IRAN NUCLEAR CRISIS AND THREATS TO ENERGY SECURITY ANY

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					    IRAN NUCLEAR CRISIS AND THREATS TO ENERGY SECURITY: ANY
                   LONG LASTING SOLUTIONS?

                                 CHIOMA E. UBAJAKA ∗
                                   cubajaka@yahoo.com


ABSTRACT: Iran is OPEC’s second largest oil producer and controls the second
largest reserves of natural gas in the world. As a result, the recent dispute with the
West over its nuclear program has led to speculations on the possible implications on
the security of the world’s energy supply. This paper, discusses the present crisis, the
different positions of the super powers involved and the underlying motivation for
these stances. It highlights the possible effects on energy security if the present
situation deteriorates. This paper suggests that renewed nuclear cooperation and
diplomatic negotiations are the keys to a long lasting resolution of the present crisis.




                               LIST OF ABBREVIATIONS


AEOI             Atomic Energy Organization of Iran.
IAEA            International Atomic Energy Agency
EU              European Union
IOC             International Oil Company
MEES             Middle East Economic Survey
MERIA           Middle East Review of International Affairs
NPT             Nuclear Non-Proliferation Treaty
NTI             Nuclear Threat Initiative
NWS             Nuclear Weapon States
OPEC            Organization of Petroleum Exporting Countries.
SPR             Strategic Petroleum Reserve
UAE              United Arab Emirates
UN              United Nations
UNSC            United Nations Security Council

∗
  Chioma Ubajaka has earned an LLB Bachelors degree in Law, (University of Nigeria, Nsukka
Nigeria, 2003), BL and Certificate of call to Bar ( Nigerian Law School Bwari Abuja ,2004),
Postgraduate course in Economic Law and Competition in the European Union (University Institute of
European Studies ,2006), Petroleum Law and Policy, (Centre for Energy, Petroleum and Mineral Law
and Policy, University of Dundee, Dundee Scotland.)



                                                                                                1
US                 United States
WMD                Weapons of Mass Destruction




1 INTRODUCTION
Iran is OPEC’s 2nd largest producer after Saudi Arabia and the world’s fourth largest
oil producer. It also commands the world’s 2nd largest natural gas reserves after
Russia. 1 Geographically, Iran is located at the northern part of the Persian Gulf with
control of the Hormuz Strait which is the most important oil route in the world.
Bordering 15 countries, it is within striking distance of about 50% of the world’s oil
fields, that is, Saudi Arabia, Qatar, Bahrain, UAE, Kuwait and Iraq. It is also the
bridge between two important energy zones – the Persian Gulf and Central Asia 2 .
Thus it can be concluded that Iran is a vital state in the Middle East.


The current dispute between Iran and the West over its nuclear program has put
pressure on oil prices with speculations that oil prices could exceed $100 bbl if the
situation escalates. The Iranian nuclear crisis originated in 2003, when it was
discovered that Iran was secretly involved in uranium enrichment. Tehran
immediately denied accusations by the US that it was secretly developing nuclear
weapons. Washington increased its rhetoric for United Nations sanctions against Iran
and left options for a military strike open. On the other hand, though Russia and
China are not in support of Iran developing nuclear weapons, they vehemently
opposed (and continue to oppose) sanctions and military strikes, calling for diplomatic
negotiations with Tehran. Tehran has vowed to use all means within its power to
retaliate in the event of sanctions or a military strike.


This paper discusses the probable measures Iran may take and the likely impacts on
energy security. Using a realist approach, it seeks to uncover the rationale behind the
different views taken by the major players in the crisis and hopes to suggest possible
long lasting solutions to political, economic and security issues involved. This will be

1
 The World Fact Book available at http://www.cia.gov/cia/publications/factbook/geos/ir.html (last
visited 24th April 2006)
2
    Homayoun. A., Iran and the New East –West Strategic Polarization, World Tribune, May 26,2005.


                                                                                                    2
accomplished by a careful scrutiny of the geopolitics of the Middle East region with
respect to the nuclear crisis and world energy security. Chapter two gives a brief
background to the problem, highlighting the role of the International Atomic Energy
Agency (IAEA) and Nuclear Non-Proliferation Treaty (NPT). Chapter three gives a
brief history of nuclear cooperation between Iran and the super powers from the
1960s to present time. It also examines the views and position of all parties with
particular reference to the Iran, the US, Russia and China. Chapter four analyses the
effects of an escalation of the present situation on the world’s energy security as well
as suggests options open for resolution. Finally Chapter five concludes with the
thoughts of the author.


