Elections in Iran: What It Means For Oil

07/13/2009 05:12 am ET | Updated May 25, 2011

Uncertainty about Iran's leadership might have had as much to do with the increase in crude oil prices over the last 4 months as anything else. Under a powerful attack from former President Rafsanjani, Mahmoud Ahmedinejad has been scrambling for his political life. The stakes are high for the entire developed world: Iran is the second largest oil producer in OPEC behind Saudi Arabia.

Iran is sporting inflation and unemployment rates that are in the teens. They need American refining technology to increase the efficiency within their oil industry. Such advances could increase their current output to 140% of current levels.

Record turnouts at the polls have made this the most watched Iranian TV since the US Hostage Crisis. Regardless of how it turns out, a new president will seem like a victory for the West and those who align themselves with Rafsanjani, who has a more moderate stance towards the West than his peers. Just the fact that Ahmedinejad has faced such as strong challenge is a signal that changes are ahead in Iran.

That can translate well to crude futures -- a market that speaks Farsi. Stable government regimes in the Middle East, especially ones that are becoming more moderate towards the US, can have a stabilizing effect long-term on crude oil prices.