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Since they gerrymandered the selection of Mahmoud Ahmedinejad as president, the coterie around Grand Ayatollah Ali Khamenei has enriched themselves mainly because of the rise in oil prices.

The Bush-Cheney crafted tensions with Venezuela, occupation of Iraq, baiting of Russia through NATO expansion and the proposed missile shield in East Europe, and even the threat of war with Iran have ensured that over US$130 billion extra dollars have flowed to the coffers of the mullahcracy over five years.

Much of this has been spent on conspicuous consumption and investment; next on baubles for the Revolutionary Guard and the other armed services; and a much smaller amount as sops to keep a restive population from open rebellion.

Now that oil prices are moving closer to the level dictated by market fundamentals – US$30-$40 a barrel – the Khamenei coterie faces the painful choice of either doing away with the luxuries they have become addicted to, or reducing still more the pathetic level of benefits given to ordinary Iranians.

Given their lack of understanding of any form of economics, it is not surprising that the Khamenei advisors believe that an output cut by OPEC would lead to a sharp rise in oil prices. In fact, such an action would help tip the world economy closer toward depression, thus reducing oil prices to even the US$20-a-barrel level.

It is the reduction in purchasing power caused by steep speculative increases in commodity prices – principally that of oil – that took away purchasing power from the international market and led to the fall in values that toppled subprime lenders in the United States.

Over the Bush-Cheney years, income has been redistributed from the middle and lower classes to the upper classes, which naturally spend a far lower proportion of their wealth and income on consumption than do less fortunate citizens. Should President-elect Barack Obama and House Speaker Nancy Pelosi find the courage to go ahead with their tax cuts for the middle and lower classes and a fresh stimulus package, this time for Main Street, the preconditions for a painful climb back to health within 36 months will have been created.

Given the slowness of a recovery, as well as the less confrontational approach likely to be adopted by the incoming U.S. administration, the odds are low that the virulent speculative fever of the Bush years will return.

During the past eight years, key Western financial institutions looked only at the annual bonuses of their senior executives, and took positions that drained away prosperity from average consumers by savagely raising the prices of commodities. Fortunately for them, few policymakers in the United States or the European Union appear willing to identify and punish those guilty of the collapse of 2008.

Now that oil prices are moving toward natural levels, will the mullahs risk public disorder by allocating increased resources to such showpiece projects as nuclear reactors? Tensions have developed with the Russians, who have slowed down their deliveries to this sector not because of U.S. pressure but owing to the unwillingness of the mullahs to pay them on time. Iran's already spotty record of payment has become a lot worse over the last six months, as oil revenues have been reduced to 40 percent of what they were a year ago.

Nevertheless, the international community would do well to encourage Russia to earn money by selling reactors to stable democracies such as India rather than to a theocratic state that frequently calls for the elimination of a fellow member of the United Nations, Israel.

Russian President Dmitry Medvedev will be in New Delhi by Dec. 4, and it is expected that he will witness the signing of an agreement to sell two additional 1,000-megawatt reactors to India. The eventual number may go up to four, thus making Moscow the biggest commercial beneficiary of the U.S.-backed effort to waive Nuclear Suppliers Group restrictions on nuclear trade with India.

An India-Russia nuclear alliance may help to move Moscow away from the transfer of technology to Iran, at least until that country becomes a genuine democracy, where mullahs indulge in spiritual pursuits rather than in commerce and repression. The close link between mullah and moolah in Iran has made the mullahcracy despised by its own people – one reason why a vigorous policy of engagement is needed between the world and the people of Iran.

Today, among the groups most allergic to the mullahs and their errand boys are the women of Iran. These are among the most accomplished on the planet, although these days they have been forced into a subordinate position and denied representation in the higher reaches of key institutions.

Policymakers in the United States and some parts of Europe, by isolating themselves and their citizens from contact with the Iranian people, have reinforced the cordon that the mullahs have created between the democracies and their population. Iran has been bled both physically and emotionally since Ayatollah Ruhollah Khomeini began his revolution in 1978. The very year in which former leader Deng Xiaoping began China's trajectory to superpower status was when Iran turned its back on the modern world – much as the Ming emperors of China did when they destroyed the fleet that had sailed around the world in the 15th century.

Had the Khomeinists not smothered Iran the country might have resumed its progress, begun in the 1950s, toward democracy and greatness. As the Parsis in India have shown, the Persian people can do wonders if given the liberty to do so. Hopefully, an Obama administration will lower the barriers between the United States and Iranian society, so that once again the two countries will see a vigorous exchange of visitors.

The rapacity of the mullahcracy that rules Iran under Khamenei has made the foundation of public support for the Khomeinists weak. Therefore, the economic shock caused by low oil prices may lead to considerable unrest. In Iran, once a fire spreads, it becomes almost impossible to put it out.

Iran's mullahs face a choice. Either they invest for the people, or continue to neglect the masses by pumping now scarce funds into channels such as the Revolutionary Guard and the nuclear industry. Should the mullahs cut back on spending designed to ameliorate the lives of ordinary citizens in favor of projects that feed only their vanity, such as high-cost nuclear facilities, the resulting economic pain is likely to damage the coterie around Khamenei much more effectively than any Bush-Cheney rhetoric.

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(Professor M.D. Nalapat is vice-chair of the Manipal Advanced Research Group, UNESCO Peace Chair, and professor of geopolitics at Manipal University. ©Copyright M.D. Nalapat.)