2 BACKGROUND
2.1 GLOBAL MONITORING OF NUCLEAR TECHNOLOGY
2.1.1 THE NUCLEAR NON- PROLIFERATION TREATY
The NPT is the most important pillar of international arms control with its main
objective being to limit the spread of nuclear weapons. Proposed by Ireland, the treaty
was opened for signature in July 1968 and Finland was the first signatory. The NPT is
often summarised as having three pillars: Non-Proliferation, Disarmament and the
Right to Peaceful use of Nuclear Technology. It permits five states, the Nuclear
Weapon States (NWS) to own nuclear weapons. 3 These were the only states
possessing nuclear weapons at the time the treaty was open for signature and also the
five permanent members of the United Nations Security Council (UNSC). These
members agree not to transfer nuclear weapons to other states and the non NWS agree
not to seek or develop nuclear weapons. The non NWS also agree to open their
facilities for inspections to ensure the peaceful use of nuclear technology.


Article IV of the treaty, gives every state the inalienable right to use nuclear
technology for peaceful purposes as well as engage in peaceful enrichment of
Uranium. This seems to be a loophole of the treaty as analysts argue that peaceful
enrichment of uranium is just a step away from assembling a nuclear warhead. 4
Hence, the treaty gives a presumption of innocence to all states using nuclear


3
 The United States of America, Russia, United Kingdom, France and China.
4
 Mizin V., The Russian-Iran Nuclear Connection and the US Policy Options, MERIA Journal Vol. 8
No 1, March 2004.


                                                                                                 3
technology, creating no distinction between dangerous/rogue states and peaceful
states.


Several NPT signatories have given up their nuclear weapons and programs including
South Africa. On the other hand the NPT has been criticized for its failure to block the
contravention of countries such as North Korea and Iraq. 5 India, Pakistan and Israel
have refused to sign the treaty. India and Pakistan are confirmed nuclear powers 6
while the Israeli government, refuses to confirm or deny possession of nuclear
weapons. 7


Finally, the Article X of the treaty allows a member state to leave the treaty on giving
three months notice if extraordinary events related to the subject matter of the treaty
have jeopardised the supreme interests of its country. However, North Korea which
ratified the treaty on December 12, 1985 is the only country known to have
withdrawn from the treaty. 8


2.1.2 THE INTERNATIONAL ATOMIC ENERGY AGENCY
The IAEA is the centre of cooperation in the nuclear field. Established in July 1957,
the organisation works with member states to promote safe, secure and peaceful use
of nuclear technology. 9 The IAEA can be said to be a product of the US president
Eisenhower ‘Atoms for Peace’ speech before the UN General Assembly in 1953;
where he envisaged the creation of an international body to control and develop the
use of atomic energy. It serves as an intergovernmental forum for scientific and
technical cooperation in the peaceful use of nuclear technology. Under the mandate of
the UN, the IAEA tasks include inspections and investigations of suspected violations
of the NPT. However, the IAEA can only refer the matter to the UNSC. Inspectors
work to verify that nuclear materials are not used for military purposes.




5
  Ibid.
6
  Both countries publicly announced their possession of nuclear weapons and have detonated nuclear
devises in tests; India in 1974 and Pakistan in 1998
7
  However, in 1989, an Israeli nuclear expert Mordechai Vanunu revealed an Israeli nuclear weapons
program to the British Sunday Times
8
  North Korea withdrew in January 2003 and by February 2005, it publicly declared it possessed
nuclear weapons
9
  http://www.iaea.org


                                                                                                     4
2.2 BRIEF OVERVIEW OF THE PROBLEM
The Iranian nuclear crisis originated when in August 2002, Jafarzodeh a member of
the Iranian government opposition group, revealed the existence of two unknown
nuclear sites; an uranium enrichment facility in Natanz, and a heavy water facility in
Arak, Iran. The construction of these facilities was not internationally known for 18
years before its discovery. For the US, this confirmed their suspicions that Iran had a
nuclear weapon agenda and immediately called for Iran to be reported to the UNSC
                                                                                                    10
with sanctions imposed. However, it held off from pressing its case while the EU3
negotiated with Iran to stop its uranium enrichment programme. In November 2004,
Iran complied with their requests but resumed its conversion of Uranium at its Isfahan
facility in August 2005. To heighten Washington’s suspicions, it was uncovered that
Tehran had dealings with Abdul Qadeer Khan 11 , a top Pakistani official and nuclear
scientist who sold spare parts of his country’s weapons program. The extent of this
relationship remains unanswered. 12 More so, was Iran’s reluctance to answer
technical questions and provide full documentation to the IAEA.


