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?"

By washingtonpost.com |  June 13, 2006; 6:14 PM ET  | Category:  Global
Previous: Zarqawi's Death -- Just Who Does It Help? | Next: Immigration Politics, European Style

Comments

Please email us to report offensive comments.



So-called advanced societies are not governed rationally. They are fueled less by oil and gas than by contending psychopathologies, spawned from shopping malls and deserts alike.

Posted by: Reynolds | June 14, 2006 08:19 AM

It's a simple trade: either Iran is denied nuclear power stations and they must burn their own oil, or they use nuclear power and sell their oil to us. The West will find an accomodation.

Posted by: richard schumacher | June 14, 2006 08:59 AM

in my opnion and contious study over iran issue by various news sourses,that iran is in ill fate,oil proximity has nothing to do with nuclear politics.As oil and nuclear are seperate issue,every country is free for trade agreement,only iran may makes nuc weapons is world fearing,while,iran is very small nation
already suffered by iran iraq war.
and continuosly pronounced that its role is peaceful,use,enrichment has no sufficeent evidence that intention to make nuc weapons.
UN,IAEA stressed and blamed give deadline to stop activities,warning,can never lead to nuclear peaceful world ,one country has to understand each other.

pramod deshpande
scientist engineer
nuclear news analyst
atomic energy india

I open this text free to radio press and tv for world nuclear peace purpose.

Posted by: PRAMOD DESHPANDE | June 14, 2006 10:05 AM

The problem with the embargo threat is that failing to sell its oil hurts Iran, by cutting off its major source of export revenue. What would Iran do with the oil that it does not sell? It's not good to drink.

Sure, the western countries would be hit hard by $100 oil, but we've already absorbed the jump to $70 without major disruption. It's hard not to conclude that we could ride out an embargo for a lot longer than Iran could.

Posted by: Tom T. | June 14, 2006 10:24 AM

the biggest terrorist living today is j b

Posted by: francis s | June 14, 2006 10:26 AM

caused by muslims/arabs, not by J B! What the heck you talking about?

Check your sources honey!

Posted by: 9/11 has been caused by muslims/arabs | June 14, 2006 10:52 AM

...and Oklahoma City was caused by Whites, bombings and kidnappings by the Stern gang in the 1930's was caused by Jews, and IRA bombings and murders are caused by white Irish - so what's your point?

Human savagery knows no skin, no race, no colour. The same men who sit in business suits and military garb and decide the fate of an entire population by dropping a bomb on them are no better than the angry jihadists who strap bombs to themselves and blow up a night club or a bus stop.

Perhaps you should be checking your facts first.

Posted by: KJ | June 14, 2006 11:41 AM

let's not forget the elephant in the room...the Straits of Hormuz as a chokepoint

focusing on the impact of Iran's shut-down of exports misses the more important point. Silkworm missiles and mines are just two of many armaments that can bring almost all gulf exports to a screeching halt. $100 per barrel probably misses the mark by half.

of course at that point China would have some serious problems with the situation and would exert pressure on Iran while casually dumping a few hundred billion in US Treasuries. Long before they drive our interest rates up to 20% we'll scream uncle and let then Iranians do whatever they want.

reckless fiscal policy meets reckless foreign policy

the fact that John Kerry couldn't make hay out of the corner that W, Congress & Greenspan painted us into shows that he's not smart enough to be president

Posted by: OhioMC | June 14, 2006 12:53 PM

Until there's firm evidence that Iran is violating the NPT, I'm not sure we should be doing anything re: their nuclear technology program. Bush made us believe Iraq had WMD; as a result he started a war and now hundreds of thousands of folks are dead or seriously maimed. All this because of a lie.

I refuse to let Bush and his cronies fool me again. Until I see firm evidence, I'll presume Iran's quest for nuclear technology is within its right as a sovereign nation and as provided by the NPT.


Posted by: Oscar | June 14, 2006 02:29 PM

Frankly, I am surprised the multinationals have not got on the Bush Administrations case over creating this mess in the Middle East. War is very bad for business, and for Free Trade in particular. A European subsidiary of Halliburton lost a contract in Iran supporting this "Axis of Evil" nonsense. The Chinese are going to grab up every oil contract that comes along, and leave the Western oil companies with their tongues hanging out. However, no one ever accused the mutinationals of having a brain, just being greedy.
I am no fan of "Free Trade", but if they are kept busy somewhere else, maybe we can get them out of the Military's logistics chain, and the U.S. Governement in general.
Lets get real for a change! We have 10,000 Nuclear weapons and Russia has 20,000. Unless they are insane, are any of these relatively small states going to attck the U.S. or Russia? These Middle Eastern states are too close together to use them against each other. Is Israel going to use them against Syria or Egypt? No! The blast effects, not to mention the radiation, and nuclear fallout would effect them too. Anyone in the Middle East who uses nuclear weapons against their near neighbors would be committing suicide. This includes Israel and Iran. Nuclear weapons are a waste of money!
It is past time for everybody to start talking instead of making empty threats.

