Tuesday, 20 February 2007

Hans Blix: "Why not in Iran too?

Former UN arms inspector Hans Blix has an op-ed piece in today’s International Herald Tribune, in which he criticizes the US approach toward Iran’s uranium enrichment program. Blix points to the recent six-party talks and recent agreement with North Korea, and asks “Why not in Iran too?”

The answers to this question are many and obvious.

Iran sits atop the world’s second largest proven reserve of oil and the second largest reserve of natural gas. It derives significant revenues from the export of oil (though it needs to import both gasoline and natural gas), and the government derives roughly 85% of its budgeted revenues from the sale of oil. The Iranian people are relatively well off.

On the other hand, North Korea holds off mass starvation only through the good graces of China, which provides North Korea with about 70% of its food imports and more than 70% of its oil imports. As a result, North Korea is affected more by the threat of economic sanctions than is Iran. No country has the sort of leverage with Iran that China has with North Korea.

Iran has strategic influence over much of the oil-rich Middle East, and the US has active military engagements in two countries bordering Iran. The Israelis have just fought a battle in Lebanon with Iran’s proxy, Hezbollah, and Iran actively supports Hamas, which refuses to recognize Israel’s right to exist, and which has been battling the Fatah party for control of the Palestinian administration. Iran has been sending Revolutionary Guards and intelligence officers into Iraq, and it appears as if Iranian weapons have found their way into Iraq and are being used against US troops. Iran clearly has a number of ways in which it can make life difficult to varying degrees for the US.

The primary threat posed by North Korea to American interests is the ability of North Korea to destroy Seoul and to eventually threaten Japanese cities. Of course this capability poses a very significant threat, but it’s difficult to use this threat to gain a tactical advantage in negotiations. If Pyongyang were to move against Seoul, presumably North Korea would come under withering attack that would lead to the removal of Kim Jong Il and lead to a tremendous exodus of refugees. Whereas Iran can ratchet tensions with the West by discrete amounts and gauge Western reaction, the North Koreans have only continued recourse to the threat against Seoul.

Of course there are many more differences between Iran and North Korea, including the religious motivations of leadership, distinct regional ambitions, different political systems, and radically different historical experiences with the US. But in some sense, all these differences are beside the point. The real answer to Blix’s question, “Why not in Iran too?” is that the approach taken with North Korea has been an abject failure.

The Agreed Framework reached with North Korea by the Clinton administration did not stop its plutonium projects, and the North Koreans haven’t even disclosed their uranium projects. And of course the North Koreans tested their first nuclear bombs a few months ago. By any stretch of the word ‘success’ the negotiations with North Korea have not been successful.

In recent years, India, Pakistan, and North Korea have all developed nuclear weapons, and have paid very little price for having done so. I believe Iran has learned from their experience and will continue developing nuclear weapons and will pay a similarly small price in return.

What about a military strike against Iranian nuclear facilities? It’s true that in 1981 Israel bombed and crippled Iraq’s Osiraq reactor, which was later completely destroyed by the Americans in the first Gulf war. (Iran first bombed this facility in 1980 at the outbreak of the Iran-Iraq war.) But analysts believe the major elements of the Iranian program are buried deep underground. My understanding is that conventional weapons are unlikely to cripple these facilities. While there have been some reports that the US or the Israelis are planning to use tactical nuclear weapons against these facilities, I remain highly skeptical.

Were the US to use even limited tactical nuclear weapons, the condemnation throughout the world would be deafening. US interests in most parts of the world would suffer extraordinary setbacks, representing a tremendous cost. I can’t imagine a scenario in which US strategists would consider the cost worth paying in order – at beast – to temporarily postpone Iran’s nuclear weapons program.