Experts from the International Institute for Strategic Studies in London estimated at
that time that Iran could have a nuclear bomb capability in about three to fifteen years
depending on their intentions. Offers made by Moscow to enrich uranium in Moscow
in order to allay suspicions were rejected by the Iranian government. In September
2005, the board of governors of the IAEA voted and agreed Iran was in violation of
the NPT and it was a matter within the competence of the UNSC. 13 On February 4th
2006, the 35 member board of governors of the IAEA voted 27-3 with 5 abstentions
to report Iran to the UNSC 14 . This action sponsored by the EU3 was backed by the
US. Russia and China agreed to the referral only on the condition that the Council
would take no action before the month of March. 15




10
   United Kingdom, France and Germany
11
   Notoriously known as the father of Pakistan’s nuclear weapons.
12
   Linzer, D., No Proof Found of Iran’s Arms Programme: Uranium Traced to Pakistani Equipment.
Washington Post, Tuesday 23 August 2005 A01
13
   Key Nations Stances on Iran, BBC News, 30th March 2006, Available at
http://news.bbc.co.uk/1/hi/world/middle_east/4662676.stm (last visited 1st May 2006)
14
   Russia, China and 9 other countries abstained while Venezuela voted against.
15
   Iran Reported to the United nations Security Council, BBC News February 4th 2006. Available at
http://news .bbc.co.uk/1/world/middle_east/4680294.stm (last visited 4th February 2006)


                                                                                                    5
On March 30th 2006, the UNSC ordered Iran to stop its Uranium enrichment activities
and requested the IAEA Director General El Baradei, to give a report in the next 30
days. However, on April 11th, 2006, the Iranian President announced Iran had
successfully enriched Uranium to 3.5% using over a hundred centrifuges. Following a
report on April 28th that Iran had failed to stop its enrichment activities, the US,
Britain and France proposed a formal UNSC resolution calling for Iran’s compliance
and threatening further measures under Article VII,(the enforcement section) of the
UN Charter. On May 7th, 2006, the Iranian parliament threatened that the Iranian
government would withdraw from the NPT if the matter was not resolved
peacefully. 16




3 IRAN AND THE SUPER POWERS

3.1 COOPERATION BETWEEN IRAN AND THE SUPER POWERS IN THE
70S
3.1.1 THE UNITED STATES
Foundations of Iran’s nuclear program were laid during the cold war in the late 1950s
with the help of the United States government. Bilateral agreements between the US
and Iran were signed as early as 1957 under the Atoms for Peace Program. At that
time the Shah Mohammad Reza Pahlavi who was instated by the American CIA was
sufficiently friendly to the West; so nuclear proliferation was not a threat.


After the Tehran Nuclear Research Centre (TNRC) was established in 1957, plans
were drawn by Pahlavi to build up to 23 nuclear power stations across the country
together with the US by the year 2000. The Arab war and the consequent oil crisis in
1973 provided Pahlavi’s regime with substantial funds for Iran’s development. In
1975, the US Secretary of State, Henry Kissinger signed an agreement titled ‘US-Iran
Nuclear Cooperation’ which laid out the details of the sale of nuclear equipment to
Iran estimated to fetch US corporations more than $6 billion. The Massachusetts
Institute of technology (MIT) also signed a contract with the Atomic Energy



16
  Iran’s MPs Threaten Nuclear Treaty, BBC News, May 7, 2006. Available at
http://news.bbc.co.uk/1/hi/world/middle_east/4981940.stm (last visited 7th May 2006)


                                                                                       6
Organisation of Iran (AEOI) to provide training for the first group of Iranian Nuclear
Engineers. 17


In 1976, The US president, Gerald Ford signed a directive offering Tehran the chance
to buy and operate US built reprocessing facility for extracting plutonium from
nuclear reactor fuel. The Ford strategy paper stated that the introduction of nuclear
power will both provide for the growing need of Iran’s economy, leaving remaining
oil reserves for export and conversion to petrochemicals’. 18 Nevertheless, after the
1979 hostage crisis in the US embassy in Tehran, the US severed all nuclear
cooperation agreements and withdrew its support from Iran. 19



3.1.2 THE EUROPEAN UNION COUNTRIES

There was also nuclear cooperation between Iran and European countries at this time.
In 1975, Iran awarded contracts to Kraftwerk Union AG 20 worth about $6 billion to
build a pressurised water reactor nuclear power plant at Bushehr. Furthermore the
French government subsidiary company, Cogema and the Iranian government
established the SOFIDIF enterprise 21 with 60% and 40% shares respectively.
SOFIDIF acquired 25% share of EURODIF a joint stock company formed by France,
Belgium, Spain and Sweden giving Iran a 10% share in the company.


