OIL & THE IRANIAN CONUNDRUM
by Ghassan Abdallah, Ph.D.
May 29, 2007

Oil is considered a political commodity. Because of its pivotal importance as a primary source of energy, people are concerned about its continued availability. Recent explanations for higher crude prices have ranged from peak theory, to the lack of refining capacity, to rising demand from China, and finally to geopolitical tensions. Discussions of geopolitical tensions focus on attempts by al-Qaeda to sabotage oil fields in Saudi Arabia, disruptions caused by rebels in Nigeria, and rising tensions between the United States and Iran over the latter’s nuclear and regional ambitions.

Mainstream reporting on Iran generally focus on Iran’s enriching of uranium in defiance of the United Nations and anti-Semitic or comical statements made by Iran’s president Ahmadinejad. Rarely does the press engage in any meaningful analysis of Iran’s ambitions, motivations, and the true power structures inside the Islamic republic. For example, the attention given by the media to Iran’s president Ahmadinejad, who was a serious contender for Time Magazine’s man of the year, is unwarranted. Indeed Ahmadinejad’s anti-American sentiments are a true reflection of the regime, however Ahmadinejad himself is not significant. Ultimate power in Iran rests with the supreme spiritual leader, hardliner Ali Khamenei. As chief of state Khamenei commands the military, the Islamic Revolutionary Guards (ICG), and the intelligence apparatus. He also controls the judiciary, the internal security forces, the mass media, and has the power to declare war and peace. Some have gone as far as say that “he talks to God over the telephone.

THE OIL FACTOR

The oil industry of the Middle East began in Iran and its development was first controlled by Great Britain. Ever since, politics and oil have been intertwined in the internal and external struggles of the country. In 1951 nationalist leader Mohammed Mossadiq triggered an oil crisis with the West when he gained control of the government and proceeded to nationalize the British-owned Anglo-Iranian Oil Company. The Western powers responded by boycotting Iranian oil. Deprived of oil revenue, the Iranian economy was in such bad shape that the Shah used the crisis to attempt to have Mossadiq removed. At first the Shah’s actions failed and he was forced into exile in Europe. However, the Shah’s supporters, with CIA assistance, staged a counter revolt. Mossadiq’s allies failed to respond effectively, and the Shah was returned to power within days. The Shah who would continue to rule until 1979, ended the monopoly of Great Britain on Iranian oil, forcing it to share its control with several other, primarily American, companies.

As it was back then, Iran’s economy today continues to be over dependent on oil as a source of revenue. When oil prices declined in 1998, revenues from oil decreased by 40%, trade deficits were recorded for the first time since 1993, and the unemployment rate edged higher. When oil prices recovered, the Iranian economy began to recover quickly. To state that the current Iranian regime has a keen interest in seeing continued higher oil prices would be stating the obvious. As one can say that all OPEC members benefit from higher oil revenue. What is different about the Iranian regime, however, is its willingness to go outside the conventional norm in order to generate higher oil revenue. What is meant by conventional norm, here, is using the OPEC cartel to manipulate supplies to keep the price of oil artificially high. The Iranians are willing to go much further, and indeed at certain times they have caused military tensions for the specific purpose of generating higher oil revenue. Take for example, the imprisonment of 15 British sailors by Iran earlier this year. That incident correlated with a 5 dollar increase in the price of oil. It is estimated that for every dollar increase in the price of oil, Iran’s oil revenues increase by 2 million dollars a day. Hence, creating a hostage crisis with Great Britain led to a 10 million dollar increase in Iran’s daily oil revenues. The seizing of royal marines by Iran was not a coincidence but a move that was planed, calculated, and approved by the highest levels of the Iranian leadership. What was surprising about the whole thing was how the mighty royal navy, that at one time allowed for the sun to never set on the British empire, was suckered by the mullahs in Iran. After all this was not the first time that the Iranians had taken British sailors hostage---the Iranians had pulled that same stunt before. It is doubtful that either the British or U.S. navy, operating in the Persian Gulf, will drop their guard again, since by now they have become very familiar with the Machiavellian tactics of the Iranian regime. That being said, the problems with Iran are far from over and as a matter of fact they are just beginning and likely to become more explosive in the future.

DIPLOMACY DESTINED TO FAIL

Critics of the Bush administration argue for more talks with Iran. What the critics fail to understand, however, is how far apart the two sides are. The gaps are so large that any attempt at dialogue will turn into an exercise in futility. This was evident a few months ago when American and Iranian negotiators met at a conference in Baghdad aimed at gathering support for the fragile Iraqi government. Those who are familiar with the true nature of the Iranian regime were not surprised to learn that the meeting degenerated into a shouting match with both Iranian and American diplomats exchanging insults. Any current or future talks with Iran will fail again. The problems with Iran are deep, long standing, ideological, and will not be resolved peacefully. First, Iran has financed a variety of terrorist organizations that have targeted both American civilians and military personnel. Second, the Iranians want the United States not only out of Iraq but the Middle East as a whole. Obviously that will not happen. Yes the United States may begin a phased withdrawal out of Iraq as early as 2008, but the world’s only superpower is not leaving the entire neighborhood. Third, Iran is opposed to the existence of the United States’ closest Middle Eastern ally, the state of Israel. Unlike the majority of states in the region who support making peace with Israel based on the principle of land for peace, the Iranians are opposed to the existence of the Zionist state period. The Israelis who are very much aware of the Iranian attitude towards their existence are not planning on leaving the Middle East anytime soon. Compounding those problems is Iran’s nuclear program and the vow made by President Bush that Iran would not become a nuclear power while he is still president.

Recent reports of the Bush administration’s plan to start a significant reduction of U.S. troops from Iraq beginning in 2008 corroborate previous statements made by the president that he does not believe in passing unresolved problems to future administrations. Beginning to withdraw forces from Iraq will also help the president’s politically beleaguered Republican Party and it’s 2008 presidential candidate. Ironically the U.S. withdrawal from Iraq will not decrease tensions with Iran but to the contrary increase the odds of a military confrontation, especially in the latter half of 2008. The last thing the Bush administration wants to see is a nuclear powered Iran dominating the Middle East. One of the restraints holding the administration back from military air strikes against Iran is domestic public opinion, which is decidedly against the Iraq war. Air strikes against Iran’s nuclear facilities following even a partial withdrawal of U.S. troops from Iraq will no longer be interpreted as an attempt by the Bush administration to expand a very unpopular war, and are likely to be supported by newly elected conservative governments in Germany and France. If attacked the Iranians will most certainly launch missiles at neighboring oil producing Arab Gulf countries and attempt to block shipping through the very narrow Strait of Hormuz. Fireworks in a region that possesses 65% of the world’s oil reserves and accounts for 35% of the world’s total exports have in no way been discounted into the price of petroleum products by the global oil markets.

© 2007  Ghassan Abdallah, Ph.D.
Editorial Archive

Contact Information
Ghassan Abdallah, Ph.D.
Email