What about the Israelis? Might they use tactical nuclear weapons against Iran? I don’t believe Israel wants to be the second nation to use nuclear weapons, but many people in Israel believe the country is facing an existential crisis. Were it to use tactical nuclear weapons against Iran, it could expect missile attacks from Iran, withering rocket fire from the Palestinians, possible military retaliation from Syria, and a resounding denunciation from governments the world over. Further, the move would risk further destabilizing Iraq, possibly destabilize Pakistan (now a nuclear nation), and might prompt the Saudis and Egyptians to pursue nuclear weapons of their own.

None of these scenarios are pleasant. But in the end, I believe that there are really only two scenarios with much likelihood at the moment. Either Israel employs tactical nuclear weapons to cripple Iranian uranium enrichment facilities, or the world needs to reconcile itself with a radical Islamic revolutionary government possessing nuclear weapons.

Monday, 19 February 2007

A Natural Gas Cartel Involving Russia and Iran?

Iran recently renewed a proposal to create an OPEC-style cartel for natural gas, to include Russia and Qatar. Vladimir Putin has expressed interest in this idea in the past and has recently expressed interest in discussing the idea further.

As has been reported in much of the financial press, the creation of a natural gas cartel is problematic for a few reasons.

  1. Natural gas is more difficult to transport than oil. Gas is typically transported through fixed pipelines and is typically sold via long-term delivery contracts rather than on a spot market. As such, the manipulation of supply to control price is problematic. Liquefied natural gas facilities are being built to ship gas, but the planned facilities are scarce and are likely to remain scarce for the foreseeable future.
  2. Despite having vast gas resources, Iran still imports natural gas for its own use, though the Iranians would like to become major exporters in the future.
  3. Russia has not been interested in joining OPEC, primarily because it wants to follow an independent energy policy. And Putin has said already that Russia would not be willing to adhere to natural gas supply quotas.
  4. Qatar is a firm ally of the US. It has no interest in antagonizing the US by forming a gas cartel with Russia and Iran. In fact, Qatar has expressed disinterest in forming a gas cartel, preferring instead to focus discussions via the Gas Exporting Country Forum – a toothless group created in 2001.

Given that Iran doesn’t presently export natural gas, that Russia refuses to adhere to supply quotas, and that Qatar continually expressed disinterest, why are the Iranians and the Russians expressing interest in this idea again – and why now?

In its drive toward regional hegemony in the Middle East, Iran is embroiled in multiple disputes with the US – particularly the issues of its uranium enrichment program and its sponsorship of Hezbollah in Lebanon and Hamas in Palestine.

Given its imbroglios in Iraq and Afghanistan, the US is confined largely to diplomatic efforts to constrain Iran. And given that the EU trio of Britain, France, and Germany have failed in their diplomatic efforts to constrain Iranian nuclear ambitions, the US is increasingly looking toward the UN. By discussing the creation of a natural gas cartel, Iran and Russia are reminding the US that Iran has an ally on the Security Council – a friend anxious to use its veto to thwart US ambitions, particularly in light of Putin’s hostile speech given February 10th at the Munich Conference on Security Policy.

Russia is unwilling to support a program of economic and political sanctions with potential to motivate Tehran to abandon its nuclear weapons goals. For that matter, neither is France – as seen by Chirac’s unguarded and widely-reported remarks to the International Herald Tribune during an interview on January 29th.

Might China play a constructive role in deterring the Iranian nuclear program, similar to the role it played in securing the recent agreement with North Korea? Not likely. China’s own drive toward hegemony in Asia requires China to demonstrate that it can exert control in the region, and North Korea’s testing of a nuclear device last October was an embarrassment for China. As a result, China felt compelled to act to secure North Korea’s agreement. No such motivations exist for China in relation to Iran, and Washington can expect no help from Beijing in securing a similar agreement from Tehran.

As a result, I believe there is no diplomatic route to thwarting Iran’s nuclear ambitions. In this case, either a limited military strike is used in an attempt to stop Iran’s nuclear program, or Iran will acquire nuclear weapons. Either way, the Middle East is likely to become less stable, with consequences for the price of oil, inflation, corporate profits, equity markets, and bond markets. But at least we won’t also be worrying about a natural gas cartel.