In addition, the Nuclear Technology Centre at Isfahan was established in the mid 70s
with French assistance with the aim of providing training for personnel who would
work at the Bushehr plant. 22 However, as a result of the Iran-Iraq war of the 1980s
and dwindling revenues, the nuclear power agreements with the different EU
countries were abandoned. 23



3.1.3 CHINA

17
   Linzer, D., Past Arguments Do Not Square with Current Iran Policy, Washington Post, March 27
2005, A15
18
   ibid.
19
   Iran Nuclear Overview, NTI available at http://www.nti.org/e_research/profiles/Iran/1819.html (last
visited 29th April 2006)
20
   A Joint Venture between Siemens AC and AEG Telefunkn both western companies.
21
   Societe Franco-Iranienne pour l’enchichissement de l’ uranium par diffusion Gazeuse
22
   Linzer, supra no 12
23
   NTI supra no 19


                                                                                                         7
Sino- Iranian nuclear cooperation dates back to the mid 1980s when China began
training Iranian nuclear technicians in China under a secret Nuclear Cooperation
Agreement. Under this agreement, China assisted in the construction of Iran’s primary
research facility at Isfahan and also agreed to supply Iran with zero yield nuclear
reactors all under IAEA safeguards. 24 In 1991 and 1992, China and Iran announced
China’s agreement to supply a 20MW research reactor and 300 MW pressurized
water reactors to Iran respectively. China also agreed in the late 1990s to assist Iran in
the construction of Uranium enrichment facilities. However, these deals never became
a reality as they were cancelled by the Chinese government. 25


Though China and Iran had many disagreements over financial, location and technical
issues, some analysts indicate that US pressure may also have been a key factor in the
cancellation of these nuclear deals. Cancellation was a condition precedent to allow
the presidential certification needed for the implementation of the 1985 US-China
Nuclear Cooperation Agreement. 26


3.1.4 RUSSIA
Russian-Iranian nuclear cooperation dates back to 1990 when the Soviet Union and
Iran began negotiating over the completion of the Bushehr reactors. In January 1995,
the Russia Federation officially announced that it would complete the construction of
the $840 million nuclear reactor in Bushehr. 27 In 2002, it signed an agreement with
Iran to build five additional reactors over the next decade for an additional $10
billion. 28 Despite US pressure, the sites are nearing completion.


3.2 THE PRESENT SITUATION
3.2.1 IRANIAN POSITION ON ITS NUCLEAR TECHNOLOGY
Iran maintains it has a legal right to enrich Uranium for peaceful purposes under
Article IV of the NPT and claims the original purpose of the treaty was universal




24
   ibid
25
    Smith, J., China’s Pledge to End Nuclear Aid Yields US Help, Washington Post, October 30,1997,
A1
26
    ibid.
27
    Mizin, V., supra no 4
28
    Baker, P., Russia Unyielding on Iran Nuclear Project, Washington Post, August 16, 2002. A6.


                                                                                                     8
nuclear disarmament. 29 Secondly, Tehran asserts that nuclear power is necessary for
its booming population and growing industries, and that its country regularly imports
gasoline. Thirdly, Iran claims that the burning of fossil fuel in large amounts has led
to harmful environmental problems. Iranian officials and environmental groups argue
that long term effects of the dangerous air and polluted soil and contaminated rain
water are responsible for the severe health problems in Iran. 30 Fourthly, Tehran
argues it should diversify its energy sources as there are fears of its oil fields
eventually being depleted. It argues that its valuable oil should be used for high value
products not just electricity generation. Financially, Iran claims that developing the
excess capacity in its oil industry would cost a minimum of $40 billion, but nuclear
power costs is just a fraction of this considering Iran has abundant supplies of
uranium ore.


