The Nuclear Politics of Oil
As negotiations continue between the Western powers and Iran, the politics of oil are significantly shaping the showdown over Iran's nuclear program.
Iran is the second-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC) and it sits in the heart of the Persian Gulf, a region with nearly two-thirds of the world's crude oil reserves. Iran exports about 2.4 million barrels of oil each day, worth $50 billion this year.
The conflict over Iran's nuclear program is generating apprehension worldwide that Iran will cut off or curtail oil supplies -- a fear reflected in volatile oil prices. When diplomacy seems to gain traction, as when Iran responded positively to new U.S. incentives to negotiate directly, prices go down. When the two sides talk tough -- as when Ayatollah Ali Khamenei, Iran's supreme religious leader, said last month that Iran might cut off supplies -- prices go up. Some analysts have said an Iranian cutoff could drive the price as high as $100 a barrel.
For Iran, oil represents its strongest political bargaining chip with the international community.
"While Iran does have a trump card as a major oil producer, this is more likely to be of defensive - rather than of offensive - value for the Islamic Republic," says the Asia Times. "Iran's strategic leverage will likely negate the chances of UN sanctions involving the export of Iran's oil; but despite the supreme leader's recent comments, Iran would also be reluctant to withhold its oil exports unless as an absolute last resort."
For China, securing energy supplies to fuel its rapidly growing economy is a top economic priority. Iran, as China's third-biggest crude oil supplier, will be welcomed as an observer next week at the fifth annual meeting of the Shanghai Communique Organization. The SCO consists of China, Russia and five energy-rich Central Asian countries. Not surprisingly the People's Daily Online welcomed recent overtures by the U.S. to Iran as "progress."
Oil matters less to energy-rich Russia than guns and politics, says Kommersant, a news site started by now-jailed oil tycoon Mikail Khodorkovsky. The editors played up U.N. Ambassador John Bolton's comment last week that a "pro-Iranian" faction in Russia's leadership was responsible for holding out on support for sanctions against Iran. Kommersant sees Russia's Iran policy as a contest between national security agencies whose "main priority in foreign policy is the arms trade with Iran" and "liberals" who value good relations with the United States.
Russia will host the G8 summit in St. Petersburg starting on July 10, which also happens to be the deadline for Iran to accept Western incentives to stop enriching uraninum. Austrian Chancellor Wolfgang Schuessel told Germany's Frankfurter Allgemeine Zeitung last week that if Iran does not accept by then, the issue "will have to be discussed within the framework of the G8."
The United States and its European allies do not consume much Iranian oil. But the prospect of high oil prices and the threat of a cutoff limit their ability to threaten Iran with economic consequences if it does not renounce nuclear weapons ambitions. With oil prices now at $70 a barrel, says the Asia Times, "UN sanctions on Iran's oil would cause prices initially to escalate and threaten the health of the global economy, particularly given that OPEC's spare capacity doesn't even cover what Iran exports."
Japan, the world's third-largest oil consumer after the United States and China, is especially vulnerable on the Iran issue. Japan is already curbing it crude oil imports out of concern that a nuclear standoff will result in supply disruptions, the Iran daily reported earlier this month.
The Iranian oil minister said last week that he hoped that the nuclear row would not push Tehran to use reserves of oil and natural gas as leverage in the dispute.
But the threat remains a constant factor in the ongoing negotiations.
"Since the early 1970s, the oil producing nations learned they could use their petroleum exports as a political tool," Anthony Sabino, professor at St. John's University in New York, told Reuters in London. "And since they have little in the way of other bargaining chips, particularly with the US and Europe, why would they ever give up that power?"
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