could augur well for Republicans seeking the White House.
An increase in the price of oil would heighten fears of inflation, prompting higher interest rates. That, in turn, could help touch off a recession in a presidential election year by depressing the housing markets, dampening consumer confidence and drying up capital.
With stable or lower oil prices, however, the specter of inflation fades, allowing policymakers a freer hand in fine tuning the economy to help keep it healthy. An economy that continues to expand robs the Democrats of a potential political issue. "Moderation in oil prices is an absolute necessity if the Fed is not going to tighten monetary policy in 1988," said Joel Popkin, president of Joel Popkin & Co. and an inflation and price analyst. "They can't go up."
The Federal Reserve Board reacted to the Oct. 19 stock market plunge by pumping money into the economy, loosening up and taking pressure off interest rates, which had begun to rise. But some of the factors that had led the Fed in the opposite direction before the stock market debacle remain.
The prospects of accelerating wage increases because of relatively high employment and of domestic manufacturers raising prices as the cost of imported goods rises exert inflationary pressure, Popkin said.
"I think it would be awfully difficult for the Fed to manage a third" source of pressure without tightening monetary policy, he said.
The OPEC ceiling on production is 16.6 million barrels a day, but that figure has been exceeded in recent months. Iraq traditionally has ignored its production quota of 1.5 million barrels a day, demanding that its quota be increased to match Iran's production.
In the first half of 1987, Iraq produced 1.82 million barrels a day, according to a report by Arthur Andersen & Co. and Cambridge Energy Research Associates.
Other estimates say that Iraq has been producing more than two million barrels a day. Data Resources Inc. recently estimated OPEC production in October as 19 million barrels a day, up from 18.5 million barrels a day in September.
If production continues to exceed quotas, the price of oil could fall even if OPEC were to agree to a small increase in the official price. "The consensus has been developing for most of 1987 that the price would be around $18 a barrel with some increase in 1988, but because of some recent events I believe that increase probably will not take place," said Victor A. Burk, a partner in Arthur Andersen & Co.'s Houston office. "The prospect of the price dropping is greater than of the price increasing over the next year."
"The demand is just not there," he said. In 1986, when prices collapsed, worldwide demand rose for the first time since 1980, he said.
But some of that increase occurred as utilities and other users switched from other fuels, such as coal.
A slight decline in the price would be unlikely to stimulate much of an increase in demand, he said.
While Iran earlier threatened to boycott any OPEC agreement that does not include the higher oil price, other OPEC partners have also suffered from the weakness of the U.S. dollar.
"What OPEC countries could buy with $18 last December would now cost them $20.90," said Joyce Yanchar, an economist with Data Resources Inc.
Some have been able to offset the dollar's slide somewhat because they import U.S. goods that they pay for in dollars.
Saudi Arabia got 29 percent of its 1986 imports from the United States, Yanchar said. For Venezuela that figure was 44 percent, and for Ecuador 35 percent.
Iran and Libya, which led efforts to raise oil prices, don't have that trade with the United States to reduce the impact of the depressed dollar.
The dollar last week fell further after the announcement that the U.S. trade deficit had hit a record $17.63 billion in October.
Continuing weakness in the dollar should improve the nation's trade balance by increasing the price of imported goods and reducing the price of goods exported from the United States.
But continued economic expansion in the United States has offset the impact of the dollar's decline by increasing demand here, including demand for imported goods.
"The U.S consumer is very stubborn. We're hooked on foreign goods," said Yanchar. To the extent the weak dollar increases the U.S. share of world markets, trading partners such as West Germany and Japan, which have large trade surpluses, face potential trading losses. But here, too, a stable or lower price of oil helps.
Both West Germany and Japan have enjoyed lower oil costs as a result of the dollar's weakness.
And, as in the United States, relatively low-cost oil eases inflation fears and allows policymakers in those countries to ease monetary policy to stimulate demand for domestic production, said Yanchar. That demand can help offset the loss of export markets.