While Tehran continues to maintain its innocence, it is widely believed by the West
that Iran is pursuing nuclear weapons capabilities. Specialists and International
Relations analysts believe that Iran may have a nuclear weapon agenda based on its
deteriorating national security situation. Prior to the September 11th attacks in New
York, Iran had less fear regarding its territorial integrity. However, following the ‘axis
of evil’ speech 31 as well as the call for Iranian regime change by Iran’s number one
‘arch’ enemy, the US, Tehran could no longer guarantee its security. Changes of the
geopolitical map on both Iran’s Western (Iraq) and Eastern (Afghanistan) borders as
well as the presence of Israel which is widely believed to have nuclear weapons, has
led to the conclusion that Iran must make itself more powerful to secure its interests
and territorial integrity. 32


This feeling of insecurity, has led to Iran’s focus on the Shahab 3 missiles with
striking capability of 1500km range, putting them within striking distance of Israel
and US forces in Afghanistan and Iraq. The ability to strike targets in the Middle East
and Central Asia, coupled with the development of nuclear weapons would transform

29
   Iran Nuclear Program II: Are Nuclear Reactors Necessary?, Payvand Iran News Available at
http://www.payvand.com/news/03/oct/1022.html (Last visited 30th April 2006)
30
   Salimi, M., Forced to Fuel: Iran’s Nuclear Program, Harvard International Review, Vol. 26 no 4
2005. http://hiriharvard.edu/articles/1294/ (last visited 30th April 2006)
31
   The President Delivers State of the Union Address, January 29,2002, Available at
http://www.whitehouse.gov/news/releases/2002/01/20020129-11.html (Last visited 30th April 2006)
32
   Iran’s Race for Nuclear Weapons, PINR, September 29, 2003


                                                                                                    9
Iran into a powerful state not to be interfered with in the region, 33 thus guaranteeing
its long term security.


3.2.2 THE UNITED STATES VIEW ON IRAN’S NUCLEAR PROGRAM
The US has long since been convinced that Iran is pursuing a nuclear weapons
program. As early as 1992 and later in 1996 34 , Washington imposed bilateral
sanctions on Iran which penalises foreign companies that contribute to Iran’s nuclear
program or invest more than 20 million dollars in Iran oil industry.35 According to US
officials, Iran is pursuing two separate paths to nuclear weapons, one that would use
highly enriched Uranium and one that would use Plutonium. 36 To support this
argument, Washington states that Iranians do not need nuclear power due to the
abundant oil and gas reserves since oil power is cheaper to produce than nuclear
power. 37 Furthermore, the fact that Iran pursued an enrichment program for 18 years
in secrecy together with lies to IAEA inspectors and international community proves
that the nuclear program must be a cover up for nuclear bomb making. 38 For the
West, any Uranium enrichment must take place outside Iranian territory to prevent
diversion towards military activities.


The US wishes to prevent a situation where Iran has nuclear weapons for the
following reasons:
►A combination of nuclear weapons with a government that supports organisations
which the West categorizes as terrorist would be catastrophic. The possibility that
such weapons may fall into the hands of militants who have attacked the US and its
allies in the past is an unacceptable risk to the US government.
►A nuclear weapons capability would put the US interests in the Middle East at risk
including military installations and Marine Corps stationed throughout the region.
►Such capabilities would make a forcible regime change such as that accomplished
in Iraq more complicated.

33
   Ibid.
34
   Iran Libya Sanctions Act 1996.
35
   1992 Iran Iraq Arms Non Proliferation Act as amended in 1996.
36
   Bolton, J., Preventing Iran from Acquiring Nuclear Weapons. Available at
(http://www.state.gov/t/us/rm/35281.htm (last visited 24th April)
37
   This has however, been countered by analysts on the grounds that Great Britain, Russia and Canada
which are all exporters of oil and gas, rely on nuclear power for a considerable portion of electricity.
Salimi, supra, see note 30
38
   Bolton, supra see note 36


                                                                                                      10
►Iran does not recognise Israel’s right to exist. More alarming is the recent
proclamation of the Iranian President calling the Holocaust a myth and calling for
Israel’s destruction. 39 Claims that Iran has a missile which puts Israel in Tehran’s
range poses threats to the major American ally in the region.
►A nuclear weapons capability has the potential of upsetting the current balance of
power in the region. This would incite neighbouring countries such as Syria, Egypt,
and Saudi Arabia to develop nuclear weapons to protect their national interests.