Posted by: P. J. Casey | June 14, 2006 02:36 PM

P. J. Casey brings up some very good points. Nukes in the middle east are in fact only an absolute last resort for anyone there because of the fallout (both nuclear and political).

The Iranians only want to be left alone. Remember, we installed a dictator in their country and after they booted him out we then funded the dictator next door who caused over a million total casualties in the Iran Iraq War.

As has been stated here many times before, Iran has not attacked another country in over 250 years. America's track record is not so good. It is understandable that they would be paranoid about our current intentions.

Even a cursory examination of the remarks of Iran's president regarding Israel reveal that he is only talking the talk that every single other middle eastern country engages in, including our "allies" the Pakistanis, who already have Nukes and who harbor very negative feelings about Israel as well.

All the bluster about Iran's nuclear program does create an awesome cover for the real problems in Iraq, which, although may turn out OK in the end, are going to be longer and harder than any one in office wants to admit.

Unfortunately, the situation in Iraq will have almost no effect on world terror, and may serve to increase it.

A much better place to start would be to very publicly assist in removing all the settlements in the West Bank and East Jerusalem, and give all the help we can to Abbas and any moderate players in Hamas, in order to create a coalition government in Palestine that resembles the one in Israel. That would do infinitely more to reduce terrorist recruitment than following the next play in the Project for the New American Century play book, which has led us into a totally unnecessary, disastrous world of hurt so far. It would also bring the beginning of long term peace and prosperity to Israel and serve to get them off of our international welfare.

In fact, heres an idea, after we reduce terrorism and bring peace to Israel by once and for getting rid of all the settlements, how about we take the 3 to 6 Billion dollars a year we give Israel and spend it on a Fusion Energy Initiative like the Manhattan project? At this point in history, isn't breaking the reliance on middle eastern oil and lowering greenhouse emissions (not to mention the benefits of limitless energy supplies) equal to the need we had to develop nuclear weapons during WWII?


J

Posted by: J | June 14, 2006 03:31 PM

A nuclear Iran would spawn a nuclear arms race in the Middle East. If Iran gets 'em, the Saudis will want them and so on.
PJ, I think you're being a little to optimistic about what would happen. Not all nukes are created equally. Iran could easily lob one over to Tel Aviv, effectively destroying Israel. Depending on the size (and prevailing wind directions), Iran would probably not injure itself in such an attack. Then what is the west to do? Attack Iran? Can we once they're nuclear armed. But this isn't the scenario that worries me the most. The one that worries me is that once Iran has nuclear technology, it can be shared. Shared with other nations and terrorist groups. Iran already supports terrorist groups. Consider what would happen if Iran provided al-quaeda or a Chechnian group with a nuclear weapon and that group then detonated the weapon in the heart of Moscow. Could this not set in motion a chain of events that led to nuclear between the two countries? For me the posibility is too great to leave to chance. On the other hand, Iran sharing its nuclear technology with other states is a similarly scary scenario. If the lid isn't off Pandora's box already, allowing Iran to go nuclear would amost certainly do so.

Posted by: Ryan | June 14, 2006 05:11 PM

Ryan,

Your forgetting a number of things.

1) Iran has not attacked another country in 250 years.

2) an attack on Israel would certainly kill most of the Palestinians. It would also devastate the surrounding countries and possibly bring fallout back to Iran.

3) Israel has 200 plus Nukes. What would happen as a result of a nuclear attack on Israel? They would obliterate Iran (although they are subject to the same fallout dangers that Iran is and reprisals from neighboring countries who would also be affected.)

4) Our great allies, the Pakistanis, have nukes. They did share their knowledge and technology with both Iran and North Korea.
The man who did it is a hero in Pakistan, Pakistani nationals are also probably complicit in harboring Osama Bin Laden, and a great many Pakistanis hate Israel as much or more than anyone in Iran. Why are you not worried about them?

5) The Iranians are 10 years away from develpoing a bomb according to most sources. If we did not install a dictator in their country or help fund wars against them in that time, we might find a different attitude from them and possibly even see an end to the rule of the mullahs.

6) Similarly, if we demand that Israel dismantle all of the settlements and quit the occupation and allow a free Palestine to emerge, it might do a great deal to quell the paranoia on the part of all of the surrounding middle eastern countries, as well as Iran.