3.2.3 THE RUSSIAN AND CHINESE POSITION
Russia and China have called for diplomatic resolutions to the present crisis for
political and economic reasons. However, the two permanent members of the UNSC
seem to be in the same team for different reasons. For China, the present situation has
the potentials of threatening its energy security and thus, its development and stable
economic growth. Iran provides 13% of China’s imported oil and its demand for oil is
expected to increase. Presently, energy contracts between the two countries for the
sale of oil and gas over a 25 year period have reached $100 billion. 40 Apart from these
contracts, investments are being undertaken by China’s state owned oil companies in
Iran’s oil sector. On the other hand, Beijing supports Iran in the military and
manufacturing sector. China hopes to maintain the current state of cooperation as well
as stability in the Middle East in order to guarantee a secure source of oil and gas
supply to maintain its current economic growth. Thus, China strongly opposes
deterioration of the present conditions and has continually called for restraint and
patience from all the parties involved. 41


Conversely, the rationale for Moscow’s position seems to be economic and political.
Russia expects to reap up to $10 billion from its Bushehr deal and booming arms sales
to Iran. 42 Apart from economic reasons, another possible reason for the Russian axis
is to counter US unilateralism and Hegemonic intentions. It demonstrates Moscow’s
plan to reduce US influence in Asia, Central Asia and the Middle East 43 by promoting

39
   Iranian Leader: Holocaust a ‘Myth’, CNN.com, December 14, 2005. Available at
http://www.cnn.com/2005/WORLD/meast/12/12/iran.isreal/ (last visited 30th April 2006)
40
   PINR supra, see note 32
41
   Gundzik, J., The Ties that bind China, Russia and Iran, Asia Times Online, June 4, 2005. Available
at http://www.atimes.com/atimes/China/GF04Ad07.html. (last visited 30th April 2006)
42
   Mizin, supra, see note 4
43
   Gundzik, J., supra, see note 41


                                                                                                   11
its own network of alliances and strengthening its position as a re-emerging if not
leading super power.


4 ANALYSES
4.1 POSSIBLE THREATS TO ENERGY SECURITY?
Energy security of supply may be defined as availability of energy, in all forms, at all
times, in sufficient quantities and at affordable prices. This section discusses probable
action which may be taken by Iran as well as the likely consequences.


4.1.1 REDUCTION OR CURTAILMENT OF OIL EXPORTS
Speculations have arisen that Iran may reduce its oil exports in response to any
sanctions or military strikes on its nuclear facilities. Such speculations are fed by
conflicting statements by different Iranian Officials 44 . It must be recalled that Iran
caused shortages in early 1950s, and the 70s when it nationalized oil reserves and
during the oil workers strikes and Iranian revolution respectively. However, the
present circumstances are different from what was the case in the former years. In
recent years, the world’s spare production capacity has declined to very low levels.
Consequently, any reduction or removal of oil from the market immediately results to
a spike in prices. 45 However, the impact of a reduction will depend on amount
reduced, size of OPEC’s spare capacity, the timing of the cut and volume of oil in
storage. 46


Generally, it is not in Iran’s interest to reduce oil exports for the following economic
and political reasons.
► Iran needs all capital and technology it can get to increase its production as well as
fight the decline of its oilfields. It lacks the capital to make such an investment and
would need the revenue from sale of its oil to resolve these factors.
►Oil export makes up more than 80% of Iran’s export earnings and 50% of its
GDP 47 . General unemployment rate is at 14% and the Iranian public depends greatly

44
   Alhajji, F., Will Iran’s Nuclear Stand off Cause a World Energy Crisis Pt 1, MEES Vol. XLIX No.
13, March 2006.
45
   Luft, G., Oil Puts Iran Out of Reach, Baltimoresun.com, August 16, 2005, Available at
http://www.iags.org/baltsun081605.pdf (last visited 28th April 2006)
46
   Alhajji, F., Will Iran’s Nuclear Stand off Cause a World Energy Crisis, Pt2, MEES Vol. XLIX,
No.14, April 2006.
47
   Luft, G., supra, see note 45


                                                                                                 12
on state subsidies for staple goods. A reduction in production would reduce state
revenues needed for the maintenance of state subsidies. Hence, civil unrest which may
follow the reduction of such subsidies is a risk the Iranian government is unwilling to
take at this time. 48
►Reduction of exports could harm the economies of potential allies such as China
and parts of Asia which need secure sources of supply to sustain their economic
growth.
►Any reduction in exports would hurt Chinese, Russian and other international
companies in Iran as they would be unable to generate revenue. This would force
these companies to curtail future investments in Iranian oilfields. 49
►Reduction of oil exports will be to the benefit of Iranian neighbours who would use
increased revenue to boost their military capability. 50
►The US does not import Iranian oil and as such would only be affected by high
prices. However, the US and its allies can alleviate this by releasing oil from the SPR
which presently can last for several months. 51
►Iran still imports petroleum products and a reduction of exports would reduce
revenues needed to import the latter. Furthermore, countries which export petroleum
products to Iran may reduce their exports in retaliation.


As established, it is not in Iran’s best interests to reduce production but Iranian
officials may do so due to domestic pressures. Even without a reduction in oil output,
news of sanctions or an air strike would immediately increase oil prices as a result of
market speculations.




4.1.2 ACCESS TO THE STRAIT OF HORMUZ
The Strait of Hormuz is a narrow strategic stretch of ocean between the gulf of Oman
in the South East and the Persian Gulf in the South West. The strait at its narrowest
point is 21 miles wide with 2 ‘one mile’ channels for marine traffic. It is the most




48
   Alhajji, Pt 1, supra, see note 44
49
   ibid
50
   ibid
51
   http://www.iea.org/journalists/topstories.asp (last visited 30th April 2006)


                                                                                    13
important oil route in the world as it is the only sea passage through which oil from
the Persian Gulf states can be transported. 52
Iranian authorities have hinted the likelihood of blocking this area described by a top
Iranian official as the ‘economic lifeline of the west’ 53 in the event of military strikes
or sanctions. Recent display of Iran’s military achievements including radar evading
anti ship missiles in the Hormuz strait raise fears that Tehran could cripple maritime
traffic if there is a continuous threat on its security.


The consequences of such an action cannot be over emphasized. Apart from the
difficulty in getting oil from the Middle East to the world oil market, oil prices are
bound to escalate as a result of high shipping premiums.


4.1.3 EXPROPRIATION AND REVISION OF CONTRACTS
Iran could punish countries which support air strikes or sanctions by forcing their oil
companies to renegotiate new contracts. Companies that lift Iranian crude include
Shell, BP, Total, Eni, Saras, Iplom and Preem. 54 In the extreme, Iranian officials
could revoke such contracts which would lead to a reduction in production. In the
long run, this will reduce foreign investment in Iran’s upstream sector. 55


4.1.4 ECONOMIC EFFECTS OF UN SANCTIONS
If sanctions are imposed and enforced, there would be long term consequences for the
international oil market. Iran’s oil fields are declining by 8% to 13% annually56 and
are in dire need of upgrading. However, Tehran is relying on foreign investment in
order to increase its production capacity. Sanctions will make it impossible for IOCs
to invest in new oil field development. Thus, with demand for oil projected to double
in the next 20 years, any delay in development means less Iranian crude available to
the global market in future. 57




52
   About 20mbb/day: roughly 2/5th of the worlds oil supply
53
   Iran Focus, April 5, 2005. Available at
http://www.iranfocus.com/modules/news/article.php?storyid=6605 (last visited 30th April 2006)
54
   Iranian 2005 Crude Exports by Company, MEES, Vol. XLIX, No. 8, February 2006.
55
   Alhajji, Pt1, supra, see note 44
56
   About 300,000 to 500,000 bbl/day
57
   Luft, G.,supra, see note 45


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4.2: RESOLVING THE DEADLOCK: ANY WAY OUT?
It has been established that high prices is not in the best interests of all the parties. A
military strike by the US or Israel would not only be catastrophic but would only
increase the abhorrence of the Arab countries against Israel. Thus, all parties must put
historic hostilities aside and find face saving solutions. In seeking to accomplish this
feat, the fears all the parties have should be taken into consideration. Thus,


1. The US must grant Iran a minimum level of security and erase its enmity towards
the regime in Tehran. 58 The Iranian regime needs to be confident that its fate will
never be that of Sadaam Hussein of Iraq, or Mossadegh, the Iranian prime minister
overthrown in 1953 with the help of the CIA. Assurances must be given by
Washington that the US does not intend to attack Iran and there would be no threats as
a result of its military presence in the Middle East.59 This may change Iran’s
perception of a need to develop nuclear weapons.