J

Posted by: J | June 14, 2006 05:32 PM

J,

Iran has supported attacks against Israel via Hezbollah. But let's ignore potential attacks on Israel. It would still most likely set off a nuclear arms race in the Middle East (at least between Iran, Saudi Arabia, Israel and Pakistan and perhaps Egypt). This arms race would be the tipping point against any nuclear non-proliferation regime.
I agree that Pakistan is a terrible nation to have nuclear weapons. It's unstable (possiblity of revolutionaries getting a hold of the weapons), poor (corruption is easy and more willing to sell the technology), and a dictatorship (more likely to go to war). But how does Packistan having nuclear weapons justify Iran having them? If anything it illustrates my point.
Most experts agree that Iran is at least five years away from a working weapon, so there is time for diplomacy. Don't get me wrong I hope for a diplomatic solution. But for the reasons stated above, I support nearly all means of preventing Iran from aquiring nuclear weapons and I think you should too.

Posted by: Ryan | June 14, 2006 08:02 PM

Why can't Israel get along with the rest of the Middle East? If they made the effort they wouldn't have neighboring nations looking for ways to destroy them.

Posted by: Jay | June 15, 2006 09:31 AM

This is just a general comment, not simply addressing the Iran and Pakistan issues. Statistically speaking, dictatorships are not more likely to go to war with outside states. The thesis that democracies are more peaceful is really only relevant (and even then not completely so) with regards to going to war with other democracies. Political science research has shown that democracies are just as likely to go to war with non-democratic states as authoritarian states are. That said, internal conflict is generally more likely in authoritarian states.

Posted by: M | June 15, 2006 09:59 AM

Well, our "Project for the New American Century" Chickens are coming home to roost.
Iran was just invited to join the SCO with China and Russia and a number of other oil rich or oil hungry countries. The first order of business was to discuss how the price of natural gas might be fixed between russia and Iran. Proposals for all sorts of oil exploration initiatives were discussed.

It seems we have been outplayed by the Mullahs and also just put into place the mechanisms that might cause the cost of oil to the US from these sources to go up dramatically. In other words, the Iranians, now in concert with the russians and Chinese and other interested parties, have a few sanctions they can throw our way which might sting a lot more than anything we can do to them. Furthermore, anyone (including Isreal) who stages a preemtive attack against them is now also potentially threatening the interests of the Russians and the Chinese.

But hey, I'm sure that Iraq will become a stable source of oil to offset all this, right? Not likely. In fact, if it remains unstable, it will contribute to higher oil prices

How much further down are we willing to dig this hole in order to protect the Israeli settler movement? If we would have actually acted on our own stated principles and forced the Israelis to clear out of the West bank and East Jerusalem and let the Palestinains have their own nation, we might not have suffered 9/11, the war in Iraq, or the formation of a 2nd Opec, which will now more stringently control and raise the oil prices that currently determine our economic health.

I'll say it again. Is it not time to start a major initiative in the US to make Fusion Power commercially available as soon as possible? the Chinese already have a very serious program underway.

Unfortunately, (and as a republican I am sad to say it) this crew simply does not have the will or imagination to accomplish any of this. They appear to value their cheap political short term interests much more than anything else.

What good does it do to say that we are addicted to oil and then do nothing to change that fact while just playing all the old, failed geopolitical games over and over?

J

Posted by: J | June 16, 2006 10:32 AM

The peculiarity of the role of politics in the economic ebb and flow of oil will just never end. One wrist slap will lead to another. In this case higher oil prices. We know that we could have turned to alternative forms of energy. We just didn't pursue it with tenacity. But I was always under the assumption that the Koran's teachings were against the accumulation of wealth, and for the dissemination of it to the less fortunate.
I guess the exception is when you are dealing with capitalistic societies and there is an intense demand for your product.

Posted by: Wayne P. | June 17, 2006 02:52 PM

Why not give every country a couple of nukes, It seems to me that no two countries that both have the means to obliterate one another ever attack. Look at the US and Pakistan relationship, russian relationship, etc....countries who can absolutley destroy one another never do these days, there seems to only be conflict when there is a a strong and a weak. by eliminating all nukes we would just kill each other with smaller arms and people would not be concerned with the complete destruction of the earth. But give everyone nukes and the real consequence of our earth actually being wiped out would scare the whole world into peace, and if not we will just end up where we aer going anyway.

Posted by: Scott | July 2, 2006 11:25 AM

Why not give every country a couple of nukes, It seems to me that no two countries that both have the means to obliterate one another ever attack. Look at the US and Pakistan relationship, russian relationship, etc....countries who can absolutley destroy one another never do these days, there seems to only be conflict when there is a a strong and a weak. by eliminating all nukes we would just kill each other with smaller arms and people would not be concerned with the complete destruction of the earth. But give everyone nukes and the real consequence of our earth actually being wiped out would scare the whole world into peace, and if not we will just end up where we aer going anyway.

Posted by: Scott | July 2, 2006 11:25 AM

The comments to this entry are closed.

 
 

© 2006 The Washington Post Company