2. The US must strive to reduce fears which Israel and Iran have toward each other.
Israel must restrain its pronouncements because these raise fears of Iranians as it is
believed Israel is in possession of Nuclear weapons. 60 On the other hand Tehran must
tone down its rhetoric. Though such statements tend to increase internal political
support, they also aggravate the West and increase security alertness of Israel.


3. Tehran must undertake confidence building measures. This would include
suspension of uranium enrichment activities for the time being as requested by the
UNSC as well as ratification of the Additional Protocol to the NPT providing for
broader IAEA inspections.


4. Russia’s proposal to have uranium enriched in Russia should also be considered by
Tehran. Harvard researchers have suggested that the US, Russia and other countries
contribute enriched uranium to an IAEA controlled fuel bank that would be required


58
   King, M., Realistic Solutions for Resolving The Iranian Nuclear Crisis, Stanley Foundation Analysis
Brief, April 2005, Available at http://www.stanleyfoundation.org/reports/GS105pab.pdf (last visited
29th April 2006)
59
   Perez, J., Defusing the Iranian Nuclear Crisis: A Carrot and Stick Approach, CNS, February 17
2006. Available at http://cns.miis.edu/pubs/week/060220.htm#fn11 (last visited 29th April 2006)
60
   King, supra, see note 58


                                                                                                   15
to supply fuel if there is an interruption of supply unless ordered against such an
action by the UNSC. 61


5. For any diplomatic solution to last, Washington needs to open dialogue with
Tehran. The likelihood of this taking place will be minimal considering the degree of
hostility between the two parties. Thus, a multi lateral forum of Iran and all parties
should be established to address the political, economic and security concerns of all
the parties. 62 It has been argued that if Washington is prepared to discuss common
concerns with representatives of North Korea, then it should find ways to sit with
Tehran. 63 The talks should also focus on preventing countries in the Middle East from
acquiring nuclear weapons capabilities as well as removing such capabilities where
they exist. 64


6. The US must give up its economic isolation of Iran by lifting sanctions, supporting
Iran’s accession to the WTO as well as encouraging the international community to
offer economic, technical and energy assistance. Such carrots may be considered big
enough by the Iranian government to deter it from any nuclear weapons agenda it may
have.



5 CONCLUSION

In the past, the super powers engaged in nuclear cooperation with Iran. However, the

nuclear cooperation agreements were cancelled or abandoned over the years by the

same super powers. The recent crisis which has resulted in talks of military strikes

and imposition of UN sanctions against Iran has increased speculations on the

possible threats to international energy security. Russia which is the only super power

involved in nuclear cooperation with Iran and China which has energy cooperation

61
   Maleki, A., Bunn, M., Finding a Way Out of the Iranian Nuclear Crisis Available at
http://bcsia.ksg.harvard.edu/whatsnew.cfm?program=STPP&nt=top&pb_id=523 (last visited 29th April
2006)
62
   Albright, D., Huderstein, C., Countdown to Showdown, Bulletin of Atomic Scientists, Vol.60 No. 6
67-72
63
   Perez supra no 59
64
   Albright, D., Huderstein, C., Iran: Player or Rogue, Bulletin of Atomic Scientists, Vol. 59 No. 5 52-
58


                                                                                                     16
agreements with Iran strongly oppose sanctions and military strikes. As they both

hold veto powers in the UNSC, it is doubtful whether such sanctions will become a

reality. A military strike against Iran will only escalate the present hostilities against

the US and Israel, and could jeopardize the stability of the region and lead to a spike

in international oil prices which is not in the best interests of the economic growth of

all parties.



In the author’s view, the only long lasting solution to the present crisis is for the

parties to set aside all hostilities and renew nuclear cooperation with one another. All

parties must have a broader perspective by looking at the whole picture, at the

implications on energy security and international security. Western powers must

understand that Iranians have come to view nuclear technology as a symbol of

national pride, a sign of progress and development as well as an assured presence in

international science. It must be noted that such cooperation would allow the West

keep a close watch of Iran’s nuclear activities. The US rhetoric about a regime change

must be set aside while Iran must refrain from pronouncements which aggravate the

West and heighten their security awareness. The US must also offer large carrots by

providing economic and technical support to the Iranian nation as a way of amends

for years of economic isolation. Conversely, Iran must severe all forms of activity

with Hezbollah, Hamas and organisations considered as terrorist groups by the West.

Only in this way will the fears of all parties involved be alleviated.




                                                                